02 SHV Analysis Flashcards
Paradigm shift: What are 5 basic ideas?
- Marketing actions are investments
- Marketing investments create marketing assets
- Marketing assets create value
- Objective of marketing is to select strategies that max. SHV
- Financial and marketing value drivers help measuring and guiding how to max. SHV
Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis.
What are 3 traditional vs. emerging assumptions on the marketing-finance interface?
- Purposes of marketing:
- Traditional: Create value for customers; win in the product marketplace
- Emerging: Create and manage market-based assets to deliver SHV
- Perspective on customers and channels:
- Traditional: Object of marketing’s actions
- Emerging: Relational asset that must be cultivated and leveraged
- What to measure:
- Traditional: Product-market results, assessment of customers
- Emerging: Financial value results; configuration of market-based assets
What are the 4 criteria to count as an asset according to the resource based view (RBV)?
- Convertible
- Rare
- Imperfectly imitable
- Not perfectly substitutable
What does the SHV approach mean for marketing? (5 aspects)
The shareholder value approach…
- Helps marketing to properly define its objectives
- Provides the language for integrating marketing more effectively with other functions of firm
- Allows marketing to demonstrate importance of its assets
- Protects marketing budgets from profit-maximization policies
- Puts marketing in a pivotal role in strategy formulation process
Formula SHV
How to increase SHV? (4 aspects)
Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis.
- Enhance CFs (CF)
- Accelarate CFs (t,T)
- Reduce volatility and vulnerability of CFs (r)
- Enhance residual value of CFs (RV)
How can marketing enhance CFs? (7 aspects)
Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis.
- Price/market share premiums
- Cross-sell products/services
- Develop new sales
- Lower sales and service costs
- Reduce working capital
- Brand extensions
- Cobranding and comarketing
How to accelerate CFs? (4 aspects)
Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis.
- Faster response to marketing efforts
- Earlier brand trials and referrals
- Time to market acceptance
- Strategic alliances, cross-promotions
How to reduce volatility in CFs? (3 aspects)
Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis.
- Enhancing loyalty and switching costs
- Shifting to services and consumables
- Integrate operations to reduce capital requirements
How to enhance the residual value (RV) of CFs? (4 aspects)
Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis.
- Increase size of customer base
- Cross-sell products and services
- Use brand extensions
- Make upgrades
Name 5 ways to operationalize SHV
- Market capitalization = shares oustanding * share price
- Market-to-book ratio = EquityMarketValue - EquityBookValue
- Tobin’s q = (EquityMarketValue + DebtMarketValue) / Replacement cost of assets
- Economic Value Added (EVA) = Economic profit = NOPAT - (Capital employed * WACC) [last term is the cost of financing capital]
- Market Value Added (MVA) = EquityMarketValue - Capital employed
APPLICATION: Profitable Growth
Stewart (2004): Champions of Profitable Growth.
What did the they do?
- They looked at firms with high revenue growth between 1983 and 2003 (absolute value) and ranked them
- They calculated the MVA (=EquityMarketValue - Capital Employed) of these firms for 2003
- They built a ratio MVA2003/Revenues2003 and ranked the firms again according to this ratio
- For the overall ranking, they combined the two rankings (Revenue growth and MVA/Revenue ratio) to find out who are high-growth-value adders
APPLICATION: Profitable Growth
Stewart (2004): Champions of Profitable Growth.
What are 4 of their findings? What is the overall finding?
- To be a high-growth-value adder in Europe or North America, MVA ratio needed to be larger than 0.144
- In Asia and Southern Hemisphere, companies just needed to have a positive MVA to qualify as a value adder
- Energy and telecom companies are good in translating revenue growth into SHV in Europe but not in North America
- Electronic and automobile companies are high-growth-value adders in Asia, but automobile companies are laggards in North America and Europe
Overall: Revenue growth does not always translate into SHV
APPLICATION: Profitable Growth
What is relevant from your own analysis of firms between 2008-2013?
- MVA is calculated only on equity: MVA = Market Cap. - Shareholder Equity
- Market Cap. = shares outstanding * share pice
- Shareholder Equity = Book Value of Equity
- High-growth-value adders can in particular be found in the chemical industry and the computer industry
