Insights@Questrom Podcast

Beyond Clicks and Sales: How Advertising Shapes Company Value in the Eyes of Investors

• Boston University Questrom School of Business • Season 3 • Episode 4

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What happens when Wall Street meets Madison Avenue? Despite billions spent annually on advertising, surprisingly little research has explored how these investments impact a company's stock price—until now.

Shubha Srinivasan, the Adele and Norman Barron Professor of Management and Professor of Marketing, pulls back the curtain on this critical relationship in our fascinating conversation about her groundbreaking research synthesizing findings from over 250 studies. She reveals three distinct pathways through which advertising influences firm valuation: the indirect route (via increased sales and profits), signaling value to investors, and building long-term brand assets.

The disconnect between marketing and finance departments has historically created blind spots, with marketers celebrating metrics like brand awareness while CFOs demand hard ROI numbers. Srinivasan's research bridges this gap, providing marketers with the ammunition they need when facing budget scrutiny. Perhaps most compelling is her finding that a 10% increase in customer retention can translate to a 7% boost in stock price—a connection that transforms how we should evaluate marketing effectiveness.

Not all industries experience equal benefit from advertising investments. Consumer-facing sectors like retail, CPG, and tech show stronger connections between advertising and stock performance, while B2B industries might benefit more from relationship-building than traditional advertising. Meanwhile, price promotions present an interesting paradox—consumers love them, but investors often view them as value-destroying.

The key takeaway? Marketing leaders must move beyond defending their budgets with short-term metrics and start connecting their efforts to financial outcomes investors care about: revenue growth, margin improvements, risk reduction, and predictable cash flows. By speaking the language of investors and measuring what endures rather than just what's immediate, CMOs can reposition marketing from a cost center to a strategic investment in the company's future.

Ready to transform how you view marketing's financial impact? Listen now and discover why the evidence is clear—advertising is far more than just a cost; it's a powerful driver of lasting company value that savvy investors are already noticing.

J.P. Matychak:

Welcome to the Insights at Questrom podcast. I'm JP Matychak, along with my new co-host, Drew Vaughan. Drew, welcome to your first episode.

Drew Vaughan:

Thank you, j, I'm excited to be here.

J.P. Matychak:

Excellent. Well, if you're listening to this show, you're more than likely someone who pays close attention to what's happening out there in the world of business. Some of you may even pay close attention to the stock markets. Either way, you're likely aware that so many factors play into a company's stock price. Everything from a new product launch to a controversial social media post by a CEO can cause major swings in a company's stock value. But what impact does advertising have on a company's value in the eyes of stockholders? Surprisingly, not a lot of research has been done in this area. Well, until now. We're joined today by Shuba Srinivasan, the Norman and Adele Barron, professor of Marketing here at the Questrom School of Business, who is asking this exact question. Shuba, welcome to the show.

Shuba Srinivasan:

Thanks, JP, excited to be here.

J.P. Matychak:

Wonderful. So your research explores the intersection of marketing and financial markets, an area that really seems relatively underexplored right now. So why do you think this space hasn't received more attention from the academy historically?

Shuba Srinivasan:

It's true, the intersection between marketing and financial markets has been surprisingly underexplored. I think a big part of the reason comes down to increasing specialization, both in the business world and in academia. In firms we see silos. Marketing is split into sales, advertising, digital, mobile. The list goes on. People go deep in this specific area, but we lose the broader picture. And the same thing is happening in academia.

Shuba Srinivasan:

Marketing professors like me focus on marketing, finance professors focus on finance, and we don't talk to each other nearly enough. I think there's a huge opportunity at the intersection of the fields each other nearly enough. I think there's a huge opportunity at the intersection of the fields. So over time, we've built up silos and I think we've missed the opportunity to develop shared frameworks, ways to understand how marketing, such as including advertising, affects financial performance or how investor behavior influences marketing strategy. Another reason is practical. It's much easier to measure the impact, the short-term impact of advertising clicks, conversions, impressions but it's much harder to show the impact on something as complex and enduring as stock price. But it's also due to some of the barriers we face to address this. Some of the challenges include the measurement challenges. For one, we have to isolate the impact of advertising from the other things that you mentioned, like a social media posting by a CEO or new product introductions. Second, investors may anticipate some of the advertising already and factor that even before the ad is launched, say on Super Bowl.

Shuba Srinivasan:

And third, there's reverse causality, which is that firms may be reacting to stock price, so the causality could go in the opposite direction to the one that we are interested in. But fortunately for us now advances in econometrics, in the science of marketing, in measurement, in the kinds of data that are available, has made it possible to disentangle the effects of advertising on stock price. And in the paper that we wrote in the Journal of Advertising Research, we synthesize hundreds of studies that have recently looked at the impact of advertising to be able to offer some insights, and I think the field is really ripe now to figure out how is marketing contributing in terms of firm valuation and the long-term metrics that investors care about?

Drew Vaughan:

I know you talked a bit about your research in that question, but let's talk about it a bit more here. So what if, in particular, anything motivated you to pursue this particular line of inquiry? Was there a gap in literature or real-world observation that sparked your interest, or any other factors that played into that?

Shuba Srinivasan:

Thanks, drew. I think the motivation came from two sort of fronts. One is the growing disconnect between how we saw in practice how marketers talk about success and how the financial stewards talk about success. Marketing teams might point to high brand awareness or increasing engagement with the brand on social media and point that as wins, while the finance team and the finance folks may ask where's the ROI? How is this moving my stock price? So there's a disconnect there and as researchers we've noticed there was a ton of work on short-term advertising response things like clicks, conversions, quarterly sales but there was really a big gap in terms of understanding. How does advertising and how do marketing spend overall one of the largest discretionary investments of most firms? How do those investments affect firm value? Think of a big emotional campaign like a Super Bowl ad. Marketers may love it, but the CEOs and investors are asking where's the ROI from the millions of dollars that?

J.P. Matychak:

I spent on the Super Bowl ad, which is only growing larger and larger every year. Exactly the amounts of dollars that companies are spending for these big ad buys. Exactly do wonder like okay, is the payoff there? Is it even worth it? Because even in recent years like companies have pulled out of there.

Shuba Srinivasan:

Exactly, exactly, and so this kind of disconnect motivated us, and we wanted to be able to provide marketers with the ammunition to sort of talk to the financial stewards like the CFOs, the investors and the analysts, and the stream of research helps with that, yeah.

J.P. Matychak:

So you've identified a little bit three distinct pathways that advertising can influence firm value, one being indirect effects via sales, the signaling value to investors and even just building brand-based assets. So can you talk a little bit more about each of those quickly, about what you have found through your paper and through your study about how advertising can influence those?

Shuba Srinivasan:

Happy to do that, jp. The first route is what we refer to as the indirect route. This is the classic route where advertising may make consumers more aware of the product. Consumers being more aware may run into the retailer and ask for the product and this encourages them to buy. So these purchases may then lead to higher sales, higher profits and to the extent these profits exceed investor expectations on earnings, we would expect to see a stock price impact. So an example of this is Apple. Every year with the iPhone, they go in and they have these ads for the iPhones. Consumers see them. It boosts sales, it improves product market performance. Investors notice that the earnings exceed expectations and that affects stock prices. So that's the indirect route, typically measured through transactions at the point of sale.

Shuba Srinivasan:

The second route is what we refer to as the direct route and this happens through building brand assets, and we sort of propose there are two mechanisms for the direct route. The one is the signaling effect. Here's the idea that investors have very different information on the company's strength and the brand's strength from the managers, such as the CMO or the CEO, and advertising would then serve as a signal communicating that asymmetric information that management has about the future prospects of, say, a product to the investors, and so this is the invest signaling route. Think of a pharma company After DTCA approval, they might increase their ad budget for a particular pharma drug. Consumers may, patients may go and ask the clinicians for more prescriptions and investors might see that advertising and say there's really good potential for future cash flows from this new drug and that might boost up stock price. So it's a pure signaling sort of effect.

Shuba Srinivasan:

Sure, the second is the classic. What we understand marketing to do, which is the role of marketing, is to build intangible assets, such as brand assets or customer assets, and that leads to future cash flows. So here we are thinking of classic marketers like Coca-Cola, years and years of consistent advertising that builds brand equity over time slow moving, enduring brand equity. Slow-moving, enduring brand equity and investors recognize that the stronger brand allows Coca-Cola to command price premiums to weather political or other crisis events and so on, and they reward such firms with a stock price increase. So the brand asset route is sort of the classic route that we're all familiar with with regard to the big know, the big marketers Apple, coca-cola, companies that are on the interbrand list of the top 100 brands.

J.P. Matychak:

What we're normally used to seeing.

Shuba Srinivasan:

Exactly exactly.

J.P. Matychak:

Gotcha.

Drew Vaughan:

So I know you identified those three differing components of the brand asset pathway, but could you elaborate a bit more on what distinguishes these forms of brand equity and why it's important to really evaluate these separately in a financial context?

Shuba Srinivasan:

Sure, Happy to do that. One of the things we do in the paper in the Journal of Advertising Research is to distinguish between three types of brand equity. The first is a customer-based brand equity, which is the classic notion of marketing. It is that brands live in the minds of customers. Do people know the brand? Do they love the brand? Do they consider the brand? Everything that happens in the minds and hearts of consumers is what we refer to as customer-based brand equity, and this reflects the potential for long-term value. But it hasn't yet translated into long-term value.

Shuba Srinivasan:

If you go further along the sequence of customer-based brand equity, we get to market-based brand equity, which is the notion of behavioral outcomes. How did the brand actually do in terms of tangible revenues and outcomes like market share, price premiums, competitive positioning, customer retention and so on. So think of a brand like Dyson commands a price premium in the marketplace. It has strong market-based brand equity.

Shuba Srinivasan:

And the third one is what investors care about further along in the continuum, which is a finance-based brand equity, which is how does a brand contribute to financial values? So these are things like does it manifest in higher firm valuation, lower cost of capital, increased acquisition value when someone is acquiring a firm with a brand that has a high value, and so we argue that it's important to consider the customer perspective, the marketplace perspective, as well as the finance-based perspective or the investor sentiment, because you could think of examples where one exists and the other does not, and it doesn't really translate into the metrics that investors care about. If you have a brand that's high on customer equity but companies don't monetize that love, there's really no way to translate that into cash flows. So it's really important to have all these elements. It's almost like a hierarchical chain that you go from one to the next, to the next and ultimately leading to firm value.

J.P. Matychak:

So in the paper you actually argue that quote marketers should incorporate investor behavior into their advertising spending decisions. So what does this actually look like in practice?

Shuba Srinivasan:

This is a really important question and I think it goes to the heart of what we are trying to say here, which is that when you talk about incorporating investor expectations, it's really about recognizing that advertising drives not only consumer response, as we've seen for decades, but also investor response. In many cases, when advertising improves brand strength or drive sales, investors take note. Or what we like to say is that Wall Street is often in sync with Main Street when it comes to many advertising investments by firms, but it's not always the case. There are some exceptions. One example is price promotions. As consumers, we love price promotions.

J.P. Matychak:

Everyone likes a good deal.

Shuba Srinivasan:

Everyone likes a good deal. They boost short-term sales, they save me money but investors tend to see them as value-destroying. So, while price promotions might make sense from a retailer perspective, from a consumer perspective, investors don't like that as much, and marketers need to be careful with price promotions. In general, marketers should pay attention to the metrics that investors care about. One such metric is customer satisfaction.

Shuba Srinivasan:

This is a hugely important metric, and investors pay attention to it. In fact, one of the studies that we looked at showed that a 10% increase in customer retention could translate into a 7% boost in stock price. Wow, that's really powerful, right? And so it supports the idea that we need to pay attention to these kinds of metrics as marketers, and these numbers tell you a lot about the company's long-term health, and the investment community watches them closely. One of the things I like to track, for example, is the retention rate of mobile phone carriers how many new customers are gained, how many customers switched, how many customers did not sort of renew their contracts. Those numbers tell you a lot, and, as it turns out, investors are paying very close attention to those metrics on customer relationship that marketers care deeply about.

Drew Vaughan:

Yeah, and I think you bring up some great points there. With so many brands and companies really investing not only time but money into their advertising efforts, it's something that's staying around for a while. So I guess, with this new research, do you think we need to rethink how brands companies are defining and measuring advertising effectiveness? Yes, drew, 100%.

Shuba Srinivasan:

I think we ought to move beyond short-term metrics. Advertising effectiveness is often measured by clicks, likes immediate sales. While those are important, we need to go beyond those. We need to look at things like how is advertising building long-term brand value and stock prices? So we need to start evaluating campaigns on their ability to increase brand equity, enhance customer loyalty and drive future growth and profitability. And, as I've been saying, we also need to incorporate sort of the investor sentiment and how investors are reacting to this advertising.

Shuba Srinivasan:

So, in terms of the awards and benchmarks, one ad that comes up to mind is Nike's Colin Kaepernick campaign, which was controversial at its time, but it wasn't just about short-term sales. It really redefined the brand. It was a brand-defining ad campaign. It generated controversy, but Nike's stock price surged, long-term brand equity deepened. It was strategic, it was a bit risky but ultimately valuable. So I think what we'd like to see is more recognition for that type of work where we are not just asking did it sell one more pair of shoes, but did it build lasting brand value and lasting value to the firm, and we hope to see our work spurring some of the conversation in terms of moving in that direction, of rewarding the longer term metrics.

J.P. Matychak:

And that really seems like that can be counterintuitive to an investor's mindset, right? Who is looking for the immediate, like where's the value right now? And those are really long-term plays, as you said.

Shuba Srinivasan:

Right right. In some sense, investors also take into account the future cash flows that accrue from marketing campaigns, because the stock price is the net present value, reflects the net present value of all future cash flows accruing to the firm. So while investors do care about have a short-term perspective and do care about the immediate earnings and so on, they also are quite focused on the long-term prospects in terms of the future cash flow.

J.P. Matychak:

The lasting value? Yeah, so are there industries or sectors where you especially see stronger or weak links between this sort of advertising and firm value?

Shuba Srinivasan:

Absolutely. Advertising doesn't play the same role across all industries and some of the studies we reviewed about 250 studies and some of them show there are industries where the link is especially strong, classic sectors like CPG, packaged goods, retail, apparel, tech, where the brands are consumer-facing, the brands are highly differentiated. Consumers have a lot of options. These are sectors where advertising plays a much bigger role. Think of your Coca-Colas and the apples of the world, where the product hasn't changed much, but really the value of the world, where the product hasn't changed much, but really the value of the brand, is tied to the brand equity and the advertising which reinforces that brand equity. Then there are other sectors where the effect might be weaker and here we're thinking things like utilities, industrial manufacturing or chemicals. That isn't to say marketing is not important in those sectors, but it's less about television advertising or brand advertising, but it may be more about one-to-one relationship building, pricing, contracts, technical specs of the product.

Shuba Srinivasan:

And then there are still other industries, like pharma, where it's more nuanced. In pharma a lot of what we are seeing is sort of the signaling role of advertising, where advertising still plays a role, but a lot of it is through the signaling route, for example, that we talked about, where it's about creating buzz and building investor confidence in the new drugs as it reaches the patients and the doctors. So, yes, there is more to be done in sort of disentangling sector-wide effects, but I think the area is ripe for research now that we have the measurement challenges addressed. We have new sources of data that are becoming increasingly better and we now have all the sufficient interest in both the practitioner and the academic community to address these sorts of questions.

J.P. Matychak:

And I would imagine in that second group of industries that you talked about there is the notion that customer satisfaction, the word of mouth type of-.

Shuba Srinivasan:

Absolutely.

J.P. Matychak:

Is really important, super important and hard to measure too, right, exactly.

Shuba Srinivasan:

That's absolutely right, the role of customer relationships, the role of customer satisfaction. So in some sense customer based assets like customer equity, customer lifetime value, which comes from these long term contractual agreements, sort of supersede the brand in those contexts.

Drew Vaughan:

Yeah, I think you make some great points there no-transcript we had in mind when writing the paper.

Shuba Srinivasan:

Marketing leaders today just can't say trust us. This builds the brand. That doesn't fly when you look at CFOs and CEOs, who are focused on ROI and financial impact. So our research allows a way to reframe the conversation. It allows us and marketers to move from.

Shuba Srinivasan:

This campaign got a lot of likes to this campaign, created real brand and financial value for the firm, and here's the data to prove it right.

Shuba Srinivasan:

And the key is to help position marketing as an investment and not just as a discretionary line spend that can be cut when the budget is tight.

Shuba Srinivasan:

So what we are recommending is that CMOs connect marketing spend to outcomes that investors care about Things like revenue growth, margin growth, risk reduction, lower churn, more predictable cash flows, reduced risk and so on that the CEO and the CFO care about. A great real-world example of this is MasterCard. Their CMO and CFO work hand-in-hand and in fact, MasterCard has a CFO within the marketing department as well to align marketing with the business key performance indicators, and they even highlight brand building effort on investor calls. So that kind of alignment between marketing and finance sends a clear message that marketing is driving value and it's not just about how is this campaign affecting our short term clicks or consumers in the short run? But really, how are we contributing to building value, both brand value as well as firm value and we hope that our work can help make the case for investment in advertising. The evidence is there from 250 studies that we looked at that advertising matters and it builds firm value.

J.P. Matychak:

Excellent. So as we, as we kind of wrap things up here, what is you know for the, the, maybe the, the, the CMO that's listening, or the, the, the CFO that's listening, or just the, the, the general business enthusiast? What is the biggest takeaway that you think that listeners should take away from your research right now?

Shuba Srinivasan:

Thanks, jp. Our message is simple at the end of the day, advertising is more than a cost. It's a strategic investment in firm value. To unlock its impact, we need to move beyond short-term sales metrics and start connecting the dots in the hierarchy that we talked about. We break it down into sort of three simple results. Advertising drives sales, it drives confidence to investors and it builds brand assets that create long-term advantage. And in a world where CMOs are under pressure to prove ROI, we offer a roadmap where we say link marketing key performance indicators to financial outcomes, speak the language of investors and measure effectiveness not just by what's immediate but by what endures. And the tools are in place and we hope that we can stop defending marketing spend as a field and start defining value created.

J.P. Matychak:

Excellent. Well, Shuba, this has been incredibly interesting. I'm really excited to see where this goes and if this can truly be infused in the way businesses are thinking about these things and that, like you said you know, marketing isn't just a cost center, Like there is value and ROI to the investment that you're making.

Shuba Srinivasan:

Absolutely, JP. Thank you, good to be here. Thanks, Drew and JP. It was fun having this conversation and I welcome any comments from your listeners.

J.P. Matychak:

Excellent.

J.P. Matychak:

Thank you, Shuba for joining us today,

J.P. Matychak:

Yep absolutely my pleasure.

Shuba Srinivasan:

Yep, absolutely.

J.P. Matychak:

My pleasure. Well, that'll wrap things up for this episode of the Insights at Questrom podcast. I want to thank our guest once again, Shuba Srinivasan, the Norman and Adele Barron Professor in Marketing at the Boston University Questrom School of Business. For Drew Vaughan, I'm JP Matychak. Till the next time on the Insights Equestrian Podcast, take care.