The concept of Market-Based Assets was introduced to tackle a major marketing (indeed business) problem. Many managers too often see marketing simply as an expense. By this logic marketing does not deliver, or at least is not expected to deliver, any long terms benefits. Being treated as an expense makes marketing a prime candidate to be cut. The thinking goes, “Expenses are bad, so lets cut them”.
Marketing Can Create Long Term Value
Of course, marketing spending, like any spending, can be wasted but this is not true of all marketing spending. Nor is spending all short term. Plenty of marketing spending has long term aims. Such marketing creates assets. It builds customer relationships. The fim benefits from such relationships. Indeed in many firms the relationships are the key asset the firm has. Trust in the brand is sometimes the most valuable thing that the firm has. Even the knowledge about customers that the firm holds can be critical asset.
Market-Based Assets
As such marketing thinkers are often keen to explain the idea of marketing being about asset management. Market-Based Assets as a concept arose in the Journal of Marketing in an article back in 1998 by Srivastava, Shervani and Fahey. Marketing creates and manages a specific type of assets that represent the value from the relationship between the firm and the environment. (Customers provide a key part of environment.)
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. What is more they 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. (Stock price is typically central to firm success so marketers need to think how their work impacts it). Although there is an awfully long way to go before we fully recognize the value marketing brings.
Tying Marketing To Corporate Objectives Is Critical
A lesson is that marketers should start to tie their activity to corporate objectives. In turn finance people should recognize that marketing matters. It has meaningful effects on things that finance people care about.
For more on the problems with recording market-based assets see here, here, here, and here (and throughout the website).
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