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.