Time Series Models of Pricing the Impact of Marketing on Firm Value

Handbook of Marketing and Finance , Shankar Ganesan ed., 2012 ISBN: 978-1849802727

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Abstract:
Marketers continuously engage in actions such as product launches and advertising that are aimed at generating profitable customer response and increasing key marketing assets such as customer satisfaction and brand equity. To the extent that these efforts are successful, they should enhance the financial outlook of the firm, which is of primordial interest to the investment community. However, the interpretation of the impact of these actions is not straightforward, because the effects tend to play out over time. As a result, it is quite possible that mispricing occurs, i.e. the investment community either overestimates or underestimates the future financial impact of a marketing action or marketing metric. The purpose of this chapter is to review time series methods as the primary research tool for evaluating the pricing of marketing actions and marketing assets. The main message here is: what is mispricing, what are various forms (especially the difference between contemporaneous and lags), how can we detect, what does it mean for investors/managers, and what do researchers do with the mispricing information? We discuss, in turn, methods for assessing the return (level) and the risk (volatility) of marketing for the investor, and we provide illustrative findings of each.

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