Proving the value of marketing

Over the next couple of weeks I will consider ideas from a paper coming out in Marketing Science that I wrote with a former PhD student, Moeen Butt. This looks at the use of a metric called Tobin’s q. I have never found a manager who has used this metric for anything. It is especially unfortunate, therefore, that it is all the rage amongst marketing academics. We found that over the past few years there have been a large number of papers using Tobin’s q as a performance metric.

The basic idea behind Tobin’s q is interesting — it compares market value to the replacement cost of assets to show when markets think assets are being used well or badly. (Of course life is more complicated than that, you have to adjust for debt etc… but lets keep it simple). The problem is that the replacement cost of assets is unknown. This means scholars have hit upon the idea of using the book value of assets recorded in the financial accounts when judging Tobin’s q for firms. This probably seemed like a good idea — indeed it makes practical Tobin’s original notion which was pretty theoretical — but using book value causes immense problems. Basically the figures recorded in financial accounts have a plethora of biases. (More next time on these).

Scholars have decided to use these biased Tobin’s q measures as ways to track performance. Indeed at its most ambitious this activity was described as building marketing’s credibility. The problem is that I’m not sure who this is supposed to build credibility with. I repeat, I have never found a manager who uses this metric. So the basic idea — a paper that shows marketing raises Tobin’s q — is unlikely to convince anyone who doesn’t recognize Tobin’s q as a valuable metric. We make this point in the article, AATQ being Accounting-based Approximations of Tobin’s q:

“Marketing accountability  research aims to examine marketing’s value; yet much of the research focuses on how marketing  impacts AATQ, metrics that managers do not consider important. Attempts to build marketing’s  credibility cannot be based on metrics that managers do not use and are biased towards finding  marketing’s effectiveness. Researchers should use metrics that are meaningful to non-researchers  or, at a minimum, argue in detail why the metrics should be meaningful to non-researchers.” (Bendle and Butt, 2018, page 34).

That last point is critical — managers aren’t always correct in their use of metrics but academics need to use managerially recognized metrics if they want to communicate with managers.

Read: Neil Bendle and Moeen Butt (2018), The Misuse of Accounting-Based Approximations of Tobin’s q in a World of Market-Based Assets, Marketing Science, Article in Advance,

A slightly earlier version of our paper is here for those who don’t subscribe to Marketing Science: The Misuse of Tobins q Submitted Jan 2018 v2