New Study: Strong Correlation Between Strategic Marketing and Stock Price Appreciation

Shareholders Seem To Like Strong Commercial Plans More Than Innovation Stories

In trying to be more innovative, are many companies overlooking a key ingredient that can move their share price and/or market share?  According to a study by Cecelia Mundt, an adjunct professor and doctoral candidate in finance at Sacred Heart University – and Impact Planning Group’s newest associate – companies that aren’t investing in powerful strategies to market new and existing products may be leaving massive profits on the table.

Cecelia’s surprising findings, when paired with a similar study conducted in 2010, suggests the following: public company’s stock prices moved more when companies strategically commercialize a product – detailing their segmentation, targeting and/or positioning approaches – than when they simply announced a new innovation.  “Innovators get many accolades and rightfully so,” said Cecelia, “but strategic marketers are most certainly underrated.”

Event Studies Can Help Us Estimate the Return on Strategic Marketing Activities

Using an approach called “event studies,” Cecelia and other researchers measure the stock price movements of companies immediately after noteworthy announcements.  The finance world uses these studies to understand how critical events impact a firm’s financial position.

An event study of the iPhone introduction by Korkeamaki and Takalo in 2010 found that Apple’s stock price increased 3 times more significantly at the commercial introduction of the product than when Apple previously announced its cell-phone patents.

This means that the market valued how Apple intended to market the iPhone more than the fact that they had invented a new smartphone.  Cecelia’s follow-on study seems to indicate that this is true in many cases outside of Apple, and not solely attributable to Steve Job’s legendary product introduction events.

“Time and again, across many industries, we saw a considerable stock price increase when companies announced a clear approach to segment, target and differentially position their products,” Cecelia observed.  “This was true for companies announcing new approaches for existing products, as well as for those introducing completely new products.  On the flip side, when we analyzed announcements that were broad and without clear strategic marketing focus, we saw no stock price movements.”

Can Better Strategic Marketing Boost Your Innovation Success Rate — And Your Organic Growth Rate?

Analyses by Harvard Business Review and others peg the average investment in both innovation and marketing at about 10% of company budgets.  However, at least 5% of marketing budgets are spent on execution (e.g., advertising, promotions, etc.)  The remaining 5% can be conservatively allocated to strategic marketing activities such as customer research, the salaries of strategists, activities to align the organization around the plan, etc.

Thus, companies appear to spend more than twice as much on activities to create new products and services as they do on strategically marketing new and existing offerings, and – according to event studies — get at least equal returns.  In other words, the return on strategic marketing activities may be at least double the return on activities to create new products.

The case for strategic marketing returns is even more compelling when you consider the qualitative evidence.  In our book The Accidental Marketer, we note that Dell didn’t invent computers, Southwest didn’t invent airline travel, and Lexus didn’t invent luxury cars.  Instead, they used strategic marketing brilliance to dominate their industries and gain astronomical returns.

Fortunately, innovation and strategic marketing are not mutually exclusive.  The biggest game changers in business are innovative products that are also well marketed.

It’s Not Enough To Be Committed to Innovation Alone

The bottom line:  Companies that make sure their marketers have the tools, training and discipline to differentiate their products achieve healthy organic growth, and give their new offerings the best chance to succeed.

Ask yourself this question:  Is your company’s commitment to strategic marketing anywhere close to its commitment to innovation?  If not, you may find that you have a ripe opportunity to invest in something that can bring much greater returns to you, your stakeholders…and your stockholders.

8 Responses to “New Study: Strong Correlation Between Strategic Marketing and Stock Price Appreciation”

  1. Denise Lewis

    Excellent article. Strategic marketing allows organizations to interactively gauge resistance to adoption and pivot approach to increase brand loyalty.

  2. John Maynie - VP of Business Development

    I’m in agreement with study! Based on my experiences Strategic Marketing and Innovation in combination are essential in developing game changing solutions and products for market share growth in existing core and creating new business. By effectively positioning using Startegic Marketing for the companies current and new customer(s) or market(s) on what’s important and making the emotional connection on truly tangible benefits is paramount for winning and achieving sustainable double digit growth.

  3. Llewellyn Sinclair

    Fully agree with the article as well as the research evidence that supports it. Although innovation/new products or services are important in providing sustainability, Strategic marketing and positioning strategies have a huge impact on providing the competitive advantage for the company and provides a new “lease of life” for existing products and helps marketers focus on areas that really matter or was not previously obvious.

  4. Steven Brien

    Excellent article.

  5. Inga GERARD

    Thank you for this great article, I will share with my network on LinkedIn. Good to have another study available showing that strategic marketing is an important key to success.

  6. Karine Savary-Bataille

    Agreed! Having an innovative product or be the first is great, but it is not always the case, and even if not, taking the time preparing and building an innovative go to market strategies is also a key to success and is a real way to actually be innovative …

  7. Luc DUMAND

    If we take the example of Apple it seems to me logical that when large public (& potential investors) discovered the iPhone through the now famous “Keynotes” of Steve Job, the share price did jump. The audience could see the product and understand its functionalities … it got interested into it and wanted to buy one.
    On the other hand how is something like this supposed to happen at the time of the announcement that a new patent had been filed ? Only specialists in the field could understand at that stage the concept and what it meant in terms of innovation and perhaps imagine how product could look like. Therefore at the early stage (disclosure of iPhone new patent filing & publication) I would not expect the shareprice of Apple to have jumped.
    It is similar for the Pharmaceutical industry. Patent filing (signature of discovery) is done discretely, to the point that if you try to identify new products through published patents (worded in a “cryptic” way) it is quite difficult unless you are specialized in this field. On the other hand, once a company receives approval from the authorities and launches it, medical community and large public’s attention raises and as soon as sales (or profit) projections are given to the media, financial analysts will communicate about it and shareprice shall logically progress.
    I do not see there a clear link with strategic marketing, but more about timing of disclosure to the public of future sales/profit prospects. To me a relevant event would be the time when these companies implemented a segmentation approach (in terms of customer and/or geography), switching from a “one size fit all” approach.

  8. Tom Spitale

    Luc, thanks for your challenge — we appreciate the opportunity to examine these issues, we are all better off for the dialogue!

    With regards to your comment about only specialists understanding the implications of new patents: in the US stock market, the vast majority of the money is professionally managed, and it is the job of these money managers to understand the implications of patents and technology. These same “smart money” experts not only understand the value of patents when they are first announced, but also the value of solid commercial approaches. So we do think the study is demonstrating the value of strategic marketing.

    However, your point about differentiating between simply announcing a company’s “commercial plans” and announcements that detailed a segmented approach to the market is very interesting. The study did not differentiate the commercial announcements in this way. Based on your comment, we are seriously considering investing in a follow-on study to look at this distinction, as it would be very interesting! We do know from our own experience (and from books such as Larry Selden’s “Angel Customers/Demon Customers”) that successfully executing on needs-based segmentation has a considerable impact on company sales and profits.

    Again, thanks for your thoughts and we look forward to more dialogue from you and other readers about this topic!

    Tom

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