Can Marketing Lift Stock Prices?
A study finds that certain marketing techniques can influence a company’s
stock market valuation — if the techniques increase customer lifetime value.
BY V. KUMAR AND DENISH SHAH
Traditional;marketing;practices;are;increasingly;viewed;with;skepticism.;In;many;organi-zations, marketers struggle to document the return on investment for marketing
of the company, marketing has less influence in the boardroom — and the marketing
budget allocation is viewed as a questionable cost rather than a worthy investment.
achieve this goal is through extensive application of predictive analytics, in both the formulation of marketing strategies and customer management. Along these lines, a study
we conducted suggests that certain types of marketing efforts — those developed using
analytics to identify customers’ lifetime value to a company — can create shareholder
value and influence stock prices in a predictable fashion.
We began our research by analyzing more than five years of customer information from
customer transactions, marketing communications and customer-level characteristics that
could potentially influence the customer lifetime value of each customer to the company.
However, neither of the two companies had employed the CLV metric, which is defined as
the discounted net present value of expected future cash flows from a customer.
As a result, one of our first steps with each of the two companies entailed developing a
model to compute the lifetime value of that company’s customers, using as much customer-
level information as possible from the company’s
customer in this study was calculated as the net
present value of the expected cash flows from that
customer over the next three years. (Although the
time horizon of three years may not reflect the
“lifetime” duration of the customer, it captures
the majority of the customer’s true lifetime value
given the fact that the computation is based on
the discounted cash flow approach. As a result, it
is a common practice to compute CLV at the indi-
vidual customer level based on the expected cash
flows over the next three years.) We then com-
puted the sum of all customers’ CLV, which
represented the net present value of expected fu-
ture cash flow streams from existing customers,
plus some estimates of projected discounted cash
flow streams from future customers that the com-
pany expected to acquire during that time.
computation details, were reported in the
November;2009;issue;of;the;Journal of Mar-
keting. See “Related Research.”)
24 MIT SLOAN MANAGEMENT REVIEW SUMMER 2011