Company executives take note – marketing matters.
Not only does marketing pay off in the short-term, but it has a positive effect on long-term shareholder returns, according to new research from Iowa State University’s College of Business. Hui (Sophia) Feng, lead author and assistant professor of marketing at Iowa State, said the study provides clear evidence of the marketing department’s value.
“During the economic crisis, the first thing firms cut was the marketing budget and staff,” Feng said. “The marketing department contributes to both the short-term and long-term, so managers should not be short-sighted and cut the marketing budget and staff just because of a crisis or poor quarterly figures. Managers need to look beyond one quarter or one year and see marketing is important.”
The study, published in the Journal of Marketing, measures marketing department power, and a firm’s ability to build and leverage brand equity and customer relationships.
To objectively calculate these measures, Feng and colleagues Neil Morgan and Lopo Rego, at Indiana University’s Kelley School of Business, developed a new scale to measure marketing department power and marketing capabilities using publicly available data for more than 600 firms in the U.S. over a 16-year period.
This is the first study to take such a comprehensive and objective approach.
To determine the marketing department’s power, researchers compared head count, compensation, the number of responsibilities and rank of job titles of marketing executives to executives in each firm’s top management team. While many marketing professionals are concerned they are losing power or being marginalized, the data shows just the opposite to be true, Feng said.
The study discovered that despite a worry that marketing departments have been losing influence in recent years, its power has actually increased. “Not only did it increase for firms that didn’t have a marketing department before and created one later, but also for firms that already have a marketing department,” Feng said.
More than power, marketing has value
Power struggles aside, marketing departments are often criticized for a lack of accountability, because it’s difficult to measure whether specific outcomes, such as sales, are a direct result of an advertising or social media campaign. To overcome this barrier, researchers compared how well the firms used their available resources to build brands and customer relationships, and their ability to turn these resources into cash flows. This allowed researchers to estimate the firms’ return on investments in building and leveraging its brand and customer relationships.
“Structurally, the marketing department not only improves performance by increasing a firm’s capability to perform marketing activities, but also directly increases performance,” Feng said.
The trade-off and management lessons
“It’s very straightforward – invest more in marketing and give marketing a stronger voice in the top management team. It’s convincing evidence for marketing professionals to justify an increase in the budget and staff, request more seats and influence in the firm’s top management team and show that powerful marketing departments create value both in the short-term profitability and long-term shareholder value,” Feng said.
Assistant Professor of Marketing, Hui (Sophia) Feng, Ph.D., joined the faculty at the College of Business in 2013. Her areas of expertise include Marketing Strategy, Marketing Capabilities, Functional Marketing Sub-unit Power, Marketing-Finance Interface, and Customer Relationship Management.