Sales margin and margin capitalization rates: Linking marketing activities to shareholder value

Using customer level data, prior marketing research has developed a micro or bottom up approach to link marketing activities with shareholder value. This study develops a macro or top down approach using longitudinal firm level data from publicly available financial statements. Test results show that the earnings component supported by sales has higher pricing multiples than other components of earnings in firm specific time-series data. We also test hypotheses of five marketing-related drivers of sales capitalization rate (the rate at which sales increases are converted into increased shareholder value). From the research effort, we develop three managerially useful tools. First, we suggest enterprises develop alpha or sales margin strategies and beta or margin capitalization strategies, and we show that one can map these strategies into a planning matrix. Second, using financial statements of publicly traded firms, we develop an alternative method of estimating customer equity. Third, we show how a company may use our macro approach and compare its performance with its industry competitors to develop insights into competitive dynamics.