Author
Srinivasan, S., Pauwels, Koen Hendrik, Silva-Risso, J., M. Hanssens, D.
Publication Date
2009-01
Publication Place
-
American Marketing Association
Subject
Marketing investments, Advertising, Product innovations, Financial performance, Stock returns, Marketing and firm value, Stock return response models
Type
Periodical
Language
English
Digital
Yes
Manuscript
No
Library
Özyeğin University
Library Asset ID
0022-2429
Record ID
5190810c-2454-416c-a886-d092eee4bfc4
Library Location
Business Administration
Date
2009-01
Sample Text
Under increased scrutiny from top management and shareholders, marketing managers feel the need to measure and communicate the impact of their actions on shareholder returns. In particular, how do customer value creation (through product innovation) and customer value communication (through marketing investments) affect stock returns? This article examines, conceptually and empirically, how product innovations and marketing investments for such product innovations lift stock returns by improving the outlook on future cash flows. The authors address these questions with a large-scale econometric analysis of product innovation and associated marketing mix in the automobile industry. They find that adding such marketing actions to the established finance benchmark model greatly improves the explained variance in stock returns. In particular, investors react favorably to companies that launch pioneering innovations, that have higher perceived quality, that are backed by substantial advertising support, and that are in large and growing categories. Finally, the authors quantify and compare the stock return benefits of several managerial control variables. The results highlight the stock market benefits of pioneering innovations. Compared with minor updates, pioneering innovations have an impact on stock returns that is seven times greater, and their advertising support is nine times more effective as well. Perceived quality of the new car introduction improves the firm’s stock returns, but customer liking does not have a statistically significant effect.Promotional incentives have a negative effect on stock returns, indicating that price promotions may be interpreted as a signal of demand weakness. Managers can combine these return estimates with internal data on project costs to help decide the appropriate mix of product innovation and marketing investment.
DOI
10.1509/jmkg.73.1.24
Cilt
73
