The paper’s premise is that a marketer’s first audience is the finance chief. Before anyone influences a customer, they have to convince the chief financial officer that money spent on marketing will pay off, which the authors state as marketing to the CFO being the top priority.
Its method is to start from the formula investors use. Applying the Gordon Growth Model gives three and only three ways to raise the value of a business, and from those three the authors derive six marketing levers.
Key findings
- The three drivers are accelerating growth, enhancing profit, and mitigating risk, and the six levers are customer acquisition, customer lifetime value, customer willingness to pay, supplier willingness to accept, cash flow certainty, and alpha generation.
- The formula explains why growth deserves the emphasis marketers give it. Growth sits in the denominator, so accelerating it has a bigger effect on value than adding the same amount to profit in the numerator.
- The scale of the mismatch it addresses is large. Business to business firms account for forty-eight percent of the US economy by gross output but only fifteen percent of marketing and advertising spend.
- The problem is widely reported by marketers themselves. Sixty-one percent of senior marketing leaders in one survey cited demonstrating the impact of marketing on financial outcomes as their top professional challenge, and fifty-two percent reported increasing pressure from their finance chief.
- Investors already value the distant future heavily. It is typical for more than seventy percent of a company’s share price to be attributable to cash flows five or more years out.
Talking about cash instead of clicks
The diagnosis is that marketers focus on the wrong numbers. The authors put it as talking about clicks when the conversation should be about cash, and describe the consequence: budgets that cannot be linked to the bottom line become easy targets for cuts.
The reframing offered is agricultural. Marketing’s job is to sow and harvest cash flows, where sowing is investing in relationships that generate future cash and harvesting is reaping the return from past investment in customer relationships.
The starting premise for collaboration is stated plainly. Customers are the source of cash flow, and certain types of marketing are investments to secure future customers.
Growth: acquisition and lifetime value
The paper names the assumption it considers dangerous: that sales can be made without relationships. In business to business markets a transaction is usually preceded by an extended sales process requiring marketing and sales to work together.
The rationale for a full funnel approach is that most buyers are not in market. A company doing only performance marketing based on in-market buyers is failing to invest in the ninety-five percent who are not buying this quarter.
The worked example is corporate laptops. Companies review suppliers roughly every four years, eight in ten in-market buyers begin with a shortlist already in mind, that shortlist holds about three brands, and nine in ten eventually choose from it.
The mechanism for getting on that list is mental availability, the likelihood of being remembered in a buying situation. The authors ground it in the observation that people are cognitive misers who rely on mental shortcuts, and report that association with at least one buying situation correlates with higher buyer penetration.
The second growth lever is lifetime value, described as acting like interest with a compounding effect on what a company already owns. It matters more in business to business because acquisition is long and initial purchases may be small, so most of the value depends on renewal and expansion.
The cohort example makes the point numerically. Subscribers who upgrade account for fifteen percent of the base but close to a third of total lifetime value. The paper also cites the Double Jeopardy Law, under which brands with more customers have higher loyalty, and shows that association with more buying situations lowers the probability of defection.
Profit: what people will pay and what they will accept
The profit argument runs through the value stick, which sets out four points: customer willingness to pay, price, cost, and supplier willingness to accept. Price is the point a firm controls most, and it can sit anywhere between cost and willingness to pay.
Marketing’s job in that frame is to raise customer willingness to pay, creating headroom above the price and expanding the margin available. It does this through campaigns that address functional benefits and emotional ones.
The distinction between the two kinds of benefit is precise. Functional benefits inform what customers think about the product, emotional benefits what they should feel about it, and the paper argues only emotional advertising can reduce price sensitivity and support premium pricing.
The comparison offered is two customer engagement platforms serving small businesses. One advertises functional benefit alone, the other functional and emotional, and the second commands an opening price more than twice the first.
The same logic applies to the cost side. A supplier may accept slightly lower prices to be associated with a well-regarded brand, and researchers have found a negative correlation between brand strength and executive compensation, implying executives at strong brands accept lower salaries in exchange for prestige.
Platform data is offered as support. People exposed to a firm’s marketing are fifty-eight percent more likely to respond to recruiters, and a separate study is cited showing motivated employees producing an eighteen percent rise in productivity.
Risk: certainty and smart bets
The risk section separates two kinds of creativity. One keeps the brand fresh for core customers and is aimed at reducing the volatility of earnings. The other is disruptive, designed to change how customers think about the business and to produce an outsized response.
The analogy given is a portfolio. The first kind of creativity behaves like a broad market fund aiming for a solid return with low volatility, and the second like venture capital, where a small number of bets can return many times the investment. How much to allocate to each is presented as the core of the agenda between the marketing and finance chiefs.
The evidence for brands lowering risk comes from investment analysts. In one study nearly eighty percent said brand strength was a key factor in their appraisals, and they selected it more often than leadership quality, technological innovation, or profitability.
The financial consequence is spelled out. Companies with strong brands tend to have lower betas, which lowers their cost of capital, and lowering the discount rate on future earnings raises their present value. A reduction in perceived riskiness is described as financially equivalent to a higher growth rate.
The counter-intuitive advice is to talk about risk openly. Uncertainty is present in every business decision, and the authors argue that marketing chiefs who discuss it explicitly build greater trust with their finance colleagues, particularly when they bring defensible assumptions, pre-agreed measures, and optimistic and pessimistic scenarios.
What the framework is for
Each section is written to be used in a specific conversation. The paper supplies model answers to the questions a finance chief actually asks, including how marketing helps acquire customers, whether spending on marketing hurts profitability, and how marketing affects the risk profile of the business.
The conclusion positions the framework as a bridge between two disciplines with complementary views of value creation: marketing identifying and attracting the customers who are the source of cash flow, and finance allocating resources to the opportunities that deliver it over both horizons.
Scope and limitations
The model at the center of the paper only applies to mature businesses, and the authors say so: it requires a combination of profitability and a stable growth rate, and early-stage companies need a different valuation approach. Several of the sample answers to finance questions are illustrative rather than drawn from a specific company.
Source
This page summarises The Three Drivers of Financial Value: How Marketers Can Unlock Bigger Budgets By Thinking Like Investors, by Jonathan Knowles, Lisha Perez, June 2024.