312 The Marketing Book
2 However, there is a crucial weakness in the
way marketing authors and managers
themselves have approached the marketing
mix. It has never been clear in marketing
theory or practice what the objective is in
determining the mix. Without a clear goal it
is impossible to design an optimal marketing
mix.
3 Marketing professionals have tended to assume
the objective was to design a mix that meets
purely marketing criteria – notably customer
satisfaction or market share. But setting prices,
communications budgets or designing products
that maximize sales or customer satisfaction is
a sure route to financial disaster, because it
invariably results in negative cash flow and a
failure to cover the cost of capital. Consumers
will always perceive value in lower prices,
more features and high customer support
investments.
4 Equally fallacious is the view of many
accountants that the marketing mix should be
used to increase profits. This short-termism
will usually produce immediate profit
improvements but the cost, as many firms have
discovered, is a long-term erosion in their
market shares and the value investors place on
the company.
5 In the private sector, the right marketing mix
is the one that maximizes shareholder value.
Shareholder value as an objective avoids the
short-termism of the accountancy focus
because it leads managers to take into account
all future cash flows. Long-term performance is
almost always a much more important
determinant of shareholder value than the
profits earned in the next few years. It also
avoids the fallacy of the market-led approach
by emphasizing that the purpose of the firm is
not market share but to create long-term
financial value.
6 While applying the shareholder value approach
has, of course, many problems associated with
forecasting future sales and cash flows (e.g.
Day and Fahey, 1988, pp. 55–56; Doyle, 2000,
pp. 64–66), it does provide a clear, rational
direction for research and decision making.
7 Finally, shareholder value provides the vehicle
for marketing professionals to have an
increasing impact in the boardroom. In the
past, senior managers have often discounted
the recommendations of their marketing teams
because the marketing mix and strategies for
investment have lacked a rational goal.
Marketers have not had the framework for
translating marketing strategies into what
counts for today’s top executives – maximizing
shareholder value. Value-based marketing
provides the tools for optimizing the marketing
mix.References
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