July 17, 2025 • 25 mins
What happens when Wall Street meets Madison Avenue? Despite billions spent annually on advertising, surprisingly little research has explored how these investments impact a company's stock price—until now.
Shubha Srinivasan, the Adele and Norman Barron Professor of Management and Professor of Marketing, pulls back the curtain on this critical relationship in our fascinating conversation about her groundbreaking research synthesizing findings from over 250 studies. She reveals three distinct pathways through which advertising influences firm valuation: the indirect route (via increased sales and profits), signaling value to investors, and building long-term brand assets.
The disconnect between marketing and finance departments has historically created blind spots, with marketers celebrating metrics like brand awareness while CFOs demand hard ROI numbers. Srinivasan's research bridges this gap, providing marketers with the ammunition they need when facing budget scrutiny. Perhaps most compelling is her finding that a 10% increase in customer retention can translate to a 7% boost in stock price—a connection that transforms how we should evaluate marketing effectiveness.
Not all industries experience equal benefit from advertising investments. Consumer-facing sectors like retail, CPG, and tech show stronger connections between advertising and stock performance, while B2B industries might benefit more from relationship-building than traditional advertising. Meanwhile, price promotions present an interesting paradox—consumers love them, but investors often view them as value-destroying.
The key takeaway? Marketing leaders must move beyond defending their budgets with short-term metrics and start connecting their efforts to financial outcomes investors care about: revenue growth, margin improvements, risk reduction, and predictable cash flows. By speaking the language of investors and measuring what endures rather than just what's immediate, CMOs can reposition marketing from a cost center to a strategic investment in the company's future.
Ready to transform how you view marketing's financial impact? Listen now and discover why the evidence is clear—advertising is far more than just a cost; it's a powerful driver of lasting company value that savvy investors are already noticing.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
J.P. Matychak (00:16):
Welcome to the Insights at Questrom podcast.
I'm JP Matychak, along with mynew co-host, Drew Vaughan.
Drew, welcome to your firstepisode.
Drew Vaughan (00:26):
Thank you, j, I'm excited to be here.
J.P. Matychak (00:28):
Excellent.
Well, if you're listening tothis show, you're more than
likely someone who pays closeattention to what's happening
out there in the world ofbusiness.
Some of you may even pay closeattention to the stock markets.
Either way, you're likely awarethat so many factors play into
a company's stock price.
(00:48):
Everything from a new productlaunch to a controversial social
media post by a CEO can causemajor swings in a company's
stock value.
But what impact doesadvertising have on a company's
value in the eyes ofstockholders?
Surprisingly, not a lot ofresearch has been done in this
(01:08):
area.
Well, until now.
We're joined today by ShubaSrinivasan, the Norman and Adele
Barron, professor of Marketinghere at the Questrom School of
Business, who is asking thisexact question.
Shuba, welcome to the show.
Shuba Srinivasan (01:23):
Thanks, JP, excited to be here.
J.P. Matychak (01:25):
Wonderful.
So your research explores theintersection of marketing and
financial markets, an area thatreally seems relatively
underexplored right now.
So why do you think this spacehasn't received more attention
from the academy historically?
Shuba Srinivasan (01:43):
It's true, the intersection between marketing
and financial markets has beensurprisingly underexplored.
I think a big part of thereason comes down to increasing
specialization, both in thebusiness world and in academia.
In firms we see silos.
Marketing is split into sales,advertising, digital, mobile.
(02:04):
The list goes on.
People go deep in this specificarea, but we lose the broader
picture.
And the same thing is happeningin academia.
Marketing professors like mefocus on marketing, finance
professors focus on finance, andwe don't talk to each other
nearly enough.
I think there's a hugeopportunity at the intersection
of the fields each other nearlyenough.
(02:26):
I think there's a hugeopportunity at the intersection
of the fields.
So over time, we've built upsilos and I think we've missed
the opportunity to developshared frameworks, ways to
understand how marketing, suchas including advertising,
affects financial performance orhow investor behavior
influences marketing strategy.
Another reason is practical.
It's much easier to measure theimpact, the short-term impact
(02:47):
of advertising clicks,conversions, impressions but
it's much harder to show theimpact on something as complex
and enduring as stock price.
But it's also due to some ofthe barriers we face to address
this.
Some of the challenges includethe measurement challenges.
For one, we have to isolate theimpact of advertising from the
(03:08):
other things that you mentioned,like a social media posting by
a CEO or new productintroductions.
Second, investors mayanticipate some of the
advertising already and factorthat even before the ad is
launched, say on Super Bowl.
And third, there's reversecausality, which is that firms
may be reacting to stock price,so the causality could go in the
(03:30):
opposite direction to the onethat we are interested in.
But fortunately for us nowadvances in econometrics, in the
science of marketing, inmeasurement, in the kinds of
data that are available, hasmade it possible to disentangle
the effects of advertising onstock price.
And in the paper that we wrotein the Journal of Advertising
(03:51):
Research, we synthesize hundredsof studies that have recently
looked at the impact ofadvertising to be able to offer
some insights, and I think thefield is really ripe now to
figure out how is marketingcontributing in terms of firm
valuation and the long-termmetrics that investors care
about?
Drew Vaughan (04:12):
I know you talked a bit about your research in
that question, but let's talkabout it a bit more here.
So what if, in particular,anything motivated you to pursue
this particular line of inquiry?
Was there a gap in literatureor real-world observation that
sparked your interest, or anyother factors that played into
that?
Shuba Srinivasan (04:36):
Thanks, drew.
I think the motivation camefrom two sort of fronts.
One is the growing disconnectbetween how we saw in practice
how marketers talk about successand how the financial stewards
talk about success.
Marketing teams might point tohigh brand awareness or
increasing engagement with thebrand on social media and point
that as wins, while the financeteam and the finance folks may
(04:57):
ask where's the ROI?
How is this moving my stockprice?
So there's a disconnect thereand as researchers we've noticed
there was a ton of work onshort-term advertising response
things like clicks, conversions,quarterly sales but there was
really a big gap in terms ofunderstanding.
How does advertising and how domarketing spend overall one of
(05:19):
the largest discretionaryinvestments of most firms?
How do those investments affectfirm value?
Think of a big emotionalcampaign like a Super Bowl ad.
Marketers may love it, but theCEOs and investors are asking
where's the ROI from themillions of dollars that?
J.P. Matychak (05:36):
I spent on the Super Bowl ad, which is only
growing larger and larger everyyear.
Exactly the amounts of dollarsthat companies are spending for
these big ad buys.
Exactly do wonder like okay, isthe payoff there?
Is it even worth it?
Because even in recent yearslike companies have pulled out
of there.
Shuba Srinivasan (05:53):
Exactly, exactly, and so this kind of
disconnect motivated us, and wewanted to be able to provide
marketers with the ammunition tosort of talk to the financial
stewards like the CFOs, theinvestors and the analysts, and
the stream of research helpswith that, yeah.
J.P. Matychak (06:11):
So you've identified a little bit three
distinct pathways thatadvertising can influence firm
value, one being indirecteffects via sales, the signaling
value to investors and evenjust building brand-based assets
.
So can you talk a little bitmore about each of those quickly
(06:32):
, about what you have foundthrough your paper and through
your study about how advertisingcan influence those?
Shuba Srinivasan (06:39):
Happy to do that, jp.
The first route is what werefer to as the indirect route.
This is the classic route whereadvertising may make consumers
more aware of the product.
Consumers being more aware mayrun into the retailer and ask
for the product and thisencourages them to buy.
So these purchases may thenlead to higher sales, higher
profits and to the extent theseprofits exceed investor
(07:02):
expectations on earnings, wewould expect to see a stock
price impact.
So an example of this is Apple.
Every year with the iPhone,they go in and they have these
ads for the iPhones.
Consumers see them.
It boosts sales, it improvesproduct market performance.
Investors notice that theearnings exceed expectations and
that affects stock prices.
(07:23):
So that's the indirect route,typically measured through
transactions at the point ofsale.
The second route is what werefer to as the direct route and
this happens through buildingbrand assets, and we sort of
propose there are two mechanismsfor the direct route.
The one is the signaling effect.
Here's the idea that investorshave very different information
(07:46):
on the company's strength andthe brand's strength from the
managers, such as the CMO or theCEO, and advertising would then
serve as a signal communicatingthat asymmetric information
that management has about thefuture prospects of, say, a
product to the investors, and sothis is the invest signaling
route.
(08:06):
Think of a pharma company AfterDTCA approval, they might
increase their ad budget for aparticular pharma drug.
Consumers may, patients may goand ask the clinicians for more
prescriptions and investorsmight see that advertising and
say there's really goodpotential for future cash flows
from this new drug and thatmight boost up stock price.
(08:28):
So it's a pure signaling sortof effect.
Sure, the second is the classic.
What we understand marketing todo, which is the role of
marketing, is to buildintangible assets, such as brand
assets or customer assets, andthat leads to future cash flows.
So here we are thinking ofclassic marketers like Coca-Cola
, years and years of consistentadvertising that builds brand
(08:50):
equity over time slow moving,enduring brand equity.
Slow-moving, enduring brandequity and investors recognize
that the stronger brand allowsCoca-Cola to command price
premiums to weather political orother crisis events and so on,
and they reward such firms witha stock price increase.
So the brand asset route issort of the classic route that
(09:12):
we're all familiar with withregard to the big know, the big
marketers Apple, coca-cola,companies that are on the
interbrand list of the top 100brands.
J.P. Matychak (09:22):
What we're normally used to seeing.
Shuba Srinivasan (09:23):
Exactly exactly.
J.P. Matychak (09:24):
Gotcha.
Drew Vaughan (09:27):
So I know you identified those three differing
components of the brand assetpathway, but could you elaborate
a bit more on whatdistinguishes these forms of
brand equity and why it'simportant to really evaluate
these separately in a financialcontext?
Shuba Srinivasan (09:45):
Sure, Happy to do that.
One of the things we do in thepaper in the Journal of
Advertising Research is todistinguish between three types
of brand equity.
The first is a customer-basedbrand equity, which is the
classic notion of marketing.
It is that brands live in theminds of customers.
Do people know the brand?
(10:06):
Do they love the brand?
Do they consider the brand?
Everything that happens in theminds and hearts of consumers is
what we refer to ascustomer-based brand equity, and
this reflects the potential forlong-term value.
But it hasn't yet translatedinto long-term value.
If you go further along thesequence of customer-based brand
equity, we get to market-basedbrand equity, which is the
(10:28):
notion of behavioral outcomes.
How did the brand actually doin terms of tangible revenues
and outcomes like market share,price premiums, competitive
positioning, customer retentionand so on.
So think of a brand like Dysoncommands a price premium in the
marketplace.
It has strong market-basedbrand equity.
(10:49):
And the third one is whatinvestors care about further
along in the continuum, which isa finance-based brand equity,
which is how does a brandcontribute to financial values?
So these are things like doesit manifest in higher firm
valuation, lower cost of capital, increased acquisition value
when someone is acquiring a firmwith a brand that has a high
(11:10):
value, and so we argue that it'simportant to consider the
customer perspective, themarketplace perspective, as well
as the finance-basedperspective or the investor
sentiment, because you couldthink of examples where one
exists and the other does not,and it doesn't really translate
into the metrics that investorscare about.
(11:32):
If you have a brand that's highon customer equity but
companies don't monetize thatlove, there's really no way to
translate that into cash flows.
So it's really important tohave all these elements.
It's almost like a hierarchicalchain that you go from one to
the next, to the next andultimately leading to firm value
(11:52):
.
J.P. Matychak (11:54):
So in the paper you actually argue that quote
marketers should incorporateinvestor behavior into their
advertising spending decisions.
So what does this actually looklike in practice?
Shuba Srinivasan (12:07):
This is a really important question and I
think it goes to the heart ofwhat we are trying to say here,
which is that when you talkabout incorporating investor
expectations, it's really aboutrecognizing that advertising
drives not only consumerresponse, as we've seen for
decades, but also investorresponse.
In many cases, when advertisingimproves brand strength or
(12:28):
drive sales, investors take note.
Or what we like to say is thatWall Street is often in sync
with Main Street when it comesto many advertising investments
by firms, but it's not alwaysthe case.
There are some exceptions.
One example is price promotions.
As consumers, we love pricepromotions.
J.P. Matychak (12:50):
Everyone likes a good deal.
Shuba Srinivasan (12:52):
Everyone likes a good deal.
They boost short-term sales,they save me money but investors
tend to see them asvalue-destroying.
So, while price promotionsmight make sense from a retailer
perspective, from a consumerperspective, investors don't
like that as much, and marketersneed to be careful with price
promotions.
In general, marketers shouldpay attention to the metrics
(13:14):
that investors care about.
One such metric is customersatisfaction.
This is a hugely importantmetric, and investors pay
attention to it.
In fact, one of the studiesthat we looked at showed that a
10% increase in customerretention could translate into a
7% boost in stock price.
Wow, that's really powerful,right?
(13:35):
And so it supports the ideathat we need to pay attention to
these kinds of metrics asmarketers, and these numbers
tell you a lot about thecompany's long-term health, and
the investment community watchesthem closely.
One of the things I like totrack, for example, is the
retention rate of mobile phonecarriers how many new customers
(13:58):
are gained, how many customersswitched, how many customers did
not sort of renew theircontracts.
Those numbers tell you a lot,and, as it turns out, investors
are paying very close attentionto those metrics on customer
relationship that marketers caredeeply about.
Drew Vaughan (14:16):
Yeah, and I think you bring up some great points
there.
With so many brands andcompanies really investing not
only time but money into theiradvertising efforts, it's
something that's staying aroundfor a while.
So I guess, with this newresearch, do you think we need
to rethink how brands companiesare defining and measuring
(14:37):
advertising effectiveness?
Yes, drew, 100%.
Shuba Srinivasan (14:41):
I think we ought to move beyond short-term
metrics.
Advertising effectiveness isoften measured by clicks, likes
immediate sales.
While those are important, weneed to go beyond those.
We need to look at things likehow is advertising building
long-term brand value and stockprices?
So we need to start evaluatingcampaigns on their ability to
(15:02):
increase brand equity, enhancecustomer loyalty and drive
future growth and profitability.
And, as I've been saying, wealso need to incorporate sort of
the investor sentiment and howinvestors are reacting to this
advertising.
So, in terms of the awards andbenchmarks, one ad that comes up
to mind is Nike's ColinKaepernick campaign, which was
(15:27):
controversial at its time, butit wasn't just about short-term
sales.
It really redefined the brand.
It was a brand-defining adcampaign.
It generated controversy, butNike's stock price surged,
long-term brand equity deepened.
It was strategic, it was a bitrisky but ultimately valuable.
So I think what we'd like tosee is more recognition for that
(15:48):
type of work where we are notjust asking did it sell one more
pair of shoes, but did it buildlasting brand value and lasting
value to the firm, and we hopeto see our work spurring some of
the conversation in terms ofmoving in that direction, of
rewarding the longer termmetrics.
J.P. Matychak (16:09):
And that really seems like that can be
counterintuitive to aninvestor's mindset, right?
Who is looking for theimmediate, like where's the
value right now?
And those are really long-termplays, as you said.
Shuba Srinivasan (16:23):
Right right.
In some sense, investors alsotake into account the future
cash flows that accrue frommarketing campaigns, because the
stock price is the net presentvalue, reflects the net present
value of all future cash flowsaccruing to the firm.
So while investors do careabout have a short-term
perspective and do care aboutthe immediate earnings and so on
(16:46):
, they also are quite focused onthe long-term prospects in
terms of the future cash flow.
J.P. Matychak (16:53):
The lasting value ?
Yeah, so are there industriesor sectors where you especially
see stronger or weak linksbetween this sort of advertising
and firm value?
Shuba Srinivasan (17:04):
Absolutely.
Advertising doesn't play thesame role across all industries
and some of the studies wereviewed about 250 studies and
some of them show there areindustries where the link is
especially strong, classicsectors like CPG, packaged goods
, retail, apparel, tech, wherethe brands are consumer-facing,
the brands are highlydifferentiated.
(17:24):
Consumers have a lot of options.
These are sectors whereadvertising plays a much bigger
role.
Think of your Coca-Colas andthe apples of the world, where
the product hasn't changed much,but really the value of the
world, where the product hasn'tchanged much, but really the
value of the brand, is tied tothe brand equity and the
advertising which reinforcesthat brand equity.
Then there are other sectorswhere the effect might be weaker
(17:47):
and here we're thinking thingslike utilities, industrial
manufacturing or chemicals.
That isn't to say marketing isnot important in those sectors,
but it's less about televisionadvertising or brand advertising
, but it may be more aboutone-to-one relationship building
, pricing, contracts, technicalspecs of the product.
(18:08):
And then there are still otherindustries, like pharma, where
it's more nuanced.
In pharma a lot of what we areseeing is sort of the signaling
role of advertising, whereadvertising still plays a role,
but a lot of it is through thesignaling route, for example,
that we talked about, where it'sabout creating buzz and
building investor confidence inthe new drugs as it reaches the
(18:31):
patients and the doctors.
So, yes, there is more to bedone in sort of disentangling
sector-wide effects, but I thinkthe area is ripe for research
now that we have the measurementchallenges addressed.
We have new sources of datathat are becoming increasingly
better and we now have all thesufficient interest in both the
(18:52):
practitioner and the academiccommunity to address these sorts
of questions.
J.P. Matychak (18:56):
And I would imagine in that second group of
industries that you talked aboutthere is the notion that
customer satisfaction, the wordof mouth type of-.
Shuba Srinivasan (19:06):
Absolutely.
J.P. Matychak (19:07):
Is really important, super important and
hard to measure too, right,exactly.
Shuba Srinivasan (19:12):
That's absolutely right, the role of
customer relationships, the roleof customer satisfaction.
So in some sense customer basedassets like customer equity,
customer lifetime value, whichcomes from these long term
contractual agreements, sort ofsupersede the brand in those
contexts.
Drew Vaughan (19:32):
Yeah, I think you make some great points there
(19:57):
no-transcript we had in mindwhen writing the paper.
Shuba Srinivasan (20:05):
Marketing leaders today just can't say
trust us.
This builds the brand.
That doesn't fly when you lookat CFOs and CEOs, who are
focused on ROI and financialimpact.
So our research allows a way toreframe the conversation.
It allows us and marketers tomove from.
This campaign got a lot of likesto this campaign, created real
(20:27):
brand and financial value forthe firm, and here's the data to
prove it right.
And the key is to help positionmarketing as an investment and
not just as a discretionary linespend that can be cut when the
budget is tight.
So what we are recommending isthat CMOs connect marketing
spend to outcomes that investorscare about Things like revenue
(20:49):
growth, margin growth, riskreduction, lower churn, more
predictable cash flows, reducedrisk and so on that the CEO and
the CFO care about.
A great real-world example ofthis is MasterCard.
Their CMO and CFO workhand-in-hand and in fact,
MasterCard has a CFO within themarketing department as well to
(21:14):
align marketing with thebusiness key performance
indicators, and they evenhighlight brand building effort
on investor calls.
So that kind of alignmentbetween marketing and finance
sends a clear message thatmarketing is driving value and
it's not just about how is thiscampaign affecting our short
term clicks or consumers in theshort run?
(21:35):
But really, how are wecontributing to building value,
both brand value as well as firmvalue and we hope that our work
can help make the case forinvestment in advertising.
The evidence is there from 250studies that we looked at that
advertising matters and itbuilds firm value.
J.P. Matychak (21:57):
Excellent.
So as we, as we kind of wrapthings up here, what is you know
for the, the, maybe the, the,the CMO that's listening, or the
, the, the CFO that's listening,or just the, the, the general
business enthusiast?
What is the biggest takeawaythat you think that listeners
(22:17):
should take away from yourresearch right now?
Shuba Srinivasan (22:20):
Thanks, jp.
Our message is simple at theend of the day, advertising is
more than a cost.
It's a strategic investment infirm value.
To unlock its impact, we needto move beyond short-term sales
metrics and start connecting thedots in the hierarchy that we
talked about.
We break it down into sort ofthree simple results.
(22:40):
Advertising drives sales, itdrives confidence to investors
and it builds brand assets thatcreate long-term advantage.
And in a world where CMOs areunder pressure to prove ROI, we
offer a roadmap where we saylink marketing key performance
(23:01):
indicators to financial outcomes, speak the language of
investors and measureeffectiveness not just by what's
immediate but by what endures.
And the tools are in place andwe hope that we can stop
defending marketing spend as afield and start defining value
created.
J.P. Matychak (23:21):
Excellent.
Well, Shuba, this has beenincredibly interesting.
I'm really excited to see wherethis goes and if this can truly
be infused in the waybusinesses are thinking about
these things and that, like yousaid you know, marketing isn't
just a cost center, Like thereis value and ROI to the
investment that you're making.
Shuba Srinivasan (23:42):
Absolutely, JP .
Thank you, good to be here.
Thanks, Drew and JP.
It was fun having thisconversation and I welcome any
comments from your listeners.
J.P. Matychak (23:50):
Excellent.
Thank you, Shuba for joining ustoday,
Yep absolutely my pleasure.
Shuba Srinivasan (23:54):
Yep, absolutely.
J.P. Matychak (24:02):
My pleasure.
Well, that'll wrap things upfor this episode of the Insights
at Questrom podcast.
I want to thank our guest onceagain, Shuba Srinivasan, the
Norman and Adele BarronProfessor in Marketing at the
Boston University QuestromSchool of Business.
For Drew Vaughan, I'm JPMatychak.
Till the next time on theInsights Equestrian Podcast,
take care.
Welcome to the Insights at Questrom podcast.
I'm JP Matychak, along with mynew co-host, Drew Vaughan.
Drew, welcome to your firstepisode.
Drew Vaughan (00:26):
Thank you, j, I'm excited to be here.
J.P. Matychak (00:28):
Excellent.
Well, if you're listening tothis show, you're more than
likely someone who pays closeattention to what's happening
out there in the world ofbusiness.
Some of you may even pay closeattention to the stock markets.
Either way, you're likely awarethat so many factors play into
a company's stock price.
(00:48):
Everything from a new productlaunch to a controversial social
media post by a CEO can causemajor swings in a company's
stock value.
But what impact doesadvertising have on a company's
value in the eyes ofstockholders?
Surprisingly, not a lot ofresearch has been done in this
(01:08):
area.
Well, until now.
We're joined today by ShubaSrinivasan, the Norman and Adele
Barron, professor of Marketinghere at the Questrom School of
Business, who is asking thisexact question.
Shuba, welcome to the show.
Shuba Srinivasan (01:23):
Thanks, JP, excited to be here.
J.P. Matychak (01:25):
Wonderful.
So your research explores theintersection of marketing and
financial markets, an area thatreally seems relatively
underexplored right now.
So why do you think this spacehasn't received more attention
from the academy historically?
Shuba Srinivasan (01:43):
It's true, the intersection between marketing
and financial markets has beensurprisingly underexplored.
I think a big part of thereason comes down to increasing
specialization, both in thebusiness world and in academia.
In firms we see silos.
Marketing is split into sales,advertising, digital, mobile.
(02:04):
The list goes on.
People go deep in this specificarea, but we lose the broader
picture.
And the same thing is happeningin academia.
Marketing professors like mefocus on marketing, finance
professors focus on finance, andwe don't talk to each other
nearly enough.
I think there's a hugeopportunity at the intersection
of the fields each other nearlyenough.
(02:26):
I think there's a hugeopportunity at the intersection
of the fields.
So over time, we've built upsilos and I think we've missed
the opportunity to developshared frameworks, ways to
understand how marketing, suchas including advertising,
affects financial performance orhow investor behavior
influences marketing strategy.
Another reason is practical.
It's much easier to measure theimpact, the short-term impact
(02:47):
of advertising clicks,conversions, impressions but
it's much harder to show theimpact on something as complex
and enduring as stock price.
But it's also due to some ofthe barriers we face to address
this.
Some of the challenges includethe measurement challenges.
For one, we have to isolate theimpact of advertising from the
(03:08):
other things that you mentioned,like a social media posting by
a CEO or new productintroductions.
Second, investors mayanticipate some of the
advertising already and factorthat even before the ad is
launched, say on Super Bowl.
And third, there's reversecausality, which is that firms
may be reacting to stock price,so the causality could go in the
(03:30):
opposite direction to the onethat we are interested in.
But fortunately for us nowadvances in econometrics, in the
science of marketing, inmeasurement, in the kinds of
data that are available, hasmade it possible to disentangle
the effects of advertising onstock price.
And in the paper that we wrotein the Journal of Advertising
(03:51):
Research, we synthesize hundredsof studies that have recently
looked at the impact ofadvertising to be able to offer
some insights, and I think thefield is really ripe now to
figure out how is marketingcontributing in terms of firm
valuation and the long-termmetrics that investors care
about?
Drew Vaughan (04:12):
I know you talked a bit about your research in
that question, but let's talkabout it a bit more here.
So what if, in particular,anything motivated you to pursue
this particular line of inquiry?
Was there a gap in literatureor real-world observation that
sparked your interest, or anyother factors that played into
that?
Shuba Srinivasan (04:36):
Thanks, drew.
I think the motivation camefrom two sort of fronts.
One is the growing disconnectbetween how we saw in practice
how marketers talk about successand how the financial stewards
talk about success.
Marketing teams might point tohigh brand awareness or
increasing engagement with thebrand on social media and point
that as wins, while the financeteam and the finance folks may
(04:57):
ask where's the ROI?
How is this moving my stockprice?
So there's a disconnect thereand as researchers we've noticed
there was a ton of work onshort-term advertising response
things like clicks, conversions,quarterly sales but there was
really a big gap in terms ofunderstanding.
How does advertising and how domarketing spend overall one of
(05:19):
the largest discretionaryinvestments of most firms?
How do those investments affectfirm value?
Think of a big emotionalcampaign like a Super Bowl ad.
Marketers may love it, but theCEOs and investors are asking
where's the ROI from themillions of dollars that?
J.P. Matychak (05:36):
I spent on the Super Bowl ad, which is only
growing larger and larger everyyear.
Exactly the amounts of dollarsthat companies are spending for
these big ad buys.
Exactly do wonder like okay, isthe payoff there?
Is it even worth it?
Because even in recent yearslike companies have pulled out
of there.
Shuba Srinivasan (05:53):
Exactly, exactly, and so this kind of
disconnect motivated us, and wewanted to be able to provide
marketers with the ammunition tosort of talk to the financial
stewards like the CFOs, theinvestors and the analysts, and
the stream of research helpswith that, yeah.
J.P. Matychak (06:11):
So you've identified a little bit three
distinct pathways thatadvertising can influence firm
value, one being indirecteffects via sales, the signaling
value to investors and evenjust building brand-based assets
.
So can you talk a little bitmore about each of those quickly
(06:32):
, about what you have foundthrough your paper and through
your study about how advertisingcan influence those?
Shuba Srinivasan (06:39):
Happy to do that, jp.
The first route is what werefer to as the indirect route.
This is the classic route whereadvertising may make consumers
more aware of the product.
Consumers being more aware mayrun into the retailer and ask
for the product and thisencourages them to buy.
So these purchases may thenlead to higher sales, higher
profits and to the extent theseprofits exceed investor
(07:02):
expectations on earnings, wewould expect to see a stock
price impact.
So an example of this is Apple.
Every year with the iPhone,they go in and they have these
ads for the iPhones.
Consumers see them.
It boosts sales, it improvesproduct market performance.
Investors notice that theearnings exceed expectations and
that affects stock prices.
(07:23):
So that's the indirect route,typically measured through
transactions at the point ofsale.
The second route is what werefer to as the direct route and
this happens through buildingbrand assets, and we sort of
propose there are two mechanismsfor the direct route.
The one is the signaling effect.
Here's the idea that investorshave very different information
(07:46):
on the company's strength andthe brand's strength from the
managers, such as the CMO or theCEO, and advertising would then
serve as a signal communicatingthat asymmetric information
that management has about thefuture prospects of, say, a
product to the investors, and sothis is the invest signaling
route.
(08:06):
Think of a pharma company AfterDTCA approval, they might
increase their ad budget for aparticular pharma drug.
Consumers may, patients may goand ask the clinicians for more
prescriptions and investorsmight see that advertising and
say there's really goodpotential for future cash flows
from this new drug and thatmight boost up stock price.
(08:28):
So it's a pure signaling sortof effect.
Sure, the second is the classic.
What we understand marketing todo, which is the role of
marketing, is to buildintangible assets, such as brand
assets or customer assets, andthat leads to future cash flows.
So here we are thinking ofclassic marketers like Coca-Cola
, years and years of consistentadvertising that builds brand
(08:50):
equity over time slow moving,enduring brand equity.
Slow-moving, enduring brandequity and investors recognize
that the stronger brand allowsCoca-Cola to command price
premiums to weather political orother crisis events and so on,
and they reward such firms witha stock price increase.
So the brand asset route issort of the classic route that
(09:12):
we're all familiar with withregard to the big know, the big
marketers Apple, coca-cola,companies that are on the
interbrand list of the top 100brands.
J.P. Matychak (09:22):
What we're normally used to seeing.
Shuba Srinivasan (09:23):
Exactly exactly.
J.P. Matychak (09:24):
Gotcha.
Drew Vaughan (09:27):
So I know you identified those three differing
components of the brand assetpathway, but could you elaborate
a bit more on whatdistinguishes these forms of
brand equity and why it'simportant to really evaluate
these separately in a financialcontext?
Shuba Srinivasan (09:45):
Sure, Happy to do that.
One of the things we do in thepaper in the Journal of
Advertising Research is todistinguish between three types
of brand equity.
The first is a customer-basedbrand equity, which is the
classic notion of marketing.
It is that brands live in theminds of customers.
Do people know the brand?
(10:06):
Do they love the brand?
Do they consider the brand?
Everything that happens in theminds and hearts of consumers is
what we refer to ascustomer-based brand equity, and
this reflects the potential forlong-term value.
But it hasn't yet translatedinto long-term value.
If you go further along thesequence of customer-based brand
equity, we get to market-basedbrand equity, which is the
(10:28):
notion of behavioral outcomes.
How did the brand actually doin terms of tangible revenues
and outcomes like market share,price premiums, competitive
positioning, customer retentionand so on.
So think of a brand like Dysoncommands a price premium in the
marketplace.
It has strong market-basedbrand equity.
(10:49):
And the third one is whatinvestors care about further
along in the continuum, which isa finance-based brand equity,
which is how does a brandcontribute to financial values?
So these are things like doesit manifest in higher firm
valuation, lower cost of capital, increased acquisition value
when someone is acquiring a firmwith a brand that has a high
(11:10):
value, and so we argue that it'simportant to consider the
customer perspective, themarketplace perspective, as well
as the finance-basedperspective or the investor
sentiment, because you couldthink of examples where one
exists and the other does not,and it doesn't really translate
into the metrics that investorscare about.
(11:32):
If you have a brand that's highon customer equity but
companies don't monetize thatlove, there's really no way to
translate that into cash flows.
So it's really important tohave all these elements.
It's almost like a hierarchicalchain that you go from one to
the next, to the next andultimately leading to firm value
(11:52):
.
J.P. Matychak (11:54):
So in the paper you actually argue that quote
marketers should incorporateinvestor behavior into their
advertising spending decisions.
So what does this actually looklike in practice?
Shuba Srinivasan (12:07):
This is a really important question and I
think it goes to the heart ofwhat we are trying to say here,
which is that when you talkabout incorporating investor
expectations, it's really aboutrecognizing that advertising
drives not only consumerresponse, as we've seen for
decades, but also investorresponse.
In many cases, when advertisingimproves brand strength or
(12:28):
drive sales, investors take note.
Or what we like to say is thatWall Street is often in sync
with Main Street when it comesto many advertising investments
by firms, but it's not alwaysthe case.
There are some exceptions.
One example is price promotions.
As consumers, we love pricepromotions.
J.P. Matychak (12:50):
Everyone likes a good deal.
Shuba Srinivasan (12:52):
Everyone likes a good deal.
They boost short-term sales,they save me money but investors
tend to see them asvalue-destroying.
So, while price promotionsmight make sense from a retailer
perspective, from a consumerperspective, investors don't
like that as much, and marketersneed to be careful with price
promotions.
In general, marketers shouldpay attention to the metrics
(13:14):
that investors care about.
One such metric is customersatisfaction.
This is a hugely importantmetric, and investors pay
attention to it.
In fact, one of the studiesthat we looked at showed that a
10% increase in customerretention could translate into a
7% boost in stock price.
Wow, that's really powerful,right?
(13:35):
And so it supports the ideathat we need to pay attention to
these kinds of metrics asmarketers, and these numbers
tell you a lot about thecompany's long-term health, and
the investment community watchesthem closely.
One of the things I like totrack, for example, is the
retention rate of mobile phonecarriers how many new customers
(13:58):
are gained, how many customersswitched, how many customers did
not sort of renew theircontracts.
Those numbers tell you a lot,and, as it turns out, investors
are paying very close attentionto those metrics on customer
relationship that marketers caredeeply about.
Drew Vaughan (14:16):
Yeah, and I think you bring up some great points
there.
With so many brands andcompanies really investing not
only time but money into theiradvertising efforts, it's
something that's staying aroundfor a while.
So I guess, with this newresearch, do you think we need
to rethink how brands companiesare defining and measuring
(14:37):
advertising effectiveness?
Yes, drew, 100%.
Shuba Srinivasan (14:41):
I think we ought to move beyond short-term
metrics.
Advertising effectiveness isoften measured by clicks, likes
immediate sales.
While those are important, weneed to go beyond those.
We need to look at things likehow is advertising building
long-term brand value and stockprices?
So we need to start evaluatingcampaigns on their ability to
(15:02):
increase brand equity, enhancecustomer loyalty and drive
future growth and profitability.
And, as I've been saying, wealso need to incorporate sort of
the investor sentiment and howinvestors are reacting to this
advertising.
So, in terms of the awards andbenchmarks, one ad that comes up
to mind is Nike's ColinKaepernick campaign, which was
(15:27):
controversial at its time, butit wasn't just about short-term
sales.
It really redefined the brand.
It was a brand-defining adcampaign.
It generated controversy, butNike's stock price surged,
long-term brand equity deepened.
It was strategic, it was a bitrisky but ultimately valuable.
So I think what we'd like tosee is more recognition for that
(15:48):
type of work where we are notjust asking did it sell one more
pair of shoes, but did it buildlasting brand value and lasting
value to the firm, and we hopeto see our work spurring some of
the conversation in terms ofmoving in that direction, of
rewarding the longer termmetrics.
J.P. Matychak (16:09):
And that really seems like that can be
counterintuitive to aninvestor's mindset, right?
Who is looking for theimmediate, like where's the
value right now?
And those are really long-termplays, as you said.
Shuba Srinivasan (16:23):
Right right.
In some sense, investors alsotake into account the future
cash flows that accrue frommarketing campaigns, because the
stock price is the net presentvalue, reflects the net present
value of all future cash flowsaccruing to the firm.
So while investors do careabout have a short-term
perspective and do care aboutthe immediate earnings and so on
(16:46):
, they also are quite focused onthe long-term prospects in
terms of the future cash flow.
J.P. Matychak (16:53):
The lasting value ?
Yeah, so are there industriesor sectors where you especially
see stronger or weak linksbetween this sort of advertising
and firm value?
Shuba Srinivasan (17:04):
Absolutely.
Advertising doesn't play thesame role across all industries
and some of the studies wereviewed about 250 studies and
some of them show there areindustries where the link is
especially strong, classicsectors like CPG, packaged goods
, retail, apparel, tech, wherethe brands are consumer-facing,
the brands are highlydifferentiated.
(17:24):
Consumers have a lot of options.
These are sectors whereadvertising plays a much bigger
role.
Think of your Coca-Colas andthe apples of the world, where
the product hasn't changed much,but really the value of the
world, where the product hasn'tchanged much, but really the
value of the brand, is tied tothe brand equity and the
advertising which reinforcesthat brand equity.
Then there are other sectorswhere the effect might be weaker
(17:47):
and here we're thinking thingslike utilities, industrial
manufacturing or chemicals.
That isn't to say marketing isnot important in those sectors,
but it's less about televisionadvertising or brand advertising
, but it may be more aboutone-to-one relationship building
, pricing, contracts, technicalspecs of the product.
(18:08):
And then there are still otherindustries, like pharma, where
it's more nuanced.
In pharma a lot of what we areseeing is sort of the signaling
role of advertising, whereadvertising still plays a role,
but a lot of it is through thesignaling route, for example,
that we talked about, where it'sabout creating buzz and
building investor confidence inthe new drugs as it reaches the
(18:31):
patients and the doctors.
So, yes, there is more to bedone in sort of disentangling
sector-wide effects, but I thinkthe area is ripe for research
now that we have the measurementchallenges addressed.
We have new sources of datathat are becoming increasingly
better and we now have all thesufficient interest in both the
(18:52):
practitioner and the academiccommunity to address these sorts
of questions.
J.P. Matychak (18:56):
And I would imagine in that second group of
industries that you talked aboutthere is the notion that
customer satisfaction, the wordof mouth type of-.
Shuba Srinivasan (19:06):
Absolutely.
J.P. Matychak (19:07):
Is really important, super important and
hard to measure too, right,exactly.
Shuba Srinivasan (19:12):
That's absolutely right, the role of
customer relationships, the roleof customer satisfaction.
So in some sense customer basedassets like customer equity,
customer lifetime value, whichcomes from these long term
contractual agreements, sort ofsupersede the brand in those
contexts.
Drew Vaughan (19:32):
Yeah, I think you make some great points there
(19:57):
no-transcript we had in mindwhen writing the paper.
Shuba Srinivasan (20:05):
Marketing leaders today just can't say
trust us.
This builds the brand.
That doesn't fly when you lookat CFOs and CEOs, who are
focused on ROI and financialimpact.
So our research allows a way toreframe the conversation.
It allows us and marketers tomove from.
This campaign got a lot of likesto this campaign, created real
(20:27):
brand and financial value forthe firm, and here's the data to
prove it right.
And the key is to help positionmarketing as an investment and
not just as a discretionary linespend that can be cut when the
budget is tight.
So what we are recommending isthat CMOs connect marketing
spend to outcomes that investorscare about Things like revenue
(20:49):
growth, margin growth, riskreduction, lower churn, more
predictable cash flows, reducedrisk and so on that the CEO and
the CFO care about.
A great real-world example ofthis is MasterCard.
Their CMO and CFO workhand-in-hand and in fact,
MasterCard has a CFO within themarketing department as well to
(21:14):
align marketing with thebusiness key performance
indicators, and they evenhighlight brand building effort
on investor calls.
So that kind of alignmentbetween marketing and finance
sends a clear message thatmarketing is driving value and
it's not just about how is thiscampaign affecting our short
term clicks or consumers in theshort run?
(21:35):
But really, how are wecontributing to building value,
both brand value as well as firmvalue and we hope that our work
can help make the case forinvestment in advertising.
The evidence is there from 250studies that we looked at that
advertising matters and itbuilds firm value.
J.P. Matychak (21:57):
Excellent.
So as we, as we kind of wrapthings up here, what is you know
for the, the, maybe the, the,the CMO that's listening, or the
, the, the CFO that's listening,or just the, the, the general
business enthusiast?
What is the biggest takeawaythat you think that listeners
(22:17):
should take away from yourresearch right now?
Shuba Srinivasan (22:20):
Thanks, jp.
Our message is simple at theend of the day, advertising is
more than a cost.
It's a strategic investment infirm value.
To unlock its impact, we needto move beyond short-term sales
metrics and start connecting thedots in the hierarchy that we
talked about.
We break it down into sort ofthree simple results.
(22:40):
Advertising drives sales, itdrives confidence to investors
and it builds brand assets thatcreate long-term advantage.
And in a world where CMOs areunder pressure to prove ROI, we
offer a roadmap where we saylink marketing key performance
(23:01):
indicators to financial outcomes, speak the language of
investors and measureeffectiveness not just by what's
immediate but by what endures.
And the tools are in place andwe hope that we can stop
defending marketing spend as afield and start defining value
created.
J.P. Matychak (23:21):
Excellent.
Well, Shuba, this has beenincredibly interesting.
I'm really excited to see wherethis goes and if this can truly
be infused in the waybusinesses are thinking about
these things and that, like yousaid you know, marketing isn't
just a cost center, Like thereis value and ROI to the
investment that you're making.
Shuba Srinivasan (23:42):
Absolutely, JP .
Thank you, good to be here.
Thanks, Drew and JP.
It was fun having thisconversation and I welcome any
comments from your listeners.
J.P. Matychak (23:50):
Excellent.
Thank you, Shuba for joining ustoday,
Yep absolutely my pleasure.
Shuba Srinivasan (23:54):
Yep, absolutely.
J.P. Matychak (24:02):
My pleasure.
Well, that'll wrap things upfor this episode of the Insights
at Questrom podcast.
I want to thank our guest onceagain, Shuba Srinivasan, the
Norman and Adele BarronProfessor in Marketing at the
Boston University QuestromSchool of Business.
For Drew Vaughan, I'm JPMatychak.
Till the next time on theInsights Equestrian Podcast,
take care.
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