Market-Based Assets

Marketing is too often seen as an expense. The money spent on marketing isn’t expected to deliver any long terms benefits by this logic. It is not very surprising that something that is treated as an expense is under pressure to be cut. The thinking goes, “Expenses are bad, so lets cut them”.

There is, however, plenty of marketing spending that has a long term objective. Of course some is just wasted but not all. Marketing, ideally, creates assets. The customer relationship built by marketing spending should be seen an asset to the firm. Indeed in many firms the relationships are the key asset the firm has. Trust consumers have in the brand is sometimes most of what the firm has. Even the knowledge about customers that the firm holds is a potentially critical asset.

As such marketing thinkers are often keen to explain the idea of marketing assets. A view of such Market-Based Assets was developed in the Journal of Marketing back in 1998 by Srivastava, Shervani and Fahey. The basic idea is that marketing can be seen as the creation and management of a specific type of assets that represent the value from the relationship between the firm and the environment. (This environment is broadly defined to include customers.)

These Market-Based Assets “increase shareholder value by accelerating and enhancing cash flows, lowering the volatility and vulnerability of cash flows, and increasing the residual value of cash flows.” (Srivastava, Shervani and Fahey, 1998).

In stressing the creation of assets we emphasize that marketing matters. If people don’t recognize the value of market-based assets they may mis-understand the nature of many businesses. That isn’t to say that sometimes marketers aren’t their own worst enemies. Marketers like to use lots of imprecise talk and often show an unwillingness to tie marketing goals to corporate goals. The Market-Based Assets idea trys to set this right. It explicitly ties what marketers are doing to the stock price. I for one think this is progress. (Although there is an awfully long way to go.)

The lesson is that marketers should start to tie their objectives to corporate objectives. In turn finance people should recognize that marketing is real — it has meaningful effects on things that finance people care about.

Read: Rajendra K. Srivastava, Tasadduq A. Shervani and Liam Fahey (1998) Market-Based Assets And Shareholder Value: A Framework For Analysis, Journal of Marketing, 62, January, Pages 2-18