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Marketing capability is a key data for stock returns that is being overlooked

A new study from Deakin University shows that advanced marketing capability adds value to businesses beyond just increased sales; it also increases the company's stock return.

New Deakin University research shows high marketing capability brings value to a company beyond improving sales, it also increases a firm’s stock returns.

Finance researchers from Deakin Business School say this is good news for marketing teams, showing they bring wide ranging benefits to a company when working efficiently.

“Our research shows that marketing doesn’t just help sell a profit or service, but also increases investor benefits,” Associate Professor Harminder Singh said.

“Smart marketing doesn’t stop at good sales, it goes further.”

The study evaluated data from the three major American stock exchanges between 1974 and 2015, in combination with a sample of companies’ reported accounting data over the same period.

Co-author Dr Tze Ang said that while the study found stock return was high for firms who had the highest marketing efficiency, it also showed investors were slow to react.

Dr Ang said this was likely because there’s not an easy tool for investors to be able to identify it.

“Investors tend to look at a company’s marketing spend or sales data in isolation when deciding on investment strategies,” he said.

“But actually, you need to look at these figures in combination, and the financials behind them, to pinpoint the firms that have the high-marketing capability we linked to stronger stock returns.

“Investors at large need to understand that it’s not just companies who are big spenders in marketing that they need to invest in. How intelligently firms deploy their marketing is more important.

“You can’t just look at someone and see how intelligent they are, similarly, investors shouldn’t just look at a company’s marketing spend to determine how intelligent their marketing is.

“Marketing is rife with inefficiencies. Marketing capability refers to a firm’s ability to optimally deploy its marketing resources to maximise sales revenue at least possible cost.”

The research paper, recently published in The Review of Asset Pricing Studies, recommends firms provide better reporting of their marketing capability in analyst information sessions and shareholder meetings, to attract investors.

“Firms can show they are very efficient with their marketing, even without big spends, through an intelligent use of resources,” Associate Professor Singh said.

“Our research shows higher marketing capability is correlated with higher stock returns, irrespective of company size or overall profit.”

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