Marketing as an Investment in Shareholder Value
| Author | Ji (Karena) Yan,Carlos M. P. Sousa,Mathew Hughes,Paul Hughes |
| Date | 01 October 2019 |
| DOI | http://doi.org/10.1111/1467-8551.12284 |
| Published date | 01 October 2019 |
British Journal of Management, Vol. 30, 943–965 (2019)
DOI: 10.1111/1467-8551.12284
Marketing as an Investment in Shareholder
Value
Mathew Hughes , Paul Hughes ,1Ji (Karena) Yan2
and Carlos M. P. Sousa2
Loughborough University, School of Business and Economics, Loughborough, Leicestershire LE11 3TU, UK,
1De Montfort University, Leicester Castle Business School, Leicester LE1 5WH, UK, and 2Durham University
Business School, Durham University, Mill Hill Lane, Durham DH1 3LB, UK
Corresponding author email: m.hughes2@lboro.ac.uk
We present resource-based and capability-based arguments of marketing investment in-
tensity to oer a strategic view of marketing as an investment in shareholder value. We
find that marketing investment intensity has a U-shaped quadratic eect on shareholder
value creation (Tobin’s q) that calls for marketing investment to be protected and in-
creased, not surrendered. Weshow how marketing investments interact with investments
in R&D, human capital and operations to reveal how strategic co-investments can alter
the shareholder value of marketing. Finally, we show how competitive intensity and fail-
ings in the firm’s investment productivity (its ability to convert investment expenditure
into sales) point to malaise in the firm’s own strategic architectureas a fault for perceived
poor returns from marketinginvestments. Our findings suggest that marketing investment
should not be scapegoated when its contributions to shareholder valueare not as expected.
When invested in strategically and in combination with other investments,marketing can
unlock exciting improvements in shareholder value.
Introduction
Senior managers and investors are concerned
about the impact of marketing investment on
shareholder value (Edeling and Fischer, 2016;
Hanssens and Pauwels, 2016). Verhoef and
Leeflang (2009) lamented that marketing is not
seen as an investment among senior managers.
This has been matched by marketingdepartments’
loss of influence in the last decade, despite encour-
aging evidence that marketing departments make
the greatest contributions to firm performance
(Homburg et al., 2015). Other studies also find
support for a financial benefit to the firm from
investing in marketing (e.g. Feng, Morgan and
Rego, 2017; Homburg et al., 2015; Luo, 2008;
Mishra and Modi, 2016). However, evidence of
myopic investment decisions, where marketing
budgets are cut to inflate current-term earnings
(Mizik and Jacobson, 2007), suggest that senior
managers have little confidence in what market-
ing investments have to oer shareholders. We
argue that marketing scholars and marketing
managers have failed to demonstrate the longer-
term shareholder value of investing in marketing
and communicating that in a vocabulary which
appreciates the accountability pressures on se-
nior management. Evidence for this is building
(Hanssens and Pauwels, 2016; Homburg et al.,
2015; Verhoef and Leeflang, 2009), and calls have
followed for a much deeper understanding of the
system of eects marketing investment has and its
relationship with shareholder value (Edeling and
Fischer, 2016; Germann, Ebbesand Grewal, 2015;
Kumar, Keller and Lemon, 2016). We address
these urgent calls.
Senior managers are driven byan accountability
agenda (Rust et al., 2004), and are sensitive to
investing only in those activitiesthat demonstrably
generate value for shareholders (Homburg et al.,
C2018 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
944 M. Hughes et al.
2015; Kumar and Shah, 2009). Senior manage-
ment scepticism about marketing investment
is directly related to this agenda. We see three
dimensions to this problem. First, past research
has concentrated largely on financial performance
instead of shareholder value creation. Shareholder
value creation is focused on the long-term finan-
cial wellbeing, competitiveness and sustainability
of the firm, distinct from its current or short-term
financial performance. While evidence of revenue
and profit growth oer marketing a ‘seat at
the top table’ (Feng, Morgan and Rego, 2017,
p. 77), evidence of its contribution to shareholder
value is limited. This is important, because the
current debate is treatingonly part of the problem:
concerns over marketing as an investment stem
from a lack of evidence on the dimensions senior
managers and investors care for beyond revenue.1
Second, studies compare marketing investments
against other competing investments senior
managers make (e.g. R&D and operations in-
vestments) (Krasnikov and Jayachandran, 2008).
However, the moderating eects of these other
investments on the contributions of marketing
investment are missed. This is important, because
it risks an incomplete and potentially inaccurate
understanding of the interrelatedness of marketing
investment with other investments taking hold.
Investments in combination can create unique
capabilities that further establish the importance
of marketing investment in ways that have re-
ceived little treatment to date. Third, absent from
current debate are external and strategic-level
1An illustration can be found in the automobile indus-
try.In 2017, Tesla had a larger market capitalizationthan
Ford and General Motors, valued at US$55bn despite
seven straight years of losses since its IPO. In contrast,
in 2017, Ford fired CEO Mark Fields after three years
and under pressure from Wall Street investors, despite
achieving record revenueand profits, havingits most prof-
itable year in 2015 with US$11bn profit. However, it had
seen its share price slide by 40%. This is an illustration
of how a focus on current financial performance, while
not wholly independent (because it gives the financial re-
sources needed to invest in the future),is not a measure of
shareholder value and is not solely what investors priori-
tize. Teslahas a higher marketing investment intensity ac-
cording to 2016 data as well. Moreover, Uber atone point
had a market capitalization of nearly US$70bn in 2017,
despite never having made a profit.Ford then considered
entering the ride-hailing market. The primary argument
for Fields’ dismissalwas a failure to orient the business to-
wardsthe future and invest aggressively to please investors
to that end.
moderators of the eects of marketing investment
on shareholder value (Edeling and Fischer, 2016).
The contribution of marketing to shareholder
value will depend on external and internal bound-
ary conditions in the firm’s strategic architecture,
beyond the control of marketing managers. For
instance, the investment productivity of the firm
– a strategic-level factor pointing to its ability
to convert any one dollar of current spending
into revenues that fuel future investments – needs
consideration, while the competition intensity
faced by the firm is another important overlooked
contingency.
This discussion raises three important research
questions: (1) To what extent does marketing in-
vestment contribute to shareholder value? (2) Do
R&D, human capital and operations investments
moderate the relationship between marketing in-
vestment and shareholder value creation? (3) Does
the contribution of marketing investmentto share-
holder value depend on the firm’s investment pro-
ductivity and the intensity of competition? Draw-
ing on a model of capital investment (Maritan,
2001), the resource-based view (RBV) of orga-
nizational capabilities (Helfat and Peteraf, 2003;
Wernerfelt, 1984) and resource combinations
(Sirmon et al., 2011), we argue that the intensity
of financial capital investment into specific activ-
ities is an act of investing in organizational capa-
bilities (Baldwin and Clark, 1992; Maritan, 2001).
We theorize that the contribution of marketing in-
vestment intensity to shareholder value is ampli-
fied by its interactions with other simultaneous
investments made by senior managers, the produc-
tivity of the firm at converting its investments into
revenue and competitive intensity.
This study oers two contributions. First, it
draws on theories of capital investment, the RBV
and resource combination to develop predictions
about how marketing investment and concurrent
investments interact to generate longer-term
shareholder value. This is important, because
treating combinations of investments under the
concept of investing in capability building demon-
strates how marketing investments can generate
shareholder value in ways that cannot necessarily
be foreseen by senior management due to causal
ambiguity. This contribution extends current
works that have yet to consider these interactions
or have only examined their eects on short-term
financial performance and not shareholder value
(e.g. Feng, Morgan and Rego, 2017; Homburg
C2018 British Academy of Management.
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