Shareholder Value, Branding, and Value-Based Marketing Madden, Essay

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Shareholder Value, Branding, and Value-Based Marketing

Madden, Fehle and Fournier (2006) argue that the creation of shareholder value through the use of branding can be empirically demonstrated. Prior to their study, marketing executives lacked the ability to establish the value of branding in unequivocal financial terms, placing them at a disadvantage. Finance researchers have been primarily interested in the creation of shareholder value, while marketing research has focused on the creation of customer value. Given that senior management has been more aligned with financial metrics, shareholder value assumed a higher priority than customer value.

Madden et al. used a financial analysis tool to research the relationship between branding and shareholder value. They selected the Fama-French model to investigate the effects of branding on a stock's performance. They determined a portfolio of firms with established brand value using Interbrand brand valuation estimates. They then built a portfolio that included the world's most valued brands (WMVB) and compared its performance with two benchmark portfolios (2006).

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The results of the analysis showed that the WMBV portfolio significantly outperformed the other two portfolios, and it did so with less risk. Using the monthly stock returns for the period 1994 -- 2000, Madden et al. demonstrated that firms that developed strong brands created greater value for their shareholders than did the benchmark firms (2006).

With respect to value-based marketing, the focus on shareholder value is itself an example of customer-centric thinking. Madden's research was an exercise in discovering what customers value; in the case of investors, they want and value performance. The focus of the research was inherently customer centric, intended to establish a connection between branding and what buyers/investors desire. This same focus on buyer goals also drives value-based marketing.

The findings by Madden et al. support a value-based view….....

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