New Research Shows Why Advertising Lifts Some Company Stock Prices And Not Others

New Research Shows Why Advertising Lifts Some Company Stock Prices And Not Others
SHARE
THIS



Nearly every research study shows that advertising has a positive impact on sales, but results are mixed when it comes to its effectiveness on stock prices, often an indicator of future sales.

But new paper ‘Advertising Effectiveness: The Moderating Effect of Firm Strategy’ from the Kelley School of Business at Indiana University claims to have the answer.

The study has found companies that set out to differentiate themselves through brand equity, and as a result create intangible company value, often benefit more from advertising than companies who set their sights purely on becoming cost leaders.

“They’re both very valid strategies. Different companies choose different approaches. They both can be very successful for companies,” an assistant professor of marketing at Kelley Niket Jindal said.

“Advertising can increase awareness; it can increase sales regardless. But it’s only for those companies that have a differentiation strategy where advertising’s going to build up brand equity … and shareholder value.

“That’s not to say that it’s wasteful spending for those cost leaders; there’s still value in that it’s increasing their sales. But those kinds of companies shouldn’t expect to see an impact beyond the current year’s sales.”

It makes sense to suggest that companies who are cost leaders are far less visible in consumers’ minds and may include commodities firms, manufacturers and budget retailers that focus on squeezing out costs.

The researchers predicted that companies with a differentiation strategy would disclose costs associated with marketing, because it was “fundamentally central to their strategy”. Obviously, shareholders would be interested in this information as well.

And as it turns out, for firms operating with a cost leadership strategy, shareholders tend to build their intangible market-based assets through mechanisms other than advertising.

“These are not inferior firms by any means. They are really healthy firms, but the role of marketing in these firms is a very different thing,” Jindal said.

For example, business-to-business firms such as aircraft maker Boeing develop such assets through their selling organisations, not advertising. Tech firms develop assets through research and development rather than through advertising.

“We’re not saying that cost leaders are the poor stock performers,” Jindal added. “They can add great stock price. What we’re saying is advertising isn’t going to have any impact on that stock price.”

 

Please login with linkedin to comment

Latest News

Bauer’s Cosmo Named Official Mardi Gras Media Partner
  • Marketing
  • Media

Bauer’s Cosmo Named Official Mardi Gras Media Partner

Bauer Media has announced Cosmopolitan magazine as an official media partner of the 2018 Sydney Gay and Lesbian Mardi Gras. COSMO’s Mardi Gras sponsorship will deliver a month-long celebration of activities in the Parade’s 40th anniversary year. In addition to the event sponsorship, COSMO is producing its second Pride Issue for March, on sale 5th […]

A Guide To Understanding Your Digital Marketer
  • Opinion

A Guide To Understanding Your Digital Marketer

In this guest column, Logie-nominated journalist, Leisa Goddard (main photo), who is also the managing director of media, PR and digital agency, Adoni Media, offers her personal guide to making your way through digital marketing buzzwords and gobbledygook… Do you feel as though your digital marketer speaks to you in a language you don’t understand? In today’s highly-competitive world […]

Opinion

by B&T Magazine

B&T Magazine
SpotX Appoints Gavin Buxton As Asia MD
  • Advertising

SpotX Appoints Gavin Buxton As Asia MD

Video advertising platform SpotX has announced it has appointed Gavin Buxton as managing director of Asia to lead the company’s expansion in the region. Buxton has over 17 years’ global experience in the digital advertising space, having worked in leadership roles at tech and publishing companies, including Microsoft, Turner Broadcasting, and LinkedIn, with the last […]

Big Mobile Doubles Down On Ad Tech & Rebrands
  • Advertising
  • Technology

Big Mobile Doubles Down On Ad Tech & Rebrands

B&T Awards 2017 finalist Big Mobile has unveiled a fresh look to reflect its new ad tech credentials. The company successfully pivoted its business from ad network to mobile ad tech vendor when it announced a joint venture (JV) with Widespace in October last year. As a result of the business changes, Big Mobile wanted […]

March One Appoints New Senior Account Manager
  • Advertising

March One Appoints New Senior Account Manager

Independent ad agency March One has appointed a fresh face to the team, with Melanie Tozer to reinforce its mission to put humans first as a senior account manager. Tozer (pictured above), an up-and-coming talent from New Zealand, will align her extensive experience in FMCG marketing with March One, having worked on accounts for Bunnings […]

What To Expect From The App Economy In 2018
  • Opinion
  • Technology

What To Expect From The App Economy In 2018

Here's an insightful, authoritative synopsis of the app economy. So, you're right, it wasn't written by a B&T journo.

Opinion

by B&T Magazine

B&T Magazine
Farm Foods Rebrands To Target Modern Aussie Families Via Tiny Hunter
  • Marketing

Farm Foods Rebrands To Target Modern Aussie Families Via Tiny Hunter

Seasoned meat supplier Farm Foods Butchers has rebranded its selection of sausages, burgers, meatballs and ready-to-cook meat products to appeal to the modern Aussie family. The 100 per cent family-owned and operated business based in Breakwater, Victoria worked with Sydney-based branding and packaging design company Tiny Hunter. Together, they created a brand which connects with […]

Animal Logic Shows Off New Website In Collaboration With Protein One
  • Marketing
  • Media

Animal Logic Shows Off New Website In Collaboration With Protein One

Aussie visual FX and feature animation studio Animal Logic has unveiled its new web experience – a reimagined website – in collaboration with Sydney digital agency Protein One. Animal Logic felt it was important to engage a local digital agency to represent its brand online. The company’s online personality was one that required a team […]

Raunchy Marathon Ad Causes Utter Confusion
  • Campaigns

Raunchy Marathon Ad Causes Utter Confusion

B&T likes to award the "dumbest ad of the day" with a 15-inch devon knob. And this would be a processed meats shoe-in.

by B&T Magazine

B&T Magazine
Red Agency Wins Bio-Oil PR Account
  • Marketing

Red Agency Wins Bio-Oil PR Account

Red Agency staff set to challenge for the record for most people to squeeze into a lift after winning Bio-Oil business.