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:
- The role and importance of Intangible Value in creating shareholder value.
- 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.
- 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?