Fusion for Profit: How Marketing and Finance Can Work Together to Create Value

Contents......Page 22
Foreword......Page 10
Foreword......Page 12
Part I: Financial Tools Necessary for Understanding the Marketing-Finance Interface......Page 32
1 Choosing Marketing Policy in the Short Run......Page 34
1.1 Should the Firm Use Profits to Choose Marketing Policies?......Page 35
1.2 Should the Firm Use the Return on Investment Criterion for Marketing Decision Making?......Page 36
1.3 How Does the Ownership Structure of the Firm Affect How Marketing Policies Should Be Chosen?......Page 39
1.4 What Does the Risk-Adjusted ROI Criterion Imply for Multiproduct and Multidivisional Firms?......Page 46
2 Choosing Marketing Policy in the Long Run......Page 48
2.1 How Should the Firm Choose Long-Run Marketing Policies under Certainty?......Page 49
2.2 How Should the Firm Choose Long-Run Marketing Policies under Uncertainty?......Page 52
2.3 How Should the Firm Measure the Long-Run Effects of Different Marketing Policies?......Page 54
2.4 How Should the Multiproduct Firm Choose Long-Run Marketing Policies under Uncertainty?......Page 56
2.5 How Should the Firm Make Long-Run Strategic Marketing Decisions under Uncertainty When It Has Strategic Flexibility?......Page 57
2.6 How Should the Firm Measure and Reward Managers When It Has Strategic Flexibility in Choosing Marketing Policies?......Page 62
Part II: Defining the Market......Page 66
3 What is the Impact on Strategy?......Page 68
3.1 In What Market Does the Firm Compete?......Page 69
3.2 How Does the Definition of the Market Affect the Firm's Marketing Strategy?......Page 72
3.3 How Does the Firm's Definition of the Market Affect Managerial Incentive Schemes?......Page 73
Part III: Understanding Market Shares......Page 74
4 Should the Firm Pursue Market Share?......Page 76
4.1 Why Do Firms Pursue Market Share?......Page 77
4.2 Does an Increase in Market Share Lead to Higher Short-Run Profits?......Page 78
4.3 When Does an Increase in Market Share Lead to Higher Long-Run Profits?......Page 82
4.4 Should the Firm Enter High-Growth Markets?......Page 84
4.5 Should the Firm Pursue Market Share in a High-Growth Market?......Page 85
4.6 Should the Firm Attempt to Increase Its Volume-Based Market Share in the Short Run When Cost Dynamics Are Present?......Page 86
4.7 Should the Firm Pursue Volume-Based Market Share When Demand Dynamics Are Present?......Page 90
4.8 Should the Firm Pursue Market Share If Neither Cost Nor Demand Dynamics Are Present?......Page 92
4.9 Should the Firm Pursue Market Share by Being the Pioneer in Its Industry?......Page 95
4.10 Is It Ever Optimal for the Firm to Keep Its Volume-Based Market Share Low?......Page 97
5 Should the Multiproduct Firm Use the Market Share Metric?......Page 107
5.1 Market Share and Pricing for the Durable Goods Manufacturer That Sells Spare Parts......Page 108
5.2 Market Share and Pricing for the Firm That Sells After-Sales Contracts......Page 109
5.3 How Does Uncertainty Affect Pricing Policy and Market Share for the Firm That Sells Proprietary Spare Parts or After-Sales Contracts?......Page 110
5.4 Should the Firm That Introduces Product Upgrades over Time Pursue Market Share or Current Profits?......Page 111
5.5 How Should the Firm Change Its Market Share and Long-Run Pricing Policy When Competitors Introduce New Products?......Page 113
5.6 Should the Firm Focus on Market Share If It Sells Products That Must Be Used Together?......Page 114
5.7 Should the Multiproduct Firm Allocate Resources across Products on the Basis of Their Respective Market Shares?......Page 115
Part IV: Strategies and Pricing Policies for New Products and Product Bundles......Page 120
6 Pricing New Products: Strategies and Caveats......Page 122
6.1 Can the Firm Price a New Product to Maximize Its Profitability?......Page 123
6.2 How Should the Firm Price a New Product under Uncertainty?......Page 125
6.3 How Does the Firm's Ownership Structure Affect New Product Pricing?......Page 128
6.4 Are Fixed Costs Relevant for Pricing New Products When the Firm Is Privately Owned?......Page 130
6.5 Are Fixed Costs Relevant for Pricing New Products When the Firm Is Publicly Owned?......Page 135
6.6 Should Firms Preannounce Their New Products?......Page 137
7 Choosing Strategies for New Products Using Market-Level Data......Page 141
7.1 Which Product Qualities Should the Firm Produce?......Page 142
7.2 Choosing New Product Strategy: The Case Where Consumers Are Fully Informed......Page 144
7.3 Choosing New Product Strategy: The Case Where Consumers Are Not Fully Informed......Page 148
7.4 Choosing New Product Strategy: The Case Where Some Consumers Are Well Informed but Others Are Not......Page 149
8 Choosing Strategies for New Products Using Primary Data......Page 153
8.1 Controlled Purchase Experiments......Page 154
8.2 Intentions Studies......Page 156
8.3 Preference and Choice Studies......Page 160
8.4 Estimating Demand Using Reservation Prices......Page 163
8.5 Estimating the Demand for New Products Using Self-Stated Reservation Prices......Page 168
8.6 Estimating the Demand for New Products by Inferring Reservation Prices......Page 170
8.7 Measuring Reservation Prices Using Auctions......Page 175
8.9 Perceptions and New Product Demand......Page 177
8.10 How Useful Are Experiments for Measuring New Product Demand?......Page 178
8.11 Simulated Test Markets......Page 179
8.12 Test Markets......Page 181
9 Bundling......Page 186
9.1 What Is a Bundling Strategy?......Page 187
9.2 When Should Firms Use a Bundling Strategy?......Page 188
9.3 Bundling and Cross-Couponing Strategies......Page 193
9.4 Applications of Bundling Theory......Page 199
9.5 Why Do So Many Bundling Strategies Fail?......Page 206
9.6 How Can the Firm Improve the Chances That a Bundling Strategy Will Succeed?......Page 207
Part V: Integrating Marketing Strategy and the Supply Chain......Page 210
10 Channels of Distribution......Page 212
10.1 Choosing a Channel Strategy......Page 213
10.2 Choosing a Channel Strategy Using an Exclusive Distributor: The Case Where the Manufacturer Has Economic Power......Page 214
10.3 Choosing a Channel Strategy Using an Exclusive Distributor: The Case Where the Distributor Has Economic Power......Page 220
10.4 Coordinating Price and Advertising Decisions in the Channel......Page 222
10.5 Channel Strategy in the Multiproduct Case......Page 224
10.6 Choosing Channel Strategy Using Multiple Exclusive Distributors......Page 227
10.7 Choosing Channel Strategy Using Nonexclusive Distributors......Page 229
10.8 Should the Firm Use a Vertical Integration Strategy?......Page 230
10.9 Long-Term Channel and Supply Chain Strategy......Page 232
Part VI: Marketing Policy and Consumer Behavior......Page 234
11 How Does Consumer Behavior Affect Marketing Policy?......Page 236
11.1 What Is the Standard Economic Model of Consumer Choice?......Page 237
11.2 Is the Standard Economic Model of Consumer Choice Good Enough for Marketing Managers?......Page 240
11.3 Do Marketing Managers Use These Theories of Consumer Behavior in Practice?......Page 245
11.4 Some Applications of Prospect Theory......Page 246
11.5 Multiperiod Applications of Prospect Theory......Page 251
11.6 How Should the Firm Change Its Prices over the Business Cycle?......Page 255
11.7 Implications of Prospect Theory for the Human Resources Manager......Page 256
11.8 Implications of Prospect Theory for Financial Markets......Page 258
11.9 What Metrics Should the Firm Use to Evaluate Consumer Behavior?......Page 260
Part VII: How to Choose Advertising and Promotion Strategies......Page 264
12 Coordinating Advertising Strategy, Branding, and Positioning......Page 266
12.1 What Is Product Positioning?......Page 267
12.2 Choosing Advertising Message Strategy......Page 268
12.3 Measuring the Effectiveness of an Advertising Message......Page 276
12.4 Managerial Implications for Branding and Positioning Existing Products......Page 281
12.5 Managerial Implications for Positioning New Products and Rebranding Existing Products......Page 287
12.6 How Should the Firm Coordinate Its Advertising Message Strategy with Other Marketing Decision Variables?......Page 292
13 Determining the Advertising Budget......Page 294
13.1 Advertising and Marketing Strategy......Page 295
13.2 How Should the Firm Coordinate Its Price and Advertising Decisions? Some Basic Concepts......Page 298
13.3 How Should the Firm Coordinate Its Price and Advertising Policy to Maximize Short-Run Performance under Certainty?......Page 303
13.4 Implications for Choosing Advertising Policy over the Product Life Cycle......Page 304
13.5 How Should the Firm Vary Its Price and Advertising Policies over the Business Cycle?......Page 308
13.6 How Should the Firm Coordinate Its Price and Advertising Policy in the Short Run When Demand Is Uncertain?......Page 309
13.7 How Should the Firm Coordinate Its Price and Advertising in the Long Run When Demand Is Certain?......Page 311
13.9 Corporate Image Advertising......Page 313
14 Measuring Advertising Productivity......Page 316
14.1 How Can the Firm Measure Advertising Productivity?......Page 317
14.2 How Can the Firm Measure Advertising Productivity Using Historical Data?......Page 318
14.3 How Can the Firm Measure the Productivities of Different Advertising Media?......Page 326
14.4 Measuring Media Productivity Using Reach Models......Page 327
14.5 Measuring Media Productivity Using Gross Rating Point Models......Page 331
14.6 How Much Should the Firm Be Willing to Pay for Advertising in a Given Medium Based on Standard Commercial Rating Scores?......Page 333
14.7 How Should the Firm Determine When to Purchase Advertising Space and How Much to Spend on It?......Page 336
14.8 Measuring Media Productivity Using Sales Models......Page 344
14.9 Dynamic Carryover Effects......Page 345
Part VIII: How to Choose Compensation Plans......Page 348
15 How Should the Firm Compensate Managers to Maximize Performance?......Page 350
15.1 The Single-Product Firm: Short-Run Horizon......Page 351
15.2 The Single-Product Firm: Long-Run Horizon......Page 352
15.3 The Multiproduct Firm: Short-Run Horizon......Page 356
15.4 The Multiproduct Firm: Long-Run Horizon......Page 357
15.6 What Roles Should the Finance Department and Senior Management Play in Determining the Firm's Compensation Plans?......Page 359
16 How Should the Firm Compensate Its Sales Force? The Basic Model......Page 362
16.1 Reservation Income......Page 363
16.2 How Should the Firm Compensate Its Sales Agent If the Sales Agent's Effort Is Observable?......Page 364
16.3 Should the Firm Pay the Sales Agent Using a Draw System?......Page 370
16.5 How Does the Firm's Cost Structure Affect the Sales Force Compensation Policy?......Page 371
16.6 What Compensation Plan Should the Firm Use When It Delegates Decision-Making Authority to the Sales Agent?......Page 375
16.7 How Will the Internet Affect the Firm's Sales Force Compensation Plan?......Page 377
16.8 What Compensation Plan Should the Firm Use if It Hires the Sales Agent Using a Multiperiod Contract?......Page 379
17 Model Extensions: How Should the Multiagent/Multiproduct Firm Reward and Measure Sales Force Performance?......Page 385
17.1 How Should the Single-Product Firm with Multiple Salespeople Compensate Its Sales Force?......Page 386
17.2 How Does the Firm's Market Segmentation Strategy Affect the Firm's Compensation Plan?......Page 388
17.3 How Should the Multiproduct Firm Compensate Its Sales Force?......Page 390
17.4 How Should the Multiproduct Firm Measure Sales Force Productivity?......Page 395
Part IX: How to Allow for Competitive Reaction......Page 402
18 How to Make Marketing Decisions When Competitors React: A Game-Theoretic Approach......Page 404
18.1 What Is the Firm's Objective When Competitors React?......Page 405
18.2 Choosing Optimal Strategies When Competitors React: Basic Methodology......Page 407
18.3 Choosing Optimal Strategies When Competitors React: Some Refinements......Page 412
18.4 Some Additional Examples of Optimal Decision Making When Competitors React......Page 417
18.5 What Does Competitive Reaction Imply about Data Collection and Data Analysis?......Page 425
18.7 How Can the Firm Make Sequential Decisions after Allowing for Competitive Reaction?......Page 428
Appendix......Page 434
Part X: Other Applications of Fusion for Profit......Page 440
19 Measuring and Building Brand Equity......Page 442
19.1 When Does Brand Equity Exist?......Page 443
19.2 How Does the Name of a Product Affect Brand Equity?......Page 444
19.3 Brand Name and Pricing Strategy......Page 447
19.4 Strategies for Building Brand Equity......Page 451
19.6 Should the Firm Use a Brand's Market Share to Measure Brand Equity?......Page 453
19.7 Measuring Brand Equity Using Financial Data: The Net Present Value Method......Page 454
19.8 Measuring Brand Equity Using Financial Data: Tobin's q-Ratio Method......Page 458
19.9 Measuring Brand Equity in a Competitive Market Using Behavioral Data......Page 459
20 How Marketing Policy Affects Consumer Well-Being and Social Welfare......Page 465
20.1 What Is Social Welfare and How Is It Measured?......Page 466
20.2 Is Profit Maximization Compatible with Maximizing Social Welfare?......Page 468
20.3 Do Consumers and Society Gain When Firms Give out Free Samples?......Page 471
20.4 Do Consumers and Society Gain When the Firm Has a Learning Curve?......Page 472
20.5 Do Consumers and Society Gain When There Are Demand Dynamics?......Page 474
20.6 Are Quantity Discounts Good for Consumers and for Society?......Page 475
20.7 Does Advertising Make Consumers and Society Better Off?......Page 477
20.8 How Does Advertising Affect Consumer Well-Being and Social Welfare over the Product Life Cycle?......Page 487
20.9 Is Competitive Advertising Good or Bad for Consumers and for Society?......Page 489
20.10 How Does Product Bundling Affect Consumer Well-Being and Social Welfare?......Page 493
20.11 Do Consumers and Society Gain When the Firm Introduces New Models of Its Product over Time?......Page 498
21 Internet Marketing......Page 503
21.1 How Does the Internet Affect Prices?......Page 504
21.2 Will the Internet Lead to Commoditization?......Page 507
21.4 Measuring the Productivity of Internet Advertising......Page 513
21.5 How Much Should the Firm Be Willing to Spend on Internet Advertising?......Page 516
21.6 How Should Search Engines Price Internet Advertising?......Page 520
21.7 How Should the Firm Coordinate Its Internet Advertising and Sales Force Strategies?......Page 524
21.8 How Does the Internet Affect Social Welfare?......Page 527
21.9 How Will the Internet Affect the Advertising Industry in the Future?......Page 529
22 Mergers and Acquisitions......Page 534
22.1 The Rationale for Mergers and Acquisitions......Page 535
22.2 The Potential Gains from Mergers......Page 536
22.3 Do Intangible Assets Add Value in a Merger?......Page 538
22.4 Do Mergers Work?......Page 541
22.5 Alternative Acquisition Strategies......Page 543
22.6 Brand Equity and Mergers......Page 545
22.7 The Roles of Private Equity Firms and Hedge Funds......Page 553
22.8 International Mergers......Page 556
23 How to Choose Optimal International Marketing Strategies......Page 560
23.2 What Are the Major Pitfalls in International Marketing?......Page 562
23.3 Under What Conditions Will International Marketing Strategies Succeed?......Page 565
23.4 How Should the Multinational Firm Allocate Resources across Countries?......Page 566
23.5 Should the Multinational Firm Change Its Product Design across Countries?......Page 570
23.6 What Is the Role of Country Managers and How Should the Parent Company Measure and Reward Them?......Page 572
23.7 What Organizational Structure Should the Multinational Firm Use?......Page 579
23.8 How Should the Firm Choose and Implement the Optimal Outsourcing Strategy?......Page 582
23.9 What Strategies Should the Firm Use to Retain Personnel It Employs at an Outsourcing Center?......Page 587
Notes......Page 592
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