Roland T. Rust, Tim Ambler, Gregory S. Carpenter, V.

Kumar, &
Rajendra K. Srivastava

Measuring Marketing Productivity:

Current Knowledge and Future
Directions
For too long, marketers have not been held accountable for showing how marketing expenditures add to share-
holder value. As time has gone by, this lack of accountability has undermined marketers’ credibility, threatened the
standing of the marketing function within the firm, and even threatened marketing’s existence as a distinct capa-
bility within the firm. This article proposes a broad framework for assessing marketing productivity, cataloging what
is already known, and suggesting areas for further research. The authors conclude that it is possible to show how
marketing expenditures add to shareholder value. The effective dissemination of new methods of assessing mar-
keting productivity to the business community will be a major step toward raising marketing’s vitality in the firm
and, more important, toward raising the performance of the firm itself. The authors also suggest many areas in
which further research is essential to making methods of evaluating marketing productivity increasingly valid, reli-
able, and practical.

arketing practitioners and scholars are under ing Science Institute 2000). Indeed, the Institute of Man-

M increased pressure to be more accountable for and

to show how marketing expenditure adds to share-
holder value (Doyle 2000). The perceived lack of account-
agement Accountants (1996) reports the increasing use of
nonfinancial measures.
This article proposes a broad framework for assessing
ability has undermined marketing’s credibility, threatened marketing productivity, describes what is already known
marketing’s standing in the firm, and even threatened mar- about marketing productivity, and suggests areas for further
keting’s existence as a distinct capability within the firm. research. We conclude that it is possible to show how mar-
The Marketing Leadership Council (2001, p. 27) reports keting expenditures are linked to shareholder value. Dis-
that 70% of advertising budgets are in decline, compared semination of the methods proposed in the past ten years to
with 51%, 47%, and 44% for human resources, information the business community will be a major step toward main-
technology, and general counsel functions: “Having taining marketing’s vitality in the firm and, more important,
exhausted cost-saving opportunities in virtually every other toward raising the performance of the firm itself.
function,” marketing is “next in the line of fire.”
There are three challenges to the measurement of mar- A Framework for Marketing
keting productivity. The first challenge is relating marketing
activities to long-term effects (Dekimpe and Hanssens
Productivity
1995). The second challenge is the separation of individual What We Mean by “Marketing Productivity”
marketing activities from other actions (Bonoma and Clark
We first need to clarify the ways marketing activities build
1988). Third, the use of purely financial methods has
shareholder value. For example, when we talk of marketing
proved inadequate for justifying marketing investments:
“investment,” we must identify the marketing assets in
Nonfinancial metrics are also needed (Clark 1999; Market-
which we invest and understand how the assets contribute to
profits in the short run and provide potential for growth and
Roland T. Rust is David Bruce Smith Chair in Marketing, Chair of the Mar- sustained profits in the long run. In this context, the spot-
keting Department, and Director of the Center for e-Service, Robert H. light is not on underlying products, pricing, or customer
Smith School of Business, University of Maryland (e-mail: rrust@rhsmith. relationships (see Webster 1992) but on marketing expendi-
umd.edu). Tim Ambler is a senior fellow, London Business School (e-mail:
[email protected]). Gregory S. Carpenter is James Farley–Booz Allen tures (e.g., marketing communications, promotions, other
& Hamilton Professor of Marketing Strategy, Kellogg School of Manage- activities) and how these expenditures influence market-
ment, Northwestern University (e-mail: [email protected] place performance. The firm should have a business model
ern.edu). V. Kumar is ING Chair Professor and Executive Director of the that tracks how marketing expenditures influence what cus-
ING Center for Financial Services, University of Connecticut (e-mail: tomers know, believe, and feel, and ultimately how they
[email protected]). Rajendra K. Srivastava is Roberto C. Goizueta behave. These intermediate outcomes are usually measured
Chair in e-Commerce and Marketing, Goizueta Business School, Emory
by nonfinancial measures such as attitudes and behavioral
University (e-mail: [email protected]). The authors thank
Don Lehmann for his wise guidance and insightful ideas. intentions. The central problem we address in this article is
how nonfinancial measures of marketing effectiveness drive

Journal of Marketing
76 / Journal of Marketing, October 2004 Vol. 68 (October 2004), 76–89
the financial performance measures such as sales, profits, know about elements of this “marketing productivity chain”
and shareholder value in both the short and the long run. as the base for establishing what we need to know before
It is important to understand that marketing actions, summarizing and drawing conclusions.
such as advertising, service improvements, or new product
launches, can help build long-term assets (e.g., brand The Chain of Marketing Productivity
equity, customer equity). These assets can be leveraged to Figure 1 illustrates a broad, conceptual framework that can
deliver short-term profitability (e.g., the advertising and be used to evaluate marketing productivity. It is a chain-of-
promotional expenditures related to stronger brands are effects model that relates the specific actions taken by the
more productive). Thus, marketing actions both create and firm (marketing actions) to the overall condition and stand-
leverage market-based assets. It is also important to distin- ing of the firm. We begin at the upper right-hand side of
guish between the “effectiveness” and the “efficiency” of Figure 1, with the firm’s strategies, which might include
marketing actions. For example, price promotions can be promotion strategy, product strategy, or any other marketing
efficient in that they deliver short-term revenues and cash or firm strategy.
flows. However, to the extent that they invite competitive These strategies lead to tactical marketing actions taken
actions and destroy long-term profitability and brand equity, by the firm, such as advertising campaigns, service
they may not be effective. Consequently, we examine both improvement efforts, branding initiatives, loyalty programs,
tactical and strategic marketing actions and their or other specific initiatives designed to have a marketing
implications. impact. Because we are concerned with productivity, this
The article is organized around the chain of marketing article reduces the full range of marketing actions to tactical
productivity illustrated in Figure 1. We first discuss the ele- actions that require marketing expenditure. The tactical
ments of this framework: marketing strategies and tactics, actions then influence customer satisfaction, attitude toward
their impact on customers, subsequent marketplace conse- the brand, loyalty, and other customer-centered elements. At
quences and their financial implications, and their impact the firm level, these customer measures can be aggregated
on the value of the firm. We next discuss what we already into what we call “marketing assets,” which can be mea-

FIGURE 1
The Chain of Marketing Productivity

Marketing Actions The Firm

Tactical Actions Strategies

Advertising, Promotion strategy,
service improvements, etc. product strategy,
channel strategy, etc.

Customer Impact Marketing Assets

Impact on attitudes, Brand equity,
impact on satisfaction, etc. customer equity, etc.

Market Impact Market Position

Market share impact, Market share,
sales impact, etc. sales, etc.

Financial Impact Financial Position

ROI, EVA, etc. Profits, cash flow, etc.

Impact on Firm Value Value of the Firm

MVA Market capitalization,
Tobin’s q

Measuring Marketing Productivity / 77

sured by such indicators as brand quality, customer satisfac- 2. Customer associations: the strength, favorability, and
tion, and customer equity. uniqueness of perceived attributes and benefits for the firm
Customer behavior influences the market, changing and the brand;
market share and sales. However, it may also be useful to 3. Customer attitudes: the customer’s overall evaluations of
the firm and the brand in terms of its quality and the satis-
consider the firm’s market position as driven by the firm’s
faction it generates;
marketing assets. At any point in time, tactical actions will
4. Customer attachment: how loyal the customer is toward the
have made changes in customers’ mental states, but they firm and the brand; and
may not yet have influenced the firm’s profit and loss 5. Customer experience: the extent to which customers use the
account. Thus, marketing assets represent a reservoir of brand, talk to others about the brand, and seek out brand
cash flow that has accumulated from marketing activities information, promotions, events, and so on.
but has not yet translated into revenue. They enable the firm
to assess the financial impact of marketing (using measures Because the strength and length of the customer or
that we describe subsequently). The next section describes brand relationship matters (Reinartz and Kumar 2002), the
the elements of the chain of marketing productivity in more firm must consider multiple aspects of each customer’s pur-
detail. chase behavior, not just retention probabilities. Conse-
quently, researchers have begun to model other purchase
Elements of the Chain behaviors, such as cross-selling (e.g., Kamakura,
Strategies and tactics. Marketing strategy plays a cen- Ramaswami, and Srivastava 1991), word-of-mouth behav-
tral role in winning and retaining customers, ensuring busi- ior (e.g., Anderson 1998), and profitable lifetime duration
ness growth and renewal, developing sustainable competi- of customers (Reinartz and Kumar 2003). These behaviors,
tive advantages, and driving financial performance through at the individual customer level, influence the aggregate
business processes (Srivastava, Shervani, and Fahey 1999). level of the marketing assets of the firm.
A significant proportion of the market value of firms today Marketing assets. Marketing assets are customer-
lies in intangible off-balance-sheet assets, such as brands, focused measures of the value of the firm (and its offerings)
market networks, and intellectual property, rather than in that may enhance the firm’s long-term value. We focus on
tangible book assets (Lusch and Harvey 1994). The leverag- two approaches to assessing marketing assets that have
ing of intangible assets to enhance corporate performance received considerable attention in the marketing literature:
requires managers to move beyond the traditional inputs brand equity and customer equity.
and outputs of marketing analysis and to incorporate an The concept of brand equity has emerged in the past 20
understanding of the financial consequences of marketing years as a core concept of marketing. A view of brand
decisions, which include their impact on cash flows. equity suggest that its value arises from the incremental dis-
On a more tactical level, managers implement market- counted cash flow from the sale of a set of products or ser-
ing initiatives to increase short-term profitability. In most vices, as a result of the brand being associated with those
settings, this effort requires management of margins and products or services (e.g., Keller 1998). For example, Inter-
turnover. Because better value to customers (or superior brand estimated the value of the Home Depot brand at $84
brands) can be tapped in terms of either price or volume, billion in 1999 (Tybout and Carpenter 2000). Research on
managers need to trade off prices (and therefore margins) brand equity has sought to understand the conceptual basis
against market share. Various programs can be developed to for this remarkable value and its implications. The fruits of
enhance and sustain profitability (e.g., loyalty programs, this research are changing how people think about brands
cross-selling, up-selling); how managers proceed is a matter and manage them. Managers have a deeper understanding
of strategy. The question is, What type of expenditure has a of the elements of brand equity, of how brand equity affects
greater influence on the value of a firm’s customer base: a buyer behavior, of how to measure brand equity, and of the
new campaign for advertisements or improvements in the influence of brand equity on corporate value (e.g., Aaker
quality of service? How do elements of a coordinated mar- 1991; Keller 1998, 2002). It is also important to note that
keting strategy influence the purchase behavior of different brand equity leads to strength in the distribution channel.
marketing segments over time, and how does this affect the Thus, we assume that brand equity includes channel effects.
firm’s revenue streams? What are the disproportionate Although brand equity takes the brand perspective, cus-
effects of changes in the structure of pricing on customer tomer equity (Blattberg and Deighton 1996; Rust, Zeithaml,
acquisition, retention, and cross-buying? How do marketing and Lemon 2000) takes the firm’s customers’ perspective.
and operations elements interact to grow or to diminish cus- Building on previous definitions, we define customer equity
tomer value? as the sum of the lifetime values of all the firm’s current and
Customer impact. To assess the impact of marketing future customers, where the lifetime value is the discounted
expenditures on customers, it is important to understand the profit stream obtained from the customer.1 The expansion
following five key dimensions (adopted from Ambler et al. of the service sector over time, combined with the resultant
2002), which can be considered particularly important mea- shift from transaction- to relationship-oriented marketing,
sures of the customer mind-set:
1. Customer awareness: the extent to and ease with which cus- 1It would be better to differentiate the customer asset, or cus-
tomers recall and recognize the firm, and the extent to tomer equity, from the value of that asset. In common usage,
which they can identify the products and services associated though, the term “customer equity” can refer to both. The meaning
with the firm; is usually clear from the context.

78 / Journal of Marketing, October 2004

has made the consideration of customer lifetime value discounted return minus the net present value of the expen-
increasingly important (Hogan, Lemon, and Rust 2002). diture; and the economic value-added (EVA), which is the
These events legitimate customer equity (i.e., the aggrega- net operating profit minus the cost of capital (Ehrbar 1998).
tion of customer lifetime value across customers) as a key In each case, the measures of financial impact weigh the
metric of the firm. Customer lifetime value and customer return generated by the marketing action against the expen-
equity are already in widespread use as marketing asset diture required to produce that return. The financial impact
metrics in some industries, most notably in direct marketing affects the financial position of the firm, as measured by
and financial services. Customer equity measurement and profits, cash flow, and other measures of financial health.
monitoring is rapidly expanding in other industries as well. Impact on the value of the firm. Managers of publicly
Market impact. Customer impact and the resultant traded firms aim to explain and enhance market value/
improvements in marketing assets, such as brand equity, capitalization or shareholder value (Srivastava, Shervani,
influence the firm’s market share and sales, thereby influ- and Fahey 1998). Linking of marketing actions through cus-
encing its competitive market position. These benefits may tomer value to changes in market value (i.e., market value-
be viewed as arising from improvements in the intermediate added [MVA]) is essential to this task, but there are differ-
measures (i.e., the marketing assets of the firm; Ambler ences between change/flow measures and state measures.
2000). Superior brands (or superior values provided to cus- Although measures such as EVA and MVA focus on
tomers) lead to higher levels of customer satisfaction and changes in financial performance, others, such as market
perceived value of the firm’s offering. The consequences of capitalization, measure the level of performance.
a superior offering are reflected in many aspects of market In addition, we can distinguish between forward-
performance (Srivastava, Shervani, and Fahey 1998). For looking and retrospective measures. Most accounting mea-
example, brands that are better differentiated are character- sures are retrospective in that they examine historical per-
ized by lower price elasticity (Boulding, Lee, and Staelin formance. In contrast, the market value of firms hinges
1994), have more loyal customers, are less susceptible to largely on growth prospects and sustainability of profits
competitive actions (Srivastava and Shocker 1991), can (i.e., how the firm might be expected to perform in the
command price premiums (Farquhar 1989), can attain future). This requires tracking off-balance-sheet metrics
greater market shares (Boulding, Lee, and Staelin 1994), (e.g., brand or customer equity) and focusing on both cur-
can develop more efficient marketing programs because rent (e.g., EVA, cash flow) and expected (e.g., MVA, share-
they are more responsive to advertising and promotions holder value) performance.
(Smith and Park 1992), and can more quickly adopt brand Several measures of the value of the firm rely on mea-
extensions (Dacin and Smith 1994; Keller 1998). The con- sures of stock market performance. For example, market
sequences of customer satisfaction also include increased capitalization is the market value of all outstanding shares
buyer willingness to pay a price premium, to provide refer- of a firm, and book value is the difference between a firm’s
rals, and to use more of the product; lower sales and service assets and liabilities, according to its balance sheet. The dif-
costs; greater customer retention, loyalty, and longevity ference between market value and book value is explained
(Hogan, Lemon, and Rust 2002; Reichheld 1996; Reinartz partly by off-balance-sheet assets, such as market-based and
and Kumar 2000); greater market share (Taylor 2002); and intellectual property, and partly by an excess or lack of
greater profitability (Venkatesan and Kumar 2004). investor enthusiasm. The ratio of market capitalization to
Financial impact. Financial benefits from a specific the book value (the market-to-book ratio) is sometimes a
marketing action can be evaluated in several ways. Return useful indicator of the strength of marketing assets.
on investment (ROI) is a traditional approach to evaluating Similarly, Tobin’s q is the ratio of the market value of
return relative to the expenditure required to obtain the the firm to the replacement cost of its tangible assets, which
return. It is calculated as the discounted return (net of the include property, equipment, inventory, cash, and invest-
discounted expenditure), expressed as a percentage of the ments in stock and bonds (Tobin 1969). A q-value greater
discounted expenditure. Commonly used retrospectively to than 1 indicates that the firm has intangible assets. Share-
measure short-term return, ROI is controversial in the con- holder value is another measure related to economic profit
text of marketing effectiveness. Because many marketing (see Rappaport 1986). Total shareholder return is the cash
expenditures play out over the long run, short-term ROI is flow to shareholders through dividends plus the increase in
often prejudicial against marketing expenditures. The cor- the share price. A large proportion of the value of firms is
rect usage of ROI measures in marketing requires an analy- based on perceived growth potential and associated risks
sis of future cash flows (e.g., Larréché and Srinivasan 1981; (i.e., the value is based on expectations of future perfor-
Rust, Zahorik, and Keiningham 1995). It is also worth not- mance). This value may be locked up in marketing assets
ing that the maximization of ROI as a management princi- that can be leveraged to enhance and accelerate current cash
ple is not recommended (unless management’s goal is effi- flows, and it may enhance the sustainability (reduce the
ciency rather than effectiveness), because it is inconsistent risk) of future cash flows (Srivastava, Shervani, and Fahey
with profit maximization—a point that has long been noted 1997, 1998, 1999).
in the marketing literature (e.g., Kaplan and Shocker 1971).
Other financial impact measures include the internal Other Factors
rate of return, which is the discount rate that would make In addition to the previously discussed factors, elements of
the discounted return exactly equal to the discounted expen- environment and competition have frequently been shown
diture (Keynes 1936); the net present value, which is the to be important factors in marketing productivity. The firm’s

Measuring Marketing Productivity / 79

skill in adapting to the environment and competition can do More general chain-of-effects models, which are capa-
no more than improve performance relative to what would ble of addressing strategic trade-offs across competing mar-
otherwise be the case. Therefore, it is necessary to view keting expenditures in general, are much rarer. The STRAT-
Figure 1 within an envelope of context effects. PORT model (Larréché and Srinivasan 1981, 1982) is an
Environment. No firm is an island: Performance in gen- exception: It evaluates the business impact of the allocation
eral and marketing productivity in particular depend on the of resources across strategic marketing alternatives. More
environmental and competitive context. This is especially recently, chain-of-effects models that evaluate competing
true when economic and geopolitical turbulence create marketing actions on the basis of their influence on cus-
unusual amounts of uncertainty. The market orientation lit- tomer lifetime value and customer equity have been devel-
erature addresses the firm’s willingness to pay attention to oped (Rust, Lemon, and Zeithaml 2004; Venkatesan and
such market characteristics (Day 1994; Jaworski and Kohli Kumar 2004).
1993; Narver and Slater 1990). The firm can choose to be
proactive (market driving) or reactive (market driven) Strategies and Tactics
(Jaworski, Kohli, and Sahay 2000). The strategic roles of marketing include setting strategic
Competition. The competitive environment has a pro- direction for the firm and guiding investments to develop
found influence on the nature of marketing productivity. marketing assets that can be leveraged within business
Marketing expenditure decisions, such as those about processes to provide sustainable competitive advantages.
advertising, are often made with competitors in mind. Stud- Although marketing investments (e.g., advertising, cus-
ies on advertising spending have identified two separate tomer support) and resultant assets are largely intangible,
effects. On the one hand, competition can drive marketing their benefits to the firm are similar to those provided by
spending higher, thus producing an escalation effect (e.g., more tangible resources, such as manufacturing infrastruc-
Metwally 1978). Driven by a belief that gaining market ture. Differentiated brands enable their owners to charge
share increases profit and enhances firm value (e.g., Buzzell higher prices (Farquhar 1989) and to attain greater market
and Gale 1987), firms increase marketing expenditures to shares (Boulding, Lee, and Staelin 1994). Such brands are
gain market share, even as rivals do the same. Little evi- more responsive to advertising and promotions and have
dence suggests that the expenditures have the anticipated lower selling costs (Keller 1998). Although the role of mar-
results. For example, examining the brewing industry, keting actions and assets in influencing sales and market
Montgomery and Wernerfelt (1991) show that escalating share is well documented and appreciated, it is often forgot-
advertising spending destroys value rather than creates it. ten that strategic marketing investments also reduce risk.
On the other hand, research has demonstrated that (even For example, research shows that advertising can lead to
taking competitors reactions into account) high-market- more differentiated, and thus more monopolistic, brands
share brands indeed have an incentive to outspend rivals (i.e., brands are less vulnerable to competition). Similarly,
(e.g., Carpenter et al. 1988). These findings have fueled the investments in brand equity can reduce risks by deflecting
escalation in advertising spending. However, the greater competitive initiatives (Srivastava, Shervani, and Fahey
wealth associated with the larger share has proved quite 1997; Srivastava and Shocker 1991). Brand equity can also
elusive. be tapped to reduce marketing expenditures in times of cash
flow crunch, thereby reducing risks through “enhanced liq-
What We Already Know uidity” (Srivastava, Shervani, and Fahey 1998).
To deploy suitable strategies and tactics, it is necessary
Chains of Marketing Impact to first try to understand the triggers of customer product
There already exist several chains of marketing impact. purchases. A firm’s customer database can be used to
Many of them are practical decision models that have been develop a purchase sequence model that allows for the iden-
built for actual implementation, typically for specific mar- tification of which customers will buy which products and
keting decision scenarios. For example, PERCEPTOR when, so that the firm can contact customers at the most
(Urban 1975) tracks product design decisions all the way to appropriate time. A comparison of this type of customer
market share. In the advertising media context, there is a management strategy with the traditional strategy shows
history of models designed to maximize sales or profits, and that benefits (i.e., profits derived from each individual cus-
they usually assume a budget constraint (e.g., Gensch 1973; tomer) can be realized by managing on the basis of a 360-
Little and Lodish 1969; Rust 1986). Similarly, there are sev- degree view of the customer.
eral models of the influence of sales promotion on business The implementation of tactics requires resources. Each
results (e.g., Little 1975). The business impact of advertis- year, the firm allocates resources to contact its customers
ing expenditure decisions historically has been addressed through various channels, including sales personnel, direct
through econometric time-series models (e.g., Bass 1969; mail, telephone sales, and online. However, most of its cur-
Eastlack and Rao 1986). The past ten years have witnessed rent contact efforts are (1) targeted at the wrong customers,
the development of chain-of-effects models of service and (2) targeted at the right customers with the wrong offer, or
customer satisfaction, both across firms (Fornell 1992) and (3) targeted at the right customers with the right offer at the
within specific firms (Anderson, Fornell, and Lehmann wrong time. The primary challenge is to direct resources
1994; Heskett et al. 1994; Kamakura et al. 2002; Rust, toward the right customer, with the right offer, at the right
Zahorik, and Keiningham 1994, 1995). time.

80 / Journal of Marketing, October 2004

 Regarding specific tactics, every firm is eager to under- Just as marketing actions can influence customer atti-
stand the effectiveness of various “touch” points. Touch his- tudes and perceptions, ultimately they can also affect the
tory refers to any contact that the customer has with the customer’s summary appraisals, such as customer satisfac-
firm. With the advent of e-commerce, most firms use vari- tion, loyalty, preference, and purchase intention. The nature
ous channels. For example, Charles Schwab Corporation of satisfaction and loyalty and their drivers have become
has many ways of touching customers. These are activity- much better understood in the past 20 years (for an excel-
based interactions that can be initiated by the customer or lent review, see Oliver 1997), with customer expectations
the firm (e.g., Bowman and Narayandas 2001). Touches are and previous experience assuming a central role. Customer
not normally considered in reach, frequency, and monetary preference (e.g., McAlister and Pessemier 1982) and pur-
value models that predict whether an individual customer is chase intention (e.g., Fishbein and Ajzen 1975) also have
“due” (i.e., an alive and active customer of the firm) or been heavily explored.
“dead” (i.e., a customer who has ended his or her relation-
ship with the firm) to purchase. However, contact strategy Marketing Assets
can take on greater significance in some industry-based In the past 10 to 12 years, marketing scholars have greatly
contexts, particularly for services that are provided continu- expanded their knowledge of these marketing assets and
ously (e.g., finance, telecommunications) and for durables, how they contribute to the economic health of the firm. We
for which the typical purchase cycle of a business is long. In focus on two prominent types of marketing asset measures:
other words, in addition to the traditionally employed brand equity and customer equity.
marketing-mix strategies and tactics, customer touch histo- Brand equity. Brands have long been recognized as
ries are important in the prediction of customer profitability meaningful, powerful symbols (e.g., Levy 1959), but formal
in the future business cycles (Venkatesan and Kumar 2004). analysis began in earnest with Aaker (1991), who describes
Customer Impact brand equity as consisting of four components: brand
awareness, perceived quality, brand associations, and brand
We consider two major types of customer impact: (1) loyalty. Another widely adopted view offered by Keller
impact on a customer’s perceptions and attitudes and (2) (1998) describes brand equity as “the differential effect that
impact on a customer’s summary judgments. The under- brand knowledge has on consumer or customer response to
standing of the psychology of the brand has been deepening the marketing of that brand” (Keller 2002, p. 7). In both
over time (e.g., Fournier 1998), and with that comes a models, a brand can be considered a memory node in a net-
clearer understanding of how managerial actions that per- work that links the brand to a set of associations. A more
tain to the brand affect brand perceptions (e.g., Aaker and powerful brand is more vivid and has a more favorable and
Keller 1990; Kamakura and Russell 1991).2 Specific mar- easily recalled set of associations, which increases its over-
keting actions that have been shown to affect brand percep- all value.
tions include such wide-ranging corporate activities as Various nonfinancial methods have been suggested for
advertising (Jedidi, Mela, and Gupta 1999) and corporate the measurement of brand equity. One group of these meth-
ethics (Keller 1993). Customer attitudes toward the brand ods measures buyers’ knowledge about brands with free-
may be usefully divided (from the standpoint of the mar- association tasks, projective techniques (e.g., Levy 1985),
keter) into attitudes and perceptions related to value, brand, techniques designed to elicit the metaphorical meaning of
and relationship (Rust, Zeithaml, and Lemon 2000). Cus- brands (e.g., Zaltman and Higie 1995), and methods to
tomer perceptions of value are complex and multifaceted measure the structure of associations more explicitly (e.g.,
(Holbrook 1994), and many theories and studies explore the Aaker 1997; Keller 1998). Conjoint analysis also provides
mechanisms by which marketing actions affect customers’ insight into brand equity by decomposing overall value into
value perceptions (e.g., Bolton and Drew 1991; Dodds, value that arises from product attributes and value that
Monroe, and Grewal 1991; Teas and Agarwal 2000; Zei- arises from brand names (e.g., Rangaswamy, Burke, and
thaml 1988). In recent years, as the business world has Oliva 1993). In contrast, a second group of holistic meth-
moved toward relationships rather than just transactions, the ods, called “residual approaches,” seeks to estimate the
effect of marketing actions on the perceptions of relation- value of brand equity by deduction, that is, by estimating
ship has been shown to be important. Again, a considerable the effect of other factors and then attributing the residual
body of research demonstrates the effect of marketing impact to brand equity (e.g., Park and Srinivasan 1994). A
actions on customer attitudes in relationships (e.g., Ander- third group of methods seeks to measure the value of brands
son and Narus 1990; Gummeson 1999; Håkansson 1982; by examining various measures of market performance.
Kumar 1999; Reinartz and Kumar 2002). Financial World and Interbrand are two of the best-known
commercial measures. In calculating brand equity, Inter-
brand, the first to offer such a measure, includes data on
2There is a long history of research that relates marketing
market leadership, stability, internationality, trends of the
actions to intermediate outcomes, such as customer attitudes, cus- brand, support, level of protection, and characteristics of the
tomer satisfaction, and customer preferences. This extensive body
of research (of which we can sample only a small portion) encom-
markets in which it operates (Keller 1998).
passes the behavioral, quantitative, and managerial research tradi- Research on the influence of brand equity on market
tions. There is an even greater body of literature that relates mar- value has received less attention, perhaps because of the
keting actions to brand perceptions. widely accepted efficient-markets hypothesis that suggests

Measuring Marketing Productivity / 81

that there is little role, if any, for brand equity. An early approach combines internal company information, cus-
effort to measure brand equity used the prevailing finance- tomer survey data, and one-step-ahead purchase informa-
based view (Simon and Sullivan 1993). Assuming that a tion gathered either from panel data (if available) or from a
corporation’s market value is an unbiased estimate of the survey. Analogous to “driver analysis” in customer satisfac-
future cash flows, Simon and Sullivan (1993) estimate the tion measurement (e.g., Johnson and Gustafsson 2000;
portion of future cash flow that is attributable to a corpora- Rust, Zahorik, and Keiningham 1994), drivers of customer
tion’s brand and derive a financial measure of brand equity. equity are obtained and statistically related to purchase
Aaker and Jacobson (1994) examine the influence of brand behavior, and inertia from purchase to purchase is incorpo-
equity on stock returns more directly by modeling the influ- rated (Guadagni and Little 1983).
ence of changes in brand quality perceptions and firm ROI
on the market value of 34 corporations. They find that brand Market Impact
equity has a positive impact on stock returns, as does prod- Market impact models have mostly arisen in the quantita-
uct quality, thus demonstrating the power of brand percep- tive research tradition. Such models typically have sought
tions. In a subsequent study, Aaker and Jacobson (2001) to relate market expenditures over time to effects on such
find that change in brand attitude is positively related to variables as market share and sales. Many comprehensive
change in stock return in the computer industry. In a related reviews exist of market impact models (for excellent
study that explores a wider range of industries, Barth and reviews, see Hanssens, Parsons, and Schultz 1990; Kumar
colleagues (1998) examine the changes in the equity of and Pereira 1997; Lilien, Kotler, and Moorthy 1992).3 An
1204 brands owned by 183 publicly traded corporations important lesson from these studies is that long-term impact
from 1992 to 1997. Their analysis shows that brand equity is very different from short-term impact (e.g., Dekimpe and
has a positive statistical association with market value, Hanssens 1995). For example, some marketing actions
beyond the effect of two traditional measures: net income (e.g., sales promotions) take effect quickly but have little
and book value of equity. This finding is consistent with lasting influence, whereas other marketing actions (e.g.,
other research that suggests that marketing expenditures service quality improvements, advertising) accumulate their
produce a valuation premium greater than that implied by influence over time. This important distinction reinforces
cash flow (Bowd and Bowd 2002; Kirschenheiter 1997; Sri- the importance of considering the impact on discounted
vastava et al. 1997). profit flows over time rather than simply investigating
Customer equity. Customer equity was first identified as short-term effects. Furthermore, the firm’s ability to track
a measure of the marketing asset by Blattberg and Deighton competitive actions and to react appropriately to them mod-
(1996), who define a firm’s customer equity as the sum of erates the effects of the environment and competition, so
the lifetime values of the firm’s customers. Customer equity that firm capabilities and context effects become more
models are characterized by models of the lifetime value of important in the long run (Kumar 1994; Narver and Slater
individual customers. The early thinking on customer 1990).
equity arose from the direct marketing paradigm, in which
Financial Impact
longitudinal data about individual customers and their reac-
tions to marketing efforts (typically promotional mailings) Although changing customer attitudes, perceptions, and
were present (e.g., Blattberg, Getz, and Thomas 2001). intentions are important, and achieving improved sales and
Related work on the long-term value of customer relation- market share is essential to any marketing effort, many
ships arose in the financial services arena (e.g., Storbacka managers consider financial impact the most crucial mea-
1994) and in the high-technology industry (Kumar, sure of success for any marketing effort. Financial impact
Venkatesan, and Reinartz 2002). Because customer equity involves not only the increase in revenues but also the
results from customer lifetime value, methods for assessing expenditure required to produce that increase. Marketing
the lifetime value of a customer became central. Again, expenditures are considered investments, and the financial
such methods typically assumed the existence of longitudi- return is measured as ROI. The long-standing recognition of
nal customer data (e.g., Dwyer 1997; Libai, Narayandas, the importance of ROI in evaluating more general market-
and Humby 2002; Reinartz and Kumar 2000). This stream ing expenditures (Kirpalani and Shapiro 1973) led to early
of work evolved from measurement of customer lifetime methods for measuring advertising ROI (Dhalla 1976). The
value to evaluation of the influence of marketing effort on connection between marketing efforts and financial perfor-
customer equity (Berger et al. 2002; Hogan, Lemon, and mance was subsequently reinforced by analysis of the PIMS
Rust 2002), thus incorporating an assessment of marketing company database, which indicated a positive relationship
decisions over time. Because of the data requirements, this between market share and the firm’s aggregate return on net
approach has largely been restricted to a handful of business assets (Buzzell and Gale 1987), though that relationship
scenarios (e.g., direct marketing, subscription sales, finan-
cial services, business-to-business) and a handful of market- 3In many cases, the number of market impact studies is so large

ing variables (e.g., direct mailings, salesperson contacts, that there exist data analyses to summarize the totality of research
telephone sales, price). evidence. For example, Assmus, Farley, and Lehmann (1984) pro-
vide a meta-analysis of the findings that relate advertising to sales
More recently, a different approach has emerged that and find that advertising has variable effectiveness. A 1995 special
expands the industries and the set of marketing actions to issue of Marketing Science summarizes many of the generaliza-
which customer equity may be applied (Rust, Lemon, and tions involving the relationship between marketing actions and
Zeithaml 2004; Rust, Zeithaml, and Lemon 2000). This marketing impact.

82 / Journal of Marketing, October 2004

was later challenged on methodological grounds (Jacobson performance than on industry environment and firm strat-
and Aaker 1985). Gale (1994) recanted and later proposed egy selection, though market turbulence may be a moderat-
that market share and financial performance were both dri- ing factor. Greenley (1995, p. 7) finds that “for high levels
ven by product quality, though the link between perceived of market turbulence, market orientation is negatively asso-
and actual quality is itself complex. ciated with ROI, while for medium and low market turbu-
More recently, the “return on quality” model has pro- lence, market orientation is positively associated with ROI.”
vided a methodology for projecting a firm’s ROI in service Given all these studies, market orientation remains a strong
quality (Rust, Zahorik, and Keiningham 1994, 1995). determinant of performance and, by inference, marketing
Research has shown that there may be trade-offs between productivity. However, within that, turbulence is a moderat-
service quality improvements that increase revenue and ing factor. “In cases where the market is highly dynamic in
those that reduce costs (Anderson, Fornell, and Rust 1997; nature, consistency may be more important than market
Rust, Moorman, and Dickson 2002). Approaches to evaluat- responsiveness” (Harris 2001, p. 35).
ing financial return have also begun to consider the element Competition. As we discussed previously, investments
of financial risk (Davis 2002; Hogan et al. 2002), as is com- in marketing assets, such as brand equity and customer
mon in corporate finance. equity, make the firm less vulnerable to competition and
Impact on the Value of the Firm directly influence the firm’s performance (through market
share and sales). First, when the product is associated with a
Analyses that link market-based assets and marketing high-equity brand, customers evaluate a product more
actions to shareholder value, though rare, are beginning to favorably, believe it to be of higher quality, are more likely
emerge. The evidence is encouraging on many fronts. For to purchase it, and have more confidence in it (e.g.,
example, Lane and Jacobsen (1995) show that brand exten- Larouche, Kim, and Zhou 1996). Second, customers are
sion announcements lead to abnormal returns on stocks less price sensitive and more responsive to marketing com-
(i.e., returns in excess of those predicted by changes in the munications spending for high-equity brands (e.g., Simon
market index), thus establishing a link between marketing 1979); thus, marketing expenditures with respect to the
activity and stock price. Kim, Mahajan, and Srivastava competition are effectively leveraged. Third, brand equity
(1995) show a strong relationship between the net present can create asymmetries in competition that favor high-
value of cash flows attributable to growth in the number of equity brands. For example, price cuts or increases in adver-
subscribers (customer base) and stock prices in the cellular tising spending draw market share disproportionately from
telephone industry. Likewise, Ailawadi, Borin, and Farris low-equity brands (Carpenter et al. 1988), and competitive
(1995) demonstrate the impact of marketing actions on imitation by low-equity, me-too brands can increase the
EVA and MVA through customer value measures, and they share of high-equity brands, such as those of pioneers (Car-
provide a direct link between marketing strategy and penter and Nakamoto 1989). Combined, these forces create
changes in a firm’s financial fortunes. important competitive advantages that arise from marketing
Srivastava and colleagues (1997) show that brand equity expenditures on brand equity.
reduces financial risk and is related to a lower cost of capi-
tal and thus to higher market capitalization, whereas
Demers and Lev (2000) show that Web site characteristics What We Would Like to Know
measured by Nielsen/Netratings, such as stickiness, reach, In this section, we explore areas in which current research is
and loyalty, were correlated with share prices in both 1999 insufficient, and we suggest fruitful areas for further
and 2000. Brand reputation (equity) has been shown to be a progress, especially focusing on the application of market-
durable asset that can help reduce the risk of future cash ing productivity measures in the business world.
flows for its owners (Deephouse 2000), and customer prof-
itability has been linked to market capitalization for several Chains of Marketing Impact
Internet firms (Gupta, Lehmann, and Stuart 2001). These Few methods currently exist for comprehensively modeling
studies notwithstanding, efforts to link marketing actions to the chain of marketing productivity all the way from tactical
firm performance are few and far between, and more such actions to financial impact or firm value. Event studies exist
work is needed. that relate tactical actions directly to firm value, but without
modeling the intervening steps (e.g., Agrawal and
Other Factors Kamakura 1995), a black-box approach limits insight and
Environment. Slater and Narver (1994) find limited sup- understanding. There are many opportunities for firm-level
port for the notion that the competitive environment moder- research. For example, how do firm strategies (e.g., promo-
ates the market orientation–performance relationship. They tion strategy, product strategy) influence the firm’s brand
argue that the benefits of market orientation are long-term, equity and/or customer equity? How do the firm’s market
whereas contextual factors are transient. Harris (2001, p. assets relate to firm value and market capitalization (e.g.,
33) also finds little relationship between market orientation Gupta, Lehmann, and Stuart 2001)? How does a firm’s cus-
and both subjective and objective measures of performance, tomer equity affect its long-term market position, financial
except that “under specific moderating environmental con- position, and market capitalization?
ditions, market orientation is associated with both measures A larger question is, Why does linking marketing assets
of performance.” Pelham (1999) finds that market orienta- to capitalization matter? A firm contemplating an acquisi-
tion has a greater influence on small manufacturing firm tion would be interested in this linkage, but this article

Measuring Marketing Productivity / 83

focuses on assessing marketing productivity. Thus, a more customer behavior (rather than attitudes or intentions)
challenging issue may be reconciling the short- and long- responds to changes in marketing actions (Kumar, Venkate-
term approaches. Short-term approaches involve the mea- san, and Reinartz 2002). In addition, there is a need to
surement of the marketing asset, whereas long-term extend such research to explore these questions for new
approaches require forecasts of future cash flows. The diffi- marketing phenomena and in new environments. For exam-
culty of such a reconciliation is that future cash flows are ple, there is much yet to be learned about how the Internet
the product both of marketing actions to date and of market- environment affects the customer. In general, increased
ing actions to come. communications and computation capabilities change the
nature of the relationship between the marketer and the con-
Strategies and Tactics sumer in ways that are not yet fully understood. Similarly,
Strategies. Several ongoing research agendas continue the changing geopolitical environment (e.g., terrorism,
to be important. For example, how does the relative impor- sense of risk) may influence the market in unprecedented
tance of marketing assets vary as a function of the charac- ways. In the United States, the persistence of multiple cul-
teristics of the firm’s industry, customer markets, product or tures in the society may also change how marketing efforts
service offerings, and competitive strategy? Can these influence customer attitudes and preferences. In summary, a
assets be leveraged to provide strategic options? How are broader understanding of customer impact is likely to result
marketing and intellectual assets interlinked with other from studying customer behavior in response to new phe-
functional resources in creating customer value and com- nomena and in new environments.
petitive advantages (e.g., through core business processes
such as product innovation, supply chain management, and Measuring Marketing Assets
customer relationship management)? What is marketing’s Brand equity. Existing conceptualizations of brand
contribution in managing core business processes? For equity have made fundamental contributions to the under-
example, rather than considering marketing research an standing of brands. However, further conceptual develop-
expense, can the value of market intelligence be assessed in ment of key constructs, such as brand knowledge, is crucial
terms of more efficient supply chain processes? Can strong for developing better measures of brand equity. Brand
competitive advantages exist in the absence of strong mar- dynamics are another important, difficult issue that has
keting assets? How can these advantages be leveraged to received little attention (a notable exception is the work of
provide marketplace results that fit with company strategy Keller and Aaker [1993]). Specifically, brands evolve,
(e.g., when might brand equity be leveraged to opt for a which changes the fundamental nature of their equity. How
price premium, and when would a share premium be more should a brand evolve? What are the means of change?
appropriate?)? When and how should multiple brands be consolidated?
Tactics. New technologies have opened up new chan- These and other questions remain largely open. Most firms
nels for customer–vendor interactions (e.g., cable, Internet), manage multiple brands, which raises important issues for
which increases the need to manage integrated marketing their launching new products, seeking to grow profits, or
communications. These developments have led to a critical cutting costs, and these issues have received little attention
and immediate need to identify the levels of marketing (for more commentary, see Keller 2002).
expenditures for each channel (given expected revenues
from customers) that provide firms with maximum opportu- Customer equity. Bell and colleagues (2002) identify
nities for customer acquisition, retention, and cross-selling, two important areas for further research in customer equity.
as well as an opportunity for disintermediation. Differences First, there is a need to build individual-level, industrywide
in efficiency across various channels might be captured by customer databases in industries that do not currently have
the sales response functions in order to identify optimal them (i.e., most industries). Without such data, true longitu-
resource allocations within and across channels. Similarly, dinal data analysis of customers’ behavioral responses to
firms might rely on long-term customer profitability models marketing actions cannot be implemented. Second, there is
to guide direct marketing initiatives. These models should a need to develop models of customer lifetime value that
enable firms to improve marketing efficiency. Research that maximize, not just measure. That is, it is important to deter-
assesses the influence of marketing and communications mine precisely how much money to spend on each strategic
tactics on multiple measures of customer, market, and alternative. When longitudinal customer data are not avail-
financial impact would also be useful. able, businesses must adopt survey-based research methods.
It would be useful to validate the effectiveness of such
Customer Impact approaches longitudinally. Does customer lifetime value
Given extensive prior research that relates traditional mar- and customer equity, on average, turn out to be as pre-
keting actions to customer attitudes, preferences, and inten- dicted? What adjustments and refinements to the existing
tions, further progress in these areas is likely to be incre- models are necessary?
mental rather than groundbreaking. Instead, it is important
to model which customers are going to buy, what products Market Impact
they are most likely to buy next, and when they are going to Research on marketing resource allocation (e.g., Mantrala,
buy the product of highest affinity. In other words, the most Sinha, and Zoltners 1992) suggests that (1) marketing man-
fertile area for research on customer impact pertains to how agers need to optimize investment-level decisions and the

84 / Journal of Marketing, October 2004

allocation of resources across submarkets or customer seg- price per subscriber, especially positive trends in such mea-
ments to maximize profitability and that (2) interaction sures, help emphasize marketing’s contribution to the firm.
between different marketing-mix instruments could lead to
differential allocation of resources across marketing chan- Other Factors
nels. As technology progresses, these challenges are magni- Much work remains to understand how competition and
fied. For example, improved communications and computa- environment influence firm value. Efforts so far have
tional capabilities greatly extend the marketer’s ability to focused on modeling the influence of brand equity on buyer
target individual customers. Thus, market impact models response to marketing spending, such as advertising, to
increasingly need to be based on individual customer deduce the competitive advantage associated with brand
response rather than on aggregate response, which makes equity (e.g., Brown and Stayman 1992). Models that incor-
them more complex and computationally intensive. Future porate competitive effects would provide two types of new
models of marketing impact may need to employ computa- insights. First, they would require modeling of the influence
tional methods (e.g., simulation) more and analytical meth- of marketing spending on brand equity in a competitive
ods (e.g., closed-form game theoretic equilibriums) less. context, which would be valuable indeed. Second, they
would require more explicit representations of how brand
Financial Impact
equity influences firm performance, accounting for the
The purest investigations of financial impact involve longi- influence of firm expenditures on brand equity itself. The
tudinal data sources, which means that the construction of building of such models is challenging, requiring the cap-
customer-level longitudinal data will be a priority, espe- ture of both competitive effects and brand dynamics. Com-
cially in areas in which such data currently do not exist. petitive models have a long tradition in marketing (e.g.,
Ideally, such data sets will include not just one firm’s cus- Cooper and Nakanishi 1988), and important advances have
tomers, but all the customers in the industry (or a probabil- been made in modeling dynamics (e.g., Dekimpe and
ity sample of the customers in the industry). In addition to Hanssens 1995). Consideration of both in the same frame-
the scientific investigation of marketing productivity (or work may offer valuable new insights.
other measures of financial return), practical productivity
tools are needed that firms can use when they do not have
access to customer-level, industrywide, longitudinal data. Summary and Conclusions
These tools need to reflect the state of current knowledge Billions of dollars are spent every year on marketing. As
about how marketing productivity works, and their longitu- firms struggle to produce ever-higher profits in increasingly
dinal validation is required for eventual widespread practi- competitive environments, calls to justify their expenditures
cal acceptance. are growing. Existing financial metrics have proved inade-
quate, leading to the development and increasing use of
Impact on the Value of the Firm nonfinancial metrics. Over the past decades, but especially
A strong contender for assessing the value of marketing in the past 15 years, considerable progress has been made in
actions and assets appears to be the shareholder value developing nonfinancial measures of marketing assets. In
framework, which includes such variables as the accelera- this article, we have attempted to bring such methods and
tion and enhancement of cash flows, reduction in the measures together in a unified framework and to present
volatility and vulnerability of cash flows, and growth of them as part of a comprehensive view to describe marketing
long-term value (Srivastava, Shervani, and Fahey 1998, expenditures on sales, profit, and shareholder value.
1999). However, many questions remain unanswered. Is The framework we have proposed separates marketing
such value recognized by the stock market and reflected in actions, including strategies and tactics, from the overall
market-to-book ratios and price-to-earnings multiples? Will condition of the firm, as reflected in its assets (including
larger customer-installed bases or better supply chains and brand equity, customer equity, market position, financial
value networks command higher price-to-earnings multi- position, and firm value). Only two systems address the
ples and market-to-book ratios in mergers and acquisitions important issue of linking short- and long-term outcomes:
activity? Will the stock market reward firms for acquiring financial and nonfinancial. The first is based on forecasting
other firms with high levels of intangible, market-based long-term outcomes and discounting cash flow (e.g., cus-
assets? tomer equity). The second represents the future in the state
Marketers have made considerable progress in examin- of the marketing asset today. Whether the marketing asset is
ing the financial implications of their actions on the value of measured financially or nonfinancially, the long-term pic-
the firm. Indeed, there is the tendency to have the mind-set ture is provided by the performance of this changing asset
that customers are assets and to regard the value of the firm and the bottom line.
in terms of metrics such as (stock) price per subscriber. Our discussion identifies exciting new directions for
Strictly speaking, customers are not assets because assets research in at least seven areas: (1) strategies and tactics, (2)
must be owned by the firm. The day firms conclude that brand equity, (3) customer equity, (4) market impact, (5)
they own customers is the day they presume too much. Cus- financial impact, (6) the environment, and (7) competition.
tomer loyalty must be earned. However, it is fair to state A common theme across most of the areas is a greater
that the customer franchise or the customer base is a mar- emphasis on aggregate-level models that link tactics to
keting asset. Metrics such as customer lifetime value and financial impact. Such models would need to be dynamic

Measuring Marketing Productivity / 85

and comprehensive but have the potential to yield great past 15 years, and they provide a foundation for exciting
insight. Another common theme is the need to account for further work. More important, these powerful methods pro-
customer heterogeneity. For example, identification of high- vide the tools necessary to affect the practice of manage-
profit customers is a central issue to market segmentation, ment, to bring greater credibility to marketers, and to fur-
strategic marketing, and tactics, among other areas. Another ther advance marketing science and practice by bringing a
common theme is dynamics and competition. The nature of long-sought understanding of the impact of the billions of
firm performance is fundamentally affected by competition, dollars that are spent every year on marketing activities.
and it fundamentally changes over time. The capture of both If there is one conceptual take-away from our review, it
dimensions is essential in virtually every area of marketing is that the evaluation of marketing productivity ultimately
productivity measurement. Much work remains. involves projecting the differences in cash flows that will
Despite the opportunities that exist, our review suggests occur from implementation of a marketing action. In con-
that there currently is a wealth of means to measure market- trast, from an accounting standpoint, decomposition of mar-
ing productivity. Powerful methods exist to assess market- keting productivity into changes in financial assets and mar-
ing tactics; to model the market impact of marketing expen- keting assets of the firm as a result of marketing actions
ditures; and to assess marketing assets, market position, the might be considered. The devotion of more attention to
value of the firm, and its financial position. These methods these marketing assets is likely to transform the way busi-
reflect the considerable progress that has been made in the nesses are managed.

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Reprinted with permission from Journal of Marketing, published by the American Marketing Association.