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| Tuesday, 8 February 2005 |
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Marketing and shareholder value by Prasanna Perera, Marketing and Management Consultant, Chartered Marketer, CIM, UK The purpose of strategic marketing decisions is to help a company to create value for the shareholders/owners. Fundamentally, companies operate in the interest of their owners, by seeking to maximise profits over the longer term. Managers that do not serve the interests of shareholders/owners will be replaced by those thought to do so. Firms have a number of different stakeholders. The demands of these stakeholders need to be met; however, meeting the wider stakeholder expectations may well conflict with the requirements of the shareholder/owners. The shareholder/owner values principle assets that marketing strategies should be judged by the economic returns they generate for the company, the ventures being measured by dividends and increases in the economic value added to the company. This is based on two principles; - The primary obligation of managers is to maximise returns for shareholders/owners. - The value of a company is based on the investors expectations of the cash generating abilities of the company. This of course means that the role of marketing managers is to deliver marketing strategies that maximise the cash flow of a company over time and so create value. A customer value process focused organisation The major organisational challenge in value based marketing involves maximising the effectiveness of the firms customers value creating activities. These activities are best seen as processes, that are not just limited to marketing but cut across the entire organisation. It is perhaps obvious that if a company is to achieve all that is required by value based marketing there needs to be a recognition that no company can succeed by trying to do everything. Instead it must identify the unique value which it alone can deliver to its chosen markets. Environmental changes which have led to the rise of value based marketing There are several significant changes worth mentioning The growth of equity markets around the world. The decline of government participation in business/ The globalisation of trade and industry has meant companies are not only competing globally or customers but also for capital. More powerful data processing capabilities and software availability, mean it is much easier to run tests to assess the financial implications of marketing decisions. There has been an explosion of the quantity and quality of data available to investors. "Of the five deadly sins, the first and easily the most common is the worship of high profit margins" (Peter Drucker) If you are not willing to own a stock for 10 years, don't even think about it for 10 minutes" (Warren Buffet) |
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