For marketing, as for business as a whole, cash flow is the ultimate metric. Indeed, some have called for defining
the objectives of marketing in terms of the identification and development of sources of cash flow [2]-[4].
Cash flow is the primary financial metric of the firm. It is a measure that is consistent across markets, products,
customers, and activities. There are a very small number of drivers of cash flow. Cash is obtained from a source
(customer acquisition and retention, share of wallet within a category, or share of wallet across categories). Cash
is also produced through a business model (margins, velocity, or leverage).
The long established DuPont model [5] [6] suggests that cash can also be obtained through emphasis on one
or more of three basic business models: margins, velocity, or leverage. Margins are the profits made on each individual
unit sold. Velocity, or turns, is the frequency with which products are sold. Even at a small margin, a
firm may be very profitable if it can turn inventory very frequently. Finally, cash may be produced through leverage.
That is, a firm may be able to take an asset that it already possesses and leverage it into new uses or new
activities to produce additional return on that activity. A good example of leverage is a brand extension. The
brand already exists; it does not need to be built, and can be extended into a new category.
As a first step in linking marketing activities to financial performance the firm can identify how marketing activities
and outcomes are linked the three cash flow drivers. Note that the focus is not on “marketing” as a general
discipline but on specific marketing activities. The is an emerging focus on developing a better understanding
of marketing and its activities, the link of activities to financial performance and the broader relationship of
marketing to successful business model. The work of the Marketing Accountability Standards Board (MASB,
http://www.themasb.org) is a catalyst for this effort.
This paper has focused on marketing but there are other areas within business that are also poorly defined and
lacking in explicit links to the financial performance and business model of the firm. Human resources is another
area that is really a collection of activities that may vary widely across organizations. Indeed, most of the
more costly activities that also contribute most for the value to the firm are still poorly understood. This is because
the questions around these activities are hard questions and do not lend themselves to quick and simple
solutions. It is comparatively easy to compute the optimal route between a point of supply and a point of distribution.
It is not so easy to identify the long-term benefits of building a brand or increasing retail shelf presence.
But, it is the investigation of hard problems that promises to deliver the greatest value to scholarship, to firms
and their stakeholders and society at large.
As the Open Journal of Business and Management (OJBM) begins its life as an outlet for scholarship in business,
I encourage you to join me in contributing to big issues and the understanding of difficult problems.
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