How to increase the value of a company with a marketing strategy.

With the growth of globalisation, the increasing influence of corporations and the development of the capital market, there has been a shift in views on the strategic goal of business operation. recently, more and more companies are shifting their focus towards increasing the market capitalisation of the corporation. This happens because shareholders want to profit not only from dividends, but also from the growth of the company's value.

A number of authors point out the influence of marketing on the process of creating the value of the company. Realisation of the concept of company value management requires not only sufficient information about the company's activities, but also effective management methods for the entire value chain, which includes macro- and micro-environment factors. The macro environment includes such elements as the phase of the business cycle, institutional environment, price level, taxes, exchange rate, interest rates, availability of financial resources. It creates a certain background for doing business and is specific for the industry as a whole rather than for an individual company. The micro-environment is more specific in the sense that it includes those factors that are specific to a particular company and its ability to serve its customers. It consists of suppliers, intermediaries, customers, competitors and contact audiences. Thus, the micro environment influences the marketing mix, competitive strategy, purchasing policy, customer relationships, and capital management policy. Macro- and micro-environment factors and internal features of the company that constitute its strengths and weaknesses determine the business strategy, corporate strategy and functional strategies of the companies' divisions that make up the hierarchy of strategies. All the above parameters affect the company's business model, i.e. its resources, business processes, products and profit formula. The latter, in turn, form the cash flows that the business will generate and from which its fundamental value will be formed. And decisions aimed at increasing market capitalisation form the basis of the company's value management concept.

The role of marketing in influencing the management of the company's value can also be traced in the short-term financial policy, the period of unchanged production capacity, which does not require the introduction of new resources. It determines the level of return on capital in the tactical perspective and includes measures to stimulate sales, optimise pricing, rationalise distribution and reduce the resource intensity of products. In particular, the first three are direct elements of the marketing mix, while the last one only partially involves the product element of the marketing mix. The reason for many global economic disasters has been the focus of companies on short-term goals. Many top managers, in order to show good EPS, made investments in illiquid assets, despite a great deal of research that investors prefer long-term and reliable investments. A survey of 400 CFOs found that 80% of directors were willing to cut spending on value-generating areas such as R&D and marketing to meet their short-term profit targets. A further 39% said they would be willing to give customers significant discounts just to meet their turnover target for the quarter. Researchers say that top management is literally cheating shareholders with this behaviour.

Marketing highlight 5 factors of the company's value:

Consumer loyalty

Marketing strategy

Brand

Reputation

Market knowledge

In this article we will touch only 3 of them: customer loyalty, brand and reputation.

Consumer loyalty

Retaining customers is more important than reducing the cost of attracting new ones. Moreover, translating customer satisfaction into repeat purchases is more important than translating it into word of mouth about a company's products. And, as we know, customer satisfaction is one of the behavioural drivers that lead to repeat purchases and loyalty. But not all returning customers are equally profitable for the company and their costs should be weighed against their profitability.

Since it is possible to calculate the lifetime value of each customer, companies can use different marketing tactics and strategies to target each customer segment based on the profitability of that particular segment. For example, a manager will likely want to increase spending on the customer segment that is more profitable and cut spending on unprofitable customers. Thus, the overall lifetime value of the company's customers will increase by stabilising cash flows and reducing risk. And this will have a direct positive impact on the value of the company. You can calculate the lifetime value of a company's customers or customer segment using the following formula:

CLV=∑(p*CM)/(1+r) - (MT*MC)/(1+r), where

CLV - customer lifetime value of customers/segment (customer lifetime value)

P - purchase probability

CM - margin

MT - expected number of purchases per period

MC - average cost of 1 purchase

r - discount rate

There is evidence that customer retention strategies lead to stock price appreciation after 9 months by an average of 32.8% for the B2B sector and 57.6% for the B2C sector. Thus, the authors conclude that activities to stimulate customer loyalty can lead to significant growth in company capitalisation. This applies more to companies operating in consumer markets than in the corporate segment.

Product policy

Any practitioner realises that it is impossible to engage in corporate finance without understanding a product's position in the market, i.e. its product, its industry, its competitors, its advantages and disadvantages, its product strategy. A good strategy in corporate finance always starts with the product market.

Just bringing a new product to market is not enough to increase shareholder value. But how that new product is perceived by the market has a direct bearing on the value of the company. Moreover, it is a feature that a product innovation is usually evident very quickly from the moment it is released, while the effect visible on shareholder value can unfold over a long period of time, not just overnight. Share price growth averages 13 per cent.

Reputation

There are estimates that up to 75% of a company's value has its roots in the company's intangible assets. An important intangible asset of a company is reputation. Companies with a good reputation have the ability to reduce uncertainty and have better access to investor resources. This is because companies with a good reputation enjoy good benefits such as establishing close and trusting relationships with stakeholders. Moreover, the importance of reputation is seen to be even stronger in the context of increasing competition between companies. These benefits have a long-term impact and have a positive effect on the value of the company as a good reputation generates positive excess returns for its shareholders.

Reputation can be seen as the general perception of stakeholders of a company. This perception is a derivative of the company's past actions and its status in relation to its competitors. Reputation in this sense is seen as evidence that the company has a good history of effective management decisions, achievements and prospects, which of course reduces risk in the eyes of investors. Moreover, such dynamics usually also indicates that the company has a good relationship with its customers who are loyal to the company's services/goods. It is also a signal that the company is able to withstand difficult economic shocks and market changes. All this encourages investors to pay a higher price for the stock. Thus, a good reputation leads to an increase in the capitalisation of the company. At the same time, it should be noted that accounting records cannot fully reflect the long-term effects of reputation. Therefore, the benefits of a good reputation are more likely to be reflected in the growth of shareholder value rather than in the balance sheet.

In January 2019, Microsoft launched an adaptive console for people with disabilities under the Xbox brand, making video games more accessible to a huge number of people, especially children. Gaming is one place where people shouldn't be judged by their physicality and the company wanted to bring this principle to life. Microsoft did a lot of research among different categories of people with disabilities, be it people with one arm, no arms, musculoskeletal problems and other issues and created separate consoles for each of these categories. On this occasion, the company launched an emotionally coloured positive video during the US Baseball Championship. Such advertising campaigns are considered to be the most effective in the US because the game is very popular in the US and the Championships attract a large audience. In addition to being the most popular at the 2019 Championships, the advertising campaign had a huge public response and increased the amount of discussion about people with disabilities by 77%. The ‘Changing the Game’ advertising campaign won the 2019 Cannes Lions Award in the category ‘Grand Prix for Brand Activation and Brand Engagement’. According to jury president Jaime Mandelbaum, creative director of VMLY&R Europe, the Grand Prix was awarded because Microsoft has not only changed the way audiences relate to its brand, but has had a huge impact on millions of lives. 33 million people with disabilities in the US have been able to enjoy video games on an equal footing with everyone else because in another reality there are no limitations and anyone can drive a car, pilot an aeroplane or run an army.

The campaign received a total of 1.1 billion views across all advertising sources, so strong was the emotional response from the audience. Many respected publications wrote articles about Microsoft's enthusiasm. Forbes, for example, wrote that Microsoft not only talks about social problems, but also does something to solve them and that the spirit of the advertising message and the new product corresponds to the hashtag: ‘We all win when everyone plays. The Times named the new product the invention of the year. Microsoft has been awarded 3 global patents for its inventions.

On the back of this advertising campaign, Microsoft's share price rose from 102.80 USD in January 2019 to 129.89 USD at the end of April that year. And continues to rise, as of 16 November 2020, the share price reached 210.39 USD.

Brand

Brand equity is an intangible asset that includes consumer awareness of a firm's goods and services. It is understood as a factor of production in a firm's operating profit function because it helps the firm to increase sales. In addition it helps firms to differentiate their goods and services from competitors and thus serves as a source of competitive advantage.

Being an intangible asset, brand equity is naturally difficult to measure. To calculate it, the value of a company's total advertising expenditures is often used. Investments such as promotion, media advertising, internet and other channels are brand equity investments.

Brand equity is a significant part of a company's capitalisation. The cost of brand equity of a firm averages 23 per cent but varies widely from industry to industry. For example, in the steel and petrochemical industries it may be close to zero, while in consumer goods this share may be as high as 60 per cent. Thus, it is predictable that brand power is more important for consumer-oriented and opinion-dependent companies, such as those selling consumer goods.

A large study on the impact of advertising on company value was conducted in the US in 2019. Du D., Osmonbekov T. used data from 30 industries and 1,483 companies over the past 40 years. A significant positive relationship between advertising spending and free cash flow and company value was found only for companies for which no independent financial reports were released. This can be explained in terms of signalling theory, i.e. investors interpret the growth in advertising expenditure as growth in company profits and thus the growth in advertising volume serves as a positive signal to investors.

In 2018, Nike, one of the largest sportswear manufacturers, decided to celebrate the thirtieth anniversary of its famous ‘Just Do It’ slogan. In honour of its anniversary, the company decided to refresh the meaning of its slogan and launched the ‘Dream crazy’ advertising campaign. The motif of the commercial was motivational, encouraging people to be more daring in their endeavours. The main character of the commercial was controversial American football star Colin Kapernick, best known for kneeling during the anthem before matches, instead of standing up, to protest the killing of black people by American police officers in the US. Even the US President spoke out about the athlete's behaviour, so strong was the response and so high was the public support.

The result of the video campaign was impressive. In 1 day, brand mentions reached 2.7 million times, which is 1400% higher than its average. Sales were up 31% compared to a 17% increase in 2017, the year before. On YouTube, the video was viewed 21 million times. Twitter mentions grew 1,300%. The campaign was honoured with a Cannes Lions award. Brand equity grew by $6 billion on $43 million in ad campaign spending. The company's stock rose 7% for the week, to its highest level in the brand's history.