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Shareholder Value > Week 2 > Flashcards

Week 2 Flashcards

1
Q

What is the CAPM Formula? And what does each component refer to?

A

E(ri) = rf + Bim (E(rm) – rf)
E(ri) = expected return of capital
Bim = beta
(E(rm) - rf) = market risk premium
(rm) = market return
(rf) = return on risk-free asset

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2
Q

What is the goal of CAPM?

A

show how the market price of an individual asset must be valued in comparison to the total market

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3
Q

What does CAPM predict?

A

the risks of assets

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4
Q

What does CAPM calculate

A

calculate price and asset of a wallet

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5
Q

Intuition behind CAPM

A

spread risk in someone’s wallet of investments

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6
Q

ACSI Index

A

provides information on customer satisfaction with regards to quality of products and services

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7
Q

Myopic Management

A

short-term focus of managers which leads to cutting marketing and R&D budgets. Negative long-term consequences.

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8
Q

Tobin’s q

A

measure of a firm’s assets in relation to a firm’s market value

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9
Q

Purpose MFI streams

A
  • broaden the scope of marketing
  • include investors as a relevant stakeholder
  • demonstrate that marketing matters
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10
Q

Top 3 positive marketing drivers of firm performance

A
  • innovation
  • customer satisfaction
  • customer-based brand equity
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11
Q

Top 3 negative marketing drivers of firm performance

A
  • negative social media sentiment
  • myopic management
  • product recalls
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12
Q

Marketing is an optimization problem

A
  • focus on demand (revenues), costs and profitability, and the use of traditional economic analysis
  • few professional marketing departments
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13
Q

Marketing’s role in large bureaucratic hierarchical organizations

A
  • marketing part of sales department
  • focus on maximizing profits
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14
Q

Characteristics flexible organization forms (wheels)

A
  • flexibility
  • specialization
  • emphasis on relationship management
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15
Q

Goal flexible organization forms

A

respond quickly and flexibly to change

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16
Q

Transactional relationship

A
  • find buyers
  • no brand name, no recognition
  • rare
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17
Q

Repeated transactions relationship

A
  • no contact between marketeer and buyer
  • brand loyalty and repeated purchase
  • relationship marketing (industrial markets)
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18
Q

Long-term relationships

A
  • battle for a low price
  • strategic asset
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19
Q

Mutual, total-dependence buyer-seller partnerships

A
  • higher quality, lower inventory costs
  • close relationship with suppliers and contractors
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20
Q

Strategic Alliances

A
  • new venture
  • same strategic goal
  • change company’s strategic position
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21
Q

Networks

A
  • multiple strategic alliances
  • confederation
  • marketing is key function
  • core competencies
  • avoid doing everything
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22
Q

Marketing at corporate level

A
  • determine mission, scope shape, structure firm
  • depend on what type of relationship?
  • assessment firm’s distinctive competencies
  • analyze need customers, promote customer orientation, develop VP
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23
Q

Marketing at business level

A
  • how to compete
  • marketing segmentation, market targeting, positioning
  • purchase or perform marketing functions?
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24
Q

Marketing at operational level

A

functional strategy (4p’s)

25
Q

General idea Webster (1992)

A

emphasis on long-term relationships and ongoing activities, which create new dimensions to the marketing task.

26
Q

Old world marketing focus (microeconomic approach)

A
  • products
  • prices
  • firms
  • transactions
27
Q

New world marketing focus (political and organizational approach)

A
  • people
  • processes
  • organizations
28
Q

Conclusion Webster (1992)

A
  • marketing is responsible for being expert on the consumer
  • focus on customer value and relationship management may result in stronger sales
  • an end of impersonal mass communication and the beginning of personal communications
29
Q

2 premises value-based management approach

A
  • first obligation of companies is to maximize returns
  • the market value of the stock depend on investors’ expectations on the cash generating abilities of each business unit
30
Q

logic on shareholder value approach

A

managers should be evaluated on their ability to make strategic investments that promise returns greater than their cost of capital

31
Q

ROI formula

A

net profit/cost of investment*100%

32
Q

2 reasons why using past performance as future performance indicator is questionnable

A
  • only valid if the future will look like the past
  • risk-return paradox
33
Q

residual value meaning

A

the future value of a good in terms of absolute value in monetary terms
- depends on planning period

34
Q

Harvest strategy

A

generating cash flows not but at the expense of residual value at the end of the period

35
Q

residual value formula

A

perpetuity cash flow/cost of capital

36
Q

Market to book ratio

A

the stock value per share divided by the book value per share

37
Q

determinants market to book ratio

A
  • recent return on equity
  • growth
  • spending on R&D
  • interest coverage ratio
38
Q

Economic value creation

A

creating a sustainable competitive advantage

39
Q

4 reasons why, even with the same information, stakeholders and managers would not come to the same stock price

A
  • reliability of information
  • the value of intangibles
  • the value of interdependencies among business units
  • the degree of risk
40
Q

Conclusion Day & Fahey (1998)

A

the shift from projects to strategies is aided by the adoption of value-based planning methods.
- residual value and risk
- defensible framework for sensitivity analysis
- understanding the competitive situation

41
Q

findings digital marketing and firm value

A
  • online communication actions by firms have positive impact on firm value
  • earned social media is a driver of firm value, with potential asymmetries for positive and negative sentiment and likely spillovers on rivals
  • data breaches can have severe negative firm-value effects on focal firms and rival firms (to lesser degree)
42
Q

findings tradeoffs between doing good and doing well

A
  • positive changes for customers are associated with positive shareholder effects
  • employee satisfaction has a positive effect on firm value and a positive interaction with a firm’s brand and customer activities
  • mixed findings on CSR investments
43
Q

Goal Srivastava et al (1998)

A

explain the role of marketing to shareholder value with a focus on market-based assets as a bridge between marketing and shareholder value.

44
Q

asset (definition)

A

physical, organizational or human attribute that enables the firm to generate and implement strategies that improve efficiency and effectiveness.

45
Q

characteristics market-based assets

A
  • external to firm
  • don’t appear on the balance sheet
  • intangible
46
Q

An asset contributes to value generation when it satisfies… (4 requirements)

A
  • it’s convertible
  • it’s rare
  • it’s imperfectly imitable
  • doesn’t have perfect substitutes
47
Q

relational market-based assets

A
  • key external stakeholders
  • brand equity
  • channel equity
48
Q

intellectual market-based assets

A
  • knowledge
  • facts, perceptions, beliefs, assumptions and projections
49
Q

intangible and market-based assets can be leveraged by a firm to

A
  • lower costs
  • attain price premiums
  • generate competitive barriers
  • provide a competitive edge by making other resources more productive
  • provide managers with options
50
Q

market-based assets: influence on accelerating cash flows

A
  • increasing responsiveness of the marketplace to marketing activity
  • greater reaction speed to marketing efforts
  • quicker response of customers to new products
51
Q

sell-side analysts

A
  • individual
  • multiple clients
  • short-term focus
52
Q

buy-side analysts

A
  • institutional investor
  • long-term focus
  • create value for its fund
53
Q

Efficient market hypothesis

A
  • price of effects reflect all public information and future prospects
  • analysts are able to deeply analyze all relevant information as basis of their decision
54
Q

Marketing according to Burggraeve (2021)

A

building sustainable pricing power in your brands

55
Q

shareholder value approach to marketing…

A

utilization of shareholder value analysis to create and utilize marketing assets to generate future cash flows with a positive NPV

56
Q

problems with earnings as value-based measure

A
  • easily manipulated
  • exclude investments
  • marketing as expense
57
Q

contributions shareholder value approach to marketing (5)

A
  • helps marketing properly define its objectives
  • provides the language for integrating marketing more effectively with other functions of business
  • allows marketing to demonstrate its importance of its assets
  • protects marketing budgets from cutting down
  • puts marketing in a pivotal role in the strategy formulation process
58
Q

downsides of the shareholder value approach

A
  • different judgements lead to difference in estimates
  • terminal value is hard to be confident about
  • underestimates the value of new ventures by overestimating risks
  • doesn’t produce business strategies
59
Q

conclusion Lukas et al (2005)

A

shareholder value approach empowers marketing to assert its role within the organization in ways meaningful to execute management and owners

Shareholder Value (8 decks)

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