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With Power Comes Responsibility: How Powerful Marketing Departments Can Help Prevent Myopic Management

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Powerful marketing departments can influence a firm’s financial management decisions. When there is a Marketing CEO and the firm has power over its customers, increasing marketing department power decreases the likelihood of myopic marketing spending and myopic revenue management; increasing marketing department power and analyst coverage decreases the likelihood of myopic marketing spending.

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With Power Comes Responsibility: How Powerful Marketing Departments Can Help Prevent Myopic Management

  1. 1. From: Can marketing leadership help prevent myopic financial decisions in firms? “The motivation to satisfy Wall Street earnings expectations may be overriding common sense business practices… where managers cut corners…we have got to break this pattern where short-term estimates rather than long-term results drive a company's stock.” --Arthur Levitt, U.S. Securities and Exchange Commission, 1998 Srinivasan & Ramani (2019)
  2. 2. From:From:  What is myopic management? Changing business strategy and operational practices to improve performance in the current fiscal period at the potential expense of long-term performance. This takes two forms:  Myopic marketing spending: Cutting advertising and R&D spending  Myopic revenue management: Pulling future revenues into the current period by offering lenient credit  How does it affect firm performance?  Decreases in stock returns  Poorer firm performance  Accounting violations (e.g., trade stuffing, that is selling more products into channels at low prices, and very lenient credit terms). Myopic management Srinivasan & Ramani (2019)
  3. 3. From:From:  A study of 781 publicly-listed US firms between 2000 and 2015 examined how marketing leadership might be able to help.  Results:  A powerful marketing department can not alone reduce myopic management.  However, when firms have a CEO with a marketing background, strong marketing departments are able to reduce myopic marketing spending.  Specifically, these firms are 7% less likely to engage in myopic marketing spending and 8.6% less likely to engage in myopic revenue management. Can marketing leadership help? Srinivasan & Ramani (2019)

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