Lezingjoost

Marketing X Finance =
Product
with High Return and Low Risk Profile
Joost M.E. Pennings
Professor of Marketing
ALEX Beleggersbank Professor in Finance
Marketing-Finance Interface: New

Frontiers
1. Financial Product Development
2. Channel Relationships & Financial Derivatives
3. Shareholder Activism & Marketing
4. Market Sentiment
5. Interdepartmental MF Integration
Faculty of Economics and Business Administration
Marketing-Finance Interface: New

Frontiers
Financial Product Development:
$630 trillion derivatives traded

Fierce competition
Low new product success rate
Financial Product Development
MF-Approach

Challenges-Future Research
How can we translate customer needs into concrete
attributes that are technical feasible?
Research methodology
Marketing-finance approach
Attributes of financial product
Marketing approach conjoint approach
Finance approach objective measure e.g., hedging
effectiveness

New tools are needed that:
Can transform customers preferences in concrete
attributes AND.
are able to take the technical constraints into account
simultaneously
Hence operationalize the MF approach toward product
development

Research methodology
Marketing-finance approach
(Mis)-match subjective vs. objective performance
Current case study:

Dairy futures
Channel Relationships & Financial

Derivatives
Channel contract preferences differ
Driven by risk attitudes, capital structure etc.
Conflicts and unable to meet financial

performance targets in terms of risk
(volatility)
expected cash flow (return) trade offs.
Marketing Channels & Financial

Markets
Channel Relationships & Financial

Derivatives
Role of Financial Markets:
May complement cash flow stream from internal
channel relation with external third part financial
service, if.
How should we organize or marketing activities
and financial product design to accomplish this?
Channel relationships & financial

derivatives
Marketing: Behavioral & cash flow characteristics of
relationships
How does Trust, Power influence cash flow structures?
Finance: what are the attributes of financial products that can

complement cash flow structure of relations?
Hedging effectiveness
Market micro structure (liquidity)
Complete markets (arbitrage; marketing relationships and
financial products)
Shareholder Activism
Upheaval at VNU is yet another example of increasing
shareholder activism in Europe. (The Economist April 6th
2006)
Activist shareholders are getting tough with boards and
managers. (The Economist May 31st 2007)
Investors are making life uncomfortable for boards in
America. (The Economist May 31st 2007)
Keeping shareholders in their place: Bosses around the world
celebrate a series of victories over activist shareholders. (The
Economist October 11th 2007)
Questions from the Industry:
Why do shareholders become active?
What is the impact of shareholder activism?

How can we improve Investor Relations (IR)?
Who is leading in IR: Finance or Marketing?
Research questions:
What are the underlying dimensions of shareholder
activism?
What is the impact of shareholder activism on firms
marketing activities:
4 Ps (price, product, place, promotion)
Time horizon (short versus long term view)

What is the role of Marketing in IR?
What is the role of Marketing in IR?
Market Sentiment
Explanation for all movements in markets?!
Industry, Academia in disagreement
No consensus: remains a black box
Market sentiment index industry:
Proprietary methods
Technical Indicators
Surveys
Put/call ratio
Do they add value?
these are not measures but the result of market

sentiment!
Market Sentiment
What is it? What drives it?
Affective constructs
Mood A mood is a lasting affective state triggered by
a particular stimulus or event. Moods generally have

either a positive or negative valence.
Optimism Expectation of positive outcomes in (e.g.,
online investing).
Confidence-> A state of being certain, either that a
hypothesis or prediction is correct, or that a chosen

course of action is the best or most effective given the
circumstances.
Market Sentiment
MF approach:
Bottom-Up approach: Start with
individual decision-maker
Determining drivers of sentiment
Most approaches are top-down
aggregate studies do not address causality.
Conceptual Model
The effect of Investor Sentiment on Risk Behavior:
Risk Perception
Investor Sentiment
Optimism
Confidence
Mood
General affective state affects

risk perceived in market.
When investing, general affective

state also depends on the state of
the market Positive Feedback Loop
Mood is dynamic Risk Perception is dynamic
Conceptual Model
Effect of Susceptibility to Affect Richness (STAR) on
Risk Behavior:
STAR measures irrationality in an
investor who accounts for affective
Risk Attitude
value when calculating risk-return
trade-offs.
Susceptibility to
Affect Richness
A STAR investor seeks

more risk than a non-STAR
investor in order to acquire the
affective benefits of investing
STAR is a personality trait

Conceptual Model
Investment Decision
Risk Behavior
Risk Attitude
Affect
Susceptibility to
Affect Richness
Risk Perception
Interaction
Investor Sentiment
Optimism
Confidence
Mood
Market Sentiment
Investment products
Trading support systems
Market sentiment derivatives
Insurance products
Regulation
Confidence during crises
(in the US credit system for example)
Interdepartmental MF integration
Interdepartmental integration:
interaction and
collaboration
in a way that benefits are produced to them
that exceed individually produced benefits of
the departments.
In order to effectively work together,
marketing and finance must align their goals
Research questions
Does M-F integration within a firm contribute to
business performance?
Do relational characteristics and organizational
structure variables have an influence on the level
of M-F integration?
Is there a gap between perceived versus actual
integration, and does this have an influence on
business performance?
Managerial implications
Provide insights into how interdepartmental
integration should be managed
Provide guidelines for top management on how to
design their organization
Marketing managers can learn how to interact
and collaborate with finance managers
Develop a measure that measures actual
interdepartmental integration in terms of
contribution to financial performance
Marketing X Finance = Product with

High Return and Low Risk Profile
Can we disentangle what discipline
contributes what to financial performance?
Marketing X finance
Is that a relevant question?

Not for shareholders
For rewards for both disciplines
Marketing X Finance = Product with

High Return and Low Risk Profile
Because:
High return:
They complement each other: The Whole is greater than the
sum of its parts.
Low Risk
Natural hedge between the disciplines
Risk, in terms of contribution, is cancelled out by both disciplines
MF approach is investment with high Sharpe ratio!


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Marketing X Finance =

Marketing-Finance Interface: New

Faculty of Economics and Business Administration

Marketing-Finance Interface: New

$630 trillion derivatives traded

Faculty of Economics and Business Administration

Financial Product Development

Faculty of Economics and Business Administration

Faculty of Economics and Business Administration

Financial Product Development:

Financial Product Development:

Financial Product Development:

Current case study:

Faculty of Economics and Business Administration

Channel Relationships & Financial

Conflicts and unable to meet financial

Marketing Channels & Financial

Faculty of Economics and Business Administration

Channel Relationships & Financial

Channel relationships & financial

Finance: what are the attributes of financial products that can

Faculty of Economics and Business Administration

Faculty of Economics and Business Administration

What is the impact of shareholder activism?

Time horizon (short versus long term view)

What is the role of Marketing in IR?

Faculty of Economics and Business Administration

Market sentiment index industry:

Do they add value?

these are not measures but the result of market

Faculty of Economics and Business Administration

a particular stimulus or event. Moods generally have

Optimism Expectation of positive outcomes in (e.g.,

Confidence-> A state of being certain, either that a

hypothesis or prediction is correct, or that a chosen

Faculty of Economics and Business Administration

General affective state affects

When investing, general affective

Mood is dynamic Risk Perception is dynamic

Faculty of Economics and Business Administration

A STAR investor seeks

STAR is a personality trait

Faculty of Economics and Business Administration

Faculty of Economics and Business Administration

Faculty of Economics and Business Administration

Faculty of Economics and Business Administration

Marketing X Finance = Product with

Is that a relevant question?

Marketing X Finance = Product with

Risk, in terms of contribution, is cancelled out by both disciplines

MF approach is investment with high Sharpe ratio!

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