Last week we talked a lot about how the value of a company is measured, and ended up with an incredibly incisive discussion about how marketers contribute to that value. This week, we’re going to look at Southwest Airlines, and some new ways to understand how marketing has helped them consistently beat the competition. If you’re just joining the discussion, you can get up to speed by visiting the index to this Book Discussion on Victor Cook’s Competing for Customers and Capital. If you missed the last thread, I highly recommend reading Vic’s comments on how marketers can demonstrate the contribution of value to the bottom line in a way that’s relevant in the boardroom.

Once again, Vic has put together a narrated PowerPoint to discuss the important concepts in his analysis of Southwest Airlines. This section looks at Southwest the same way a savvy investor would. But instead of looking at typical ways to measure stock performance like, say, a price/earnings ratio, Vic introduces a number of measures that look at a company’s performance within a competitive group, and at how marketing impacts performance.

One example is the Value/Sales differential, which clearly differentiates the winners and losers of a competitive group according to their ability to generate shareholder value, relative to their share of revenue. Southwest consistently soars above the competition in its ability to generate a higher premium for its stock among investors, compared to its share of revenue among competitors. There are a number of marketing factors to consider in explaining the relative market value of a company among its competitors, which Victor will help elucidate this week.

As a lead in to this week’s discussion, I’d like to ask Victor to discuss what has been missing from the investor’s tool kit in measuring the value of a company on the stock market, and how that relates to marketing.

If you’re just joining us, we’re having a fascinating discussion about the future of marketing in light of significant changes in the business environment. We’re discussing Victor Cook’s new book, Competing for Customers and Capital. If you want to get up to speed, hop over to the Book Discussion page to get started.

Okay, let’s move on to the second bullet point in this discussion.  I’d like to propose some questions for Vic (and Jonathan, I hope you don’t mind being brought in on this one).

First, I think some of those who have read your posts and reviewed Vic’s narrated power point are a little bewildered. On the one hand Vic says in the power point presentation that intangibles are like "clouds in the sky," which makes them difficult to measure, at best. On the other hand you both reported in your last posts the percentage of market value accounted for by intangibles. How did you move from the clouds in the sky to percent of intangible value? Can anyone apply your methods? Please give us some examples of where you got the data and how you used it to come up with these results.

Second, you both provide a list of the types of intangible value. Vic, on page 16 of your book you say intangibles are created from the following list of "assets," and point out they don’t actually appear on the company balance sheet:

technology-based
customer-based
market-based
talent-based organizational related
contract/statutory based

In his post yesterday Jonathan said they are:

technology-related
contracts
artistic content
customer knowledge
marketing-related

Looks to me like you guys agree on the framework to describe these "assets." This is a good start.  Now, can you give us some idea how to measure the costs of those "assets"? And maybe say something about why they don’t show up on the balance sheet?

Today is the launch of an extended book discussion on Victor J. Cook, Jr.’s new book Competing for Customers and Capital. If you have any interest in marketing beyond managing campaigns, this is the book that puts marketing on the map of boardroom business strategy, detailing a framework that demonstrates the connection between marketing processes and shareholder value.

Mr. Cook is joining us for this online discussion, and is even making supplementary materials available that he uses for his graduate courses in marketing at Tulane, including narrated powerpoints to elaborate important ideas. If you’d like to join the discussion, there’s no fee or registration. Just click over the Book Discussion page where you’ll find some background on the book and a permanent index to all the discussion topics that emerge over the next few weeks.

This week we’ll be discussing only the first chapter of Competing for Customers and Capital, which lays the foundation for Cook’s framework and introduces some new high-level concepts in marketing performance measurement. This chapter covers three broad concepts:

1. The role and importance of Intangible Value in creating shareholder value.
2. The need for a common framework that marketing and finance managers can use to measure the cost of enterprise marketing and its impact on shareholder value.
3. An introduction of that common framework, with a brief discussion of various comparative measures that use financial data to link the enterprise marketing processes of competitors with relative market share.

If you haven’t yet picked up a copy of the book, you can gain some understanding of the material by clicking over the Book Discussion page and reviewing the supplemental material linked under Chapter 1.

Today, it seems the most logical place to start the discussion is a focus on the role of Intangible Value. For those new to this discussion, a business creates value by using its tangible assets (e.g.: printers, machinery, factories) and intangible assets (e.g. patents, relationships, intellectual property, brand loyalty). The tangible value of a company can be fairly easily measured by adding up the current value of tangible assets. But intangible value is much harder to measure. How do you measure the current value of a set of relationships, or the good will of a loyal customer base that will always buy your product?

Since the true value of a company is a combination of both tangible and intangible value, it’s important to have meaningful ways to determine and measure all the intangibles. The reason becomes clear when you look at the sometimes dramatic difference between the tangible value of a company and its value on the stock market. If you look at, let’s say, a paper mill, the difference between the sum total of the company’s tangible assets (it’s mills and machinery) and the company’s value on the stock market may not be so great. But if you look at Amazon.com, the stock value soars with seeming "irrational exuberance" over the relative value of Amazon’s tangible assets (it’s offices, computers and warehouses). The obvious implication is that Amazon has phenomenal ability to create shareholder value with intangible assets–those things that are really hard to measure.

For some reason–and this will be my question to Victor today–the importance of intangible assets has grown tremendously in importance over the past decade or two. Back in, let’s say, the fifties, an overwhelming proportion of a company’s value was defined by its tangible assets. Today, the tide has turned dramatically, and for companies in many industries, more market value is determined by intangible than tangible value. Can you talk a little bit about this shift and what it means for businesses and shareholders? How dramatic is the change, and where does it appear to be heading? And how are businesses, investors, and of course marketers, responding to the changing determination of value?

If the traffic and discussion from this week are any indication, we should get some good steam with the dialog about marketing finance that will kick off here next week with an extended discussion of Victor Cook’s Competing for Customers and Capital. (Background on the book and discussion.)

As the dialog in the comments over the last two posts shows, this dialog moves very quickly toward a discussion about the future of marketing, which is exactly why I chose this book. Marketing is in the midst of a dramatic sea change, and is currently bobbing around in the shifting tide like a boat without a rudder. Marketers are buffetted with new theories and best-selling fads at every turn–It’s About the Customer, No It’s About Metrics, No It’s About Leads, No It’s About Brand. Meanwhile, the CEOs are saying, look, tell me exactly what it is you actually do that delivers revenue. Well, that would be a nice CEO. Most are really saying, hey, just go report to the sales department.

Competing for Customers and Capital is a watershed book that lays the foundation for defining marketing’s relevance to business strategy. We’re not talking about campaign metrics or brand measurement. We’re talking about how marketing processes increase revenue and shareholder value. This is a story any marketer must understand if they have any aspirations toward a seat in the boardroom.

Please join us next week to kick off the book discussion, and invite a friend.

I’ve been talking this week with Victor Cook as a prologue to next week’s launch of a book discussion on Competing for Customers and Capital, which you can learn about here.

In order to get the discussion rolling, I’d like to post some questions for readers to answer in the comments section. This dialog can’t happen without you, so if you want to see useful content, please jump in and help get us spark it.

Over the past few years, the defining challenge for marketers has been proving performance. It shows up in the buzzwords about ROI, the popularity of dashboards, and the day-to-day demand for accountability. Marketing’s dilemma is that so much of what we do is intangible, and the path to the bottom line is anything but clear. So what I’d like to ask of readers on this thread is to respond to one of the following questions, or both:

1. What programs, activities or events do you believe influence the intangible value–or the perceived value–of your company to investors. This applies whether you’re publicly traded or not.

2. How can you trace the cost or expense associated with those programs, activities or events back into your company’s financials? And do you currently do so?   

Today I’m kicking off Marketonomy’s first Book Discussion, featuring Victor Cook’s Competing for Customers and Capital. This week we’ll be talking with Victor about the general concepts behind the book, before diving into the book material next week. If you want background on this book, or how the book discussion works, click through to the Book Discussion page.

I want to kick off today by saying why I chose Competing for Customers and Capital as the first book to dialog on Marketonomy. Victor Cook has been a top marketing scholar for more than 40 years, and has written some of the most influential works on marketing strategy and finance. True, he hasn’t written the kind of Snappy and Sappy marketing books that might have made him a pop guru. Instead, he has consistently developed incisive theories that challenge the status quo. 

His latest book cuts right to the heart of today’s marketing dilemma: demonstrating the bottom-line value that marketing delivers to successful businesses—and he does it in an unexpected and ground shaking way. This is not another book about Marketing ROI, or dashboards, scorecards and campaign metrics. This is a book directed straight at the boardroom, demonstrating through financial accounting data how business and stock performance can be critically and effectively measured in light of enterprise marketing processes. In other words, measuring a company’s revenue and market value is important, but you can learn much more by comparing how efficiently and effectively companies use their resources to generate that revenue and market value.   

I’m starting with this book because today marketing’s biggest dilemma is not about performance metrics or customer intimacy or new communications technology, even though these are all mission critical challenges. Marketing’s biggest dilemma is the lack of a guiding principle that defines a clear and consistent strategic role in the corporation. So many marketers dream of gaining a respected seat in the boardroom, and yet most can’t articulate the business strategies that drive boardroom decisions, much less stand up and argue effectively for the value of marketing processes in informing those decisions. Now is the time, and the opportunity, to turn the tide.

Victor Cook’s new book bridges the gap from marketing to boardroom strategy by clearly establishing the relevance of marketing processes to the creation of shareholder value. This is an important opportunity for marketers to gain a better understanding of how marketing fits into the strategic business landscape. And in the light of that understanding, the cyclical trends that continually redefine marketing—from branding to customer intimacy, from lead generation to marketing ROI—will make far greater sense in the larger scheme of improving the practice of the marketing profession.

So Victor: as a lead in to this in-depth discussion, maybe you can tell us where this book originates in your work over so many years.