PART I
MEASURES OF FIRM PERFORMANCE
An Integrative Framework for Marketing Accountability of Marketing and Nonmarketing Outcomes
V. Kumar and David W. Stewart
Marketing Accountability for Marketing and Nonmarketing Outcomes
Marketing has a long tradition of measurement and a rich portfolio of measures of marketing outcomes. The discipline can be justifiably proud of its attention to the development of measures that exhibit strong psychometric properties, such as reliability and validity. However, most of the measures employed in marketing research, in both academic and applied settings, tend to focus on immediate marketing outcomes, such as recall, attitude, preference, and sales. Such measures are important but represent an incomplete picture of the effects of marketing activities and expenditures. The influence of marketing extends well beyond individual consumer response or even the aggregation of such responses.
Marketing as a discipline emerged in response to important societal needs that arise from the complexity associated with moving goods from production centers to concentrations of consumers with diverse needs (Wilkie & Moore, 1999, 2003, 2012; Winsor & Stewart, 2018). Addressing these needs places marketing at the center of the human experience. Marketing creates value and wealth for consumers and the firm (Kumar & Reinartz, 2016; Stewart, 2019a). However, it also creates jobs (Goodson, 2012), facilitates innovation (Simmonds, 1986), enables market development (Drucker, 1958), organizes market exchanges (Houston & Gassenheimer, 1987), and contributes to the overall quality of life (Arndt, 1981). Marketing has also found itself at the center of discussions of property rights (Haase & Kleinaltenkamp, 2011), privacy (Stewart, 2019b), and environmental sustainability (Prothero et al., 2011).
More recently, marketing academia has increased its focus on better understanding how marketing can improve overall societal well-being and community living. Recent efforts in this regard include research investigations on: (1) cause-related marketing and how it can be used to achieve nonmarketing outcomes (e.g., Christofi, Vrontis, Leonidou, & Thrassou, 2019; Kumar, 2019), (2) COVID-19-related investigations and the role of marketing in helping understand and manage the pandemic (e.g., He & Harris, 2020; Kumar, Sood, Gupta, & Sood, 2021; Stewart, 2020), (3) the use of big data and marketing analytics for public policy and healthcare initiatives (e.g., Kopalle & Lehmann, 2021), (4) understanding marketing's role on environmental and ecological concerns (e.g., Kropfeld, Nepomuceno, & Dantas, 2018), and (5) activism related to brands and corporates (e.g., Eilert & Nappier Cherup, 2020; Vrendenburg et al., 2020) in addition to special issues in scholarly journals such as “Better Marketing for a Better World” (Journal of Marketing), “COVID-19 Impact on Business and Research” (Journal of Business Research), and “Cause-Related Marketing in International Business: What Works and What Doesn't?” (International Marketing Review), among others that also focus on nonmarketing activities. Such academic investigations continue to bring marketing and nonmarketing issues to the forefront that can benefit a wide range of stakeholders such as firms, customers, channel partners, governments, and society.
Consistent with recognition of marketing's broader role in the firm and society at large, this volume includes chapters that identify, develop, and examine measures of marketing's broader impact on the firm and society. Such measures may include financial outcomes for the firm, effects on the organization, supplier and distributor engagement, social interaction, and larger societal impact (quality of life, sustainability, etc.). Fig. 1 provides a classification of the articles contained in this volume based on one of the following focus – measures of firm performance, measures of social interaction, and measures related to broader societal outcomes (e.g., sustainability, quality of life).
Fig. 1. Classification of Studies in This Volume Based on Focus.
As illustrated in Fig. 1, this volume can be better viewed along with the three focus areas as identified. The studies in these three focus areas investigate marketing accountability for marketing and nonmarketing outcomes. The insights presented by the studies in each of these focus areas are not only important but are also expected to shape future research. The following sections provide a brief synopsis of each of the studies and their key contributions.
Measures of Firm Performance
Leiberman and Montgomery (2012, p. 342) refer to firm performance as
…the consequence of a firm's actions and inactions, potential and actual competitor actions and inactions and the environment (including governments, markets and the economy, customers, technology evolution and even luck, which may be embedded in all the foregoing factors).
Research on the importance of linking marketing actions to firm performance (e.g., Hogan et al. 2002, Srivastava et al., 1998) has generated valuable insights into this topic on various themes (e.g., Krasnikov & Jayachandran, 2008; Morgan, Vorhies, & Mason, 2009).
A key aspect of linking marketing actions to firm performance is the development of related metrics. Consider, for instance, the branch of customer-focused metrics that consists of several categories of metrics for measuring and managing customer value, customer satisfaction, acquisition, retention, churn, win-back, referrals, and so on (Kumar & Umashankar, 2012). Such metrics have been developed from the standpoint of focus (i.e., backward-looking or forward-looking) and granularity (i.e., aggregate, or individual), and have been linked to the growth-oriented nature of firm performance. The various customer-focused metrics and analytics emerging out of this branch are aimed at aiding and improving managerial decision-making and thereby improving overall firm performance. In this regard, various types of data (e.g., transaction, social media, big data, etc.), use of technology (e.g., artificial intelligence, virtual reality, etc.), and advancements in model development have emerged as vital tools for managing and maximizing firm performance. Adding to this rich body of knowledge, the studies covered in this volume on firm performance focus on marketing accountability and presents important insights.
In Chapter 2, authors Neal Bendle, Moeen Butt, and Jonathan Knowles introduce financial reporting, in contrast to marketing measures, that describes how the “score is kept” in business and the economy at large. This chapter is a broad introduction to measurement beyond traditional marketing metrics. Financial reporting rarely recognizes assets created by marketing investments, yet financial reports are what is required by law and are what investors use for assessing the performance of firms. Marketers must understand the rules governing how financial reports are created, and these reports may be used to assess the business impact of marketing. The authors do not propose radical changes in financial reporting because financial accounting rules are designed with the interests of the suppliers of capital in mind. Such reports have different aims than would reporting rules developed with marketers in mind. To influence financial accounting reporting that is helpful to marketers and investors seeking to evaluate the contribution of marketing to the financial performance of the firm, the authors argue for greater disclosure of marketing activity in notes to the published financial reports. However, to do so, the authors suggest that marketers must be able to communicate in the language understood by accountants and the current users of financial accounts. The chapter guides marketers regarding the purpose and practices of accounting and discusses how academic marketing researchers might wish to adjust or qualify financial accounting data where marketing is a primary driver of business performance.
Chapter 4, authored by Evert de Haan, Peter C. Verhoef, and Thorsten Wiesel, suggests that a focus on one overarching market asset, customer equity (CE), is critical for marketing to align itself with the financial objectives and performance of the firm. The authors argue that the customer base of the firm is its most valuable asset since without customers there is no business. The authors define CE as the sum of all individual customer lifetime values (CLVs). CLV is determined by obtaining the discounted value of future cash flows the firm expects to receive during a customer's relationship with the firm. The value of CLV is influenced by customer retention rates, gross margins, and the acquisition costs of a customer. The authors suggest and predict that these components of CLV can be forecasted by other metrics that they call customer feedback metrics. Customer Feedback Metrics (CFMs) are measures of consumers' perceptions, attitudes, and intentions, and other indicators that are collected obtained through regular surveys. The chapter provides examples of such measures and how they may be used as diagnostic and forecasting tools.
While CE is often used to conceptualize the value of a firm, it is difficult to apply in businesses that cannot track individually identifiable transactions over time. A common alternative is the measurement of brand equity, that is, the value of a branded product as determined by estimate...