David Aaker found a positive correlation between advertising and stock price over 20 years ago. In 1997 Corebrand also released a report positively correlating advertising and stock price. Increased awareness appears to increase perceived value of a company, which is then reflected in its stock price, if the company is publicly traded. Corebrand has recently released an updated report, “The Strong Link Between Advertising and Stock Value,” confirming this relationship is still true.
It does not take a rocket scientist to realize that stock price is usually a reflection of the future perceived value of a company. How else can one explain the sky-high stock prices of relatively new companies with little in the way of revenue? However, what these reports gloss over is the “drugs” involved.
The two Corebrand studies are published by the 4As, which is the American Association of Advertising Agencies. Think they might be biased? The studies are valid as far as I can see, and simply reiterate what Aaker, an academic, noted earlier. What the studies forget to note is that if you stop or cut your advertising, the inflated stock price is likely to drop unless there is real future value in the company.
Several years ago BASF ran a persistent campaign noting they did not make the products you use, they made the products you use better. Clearly a company-focused ad. Stock price increased. They stopped the ads eventually, stock price declined. They have started, albeit on a smaller scale, a new campaign, focused on BASF. Wonder why?
Intel Inside, while ostensibly an ingredient brand ad campaign, really had little effect on consumer preference when it came to actual computer purchase, but did boost their stock. Dramatically scaling back that program in recent years has correlated to a significant drop in their stock price.
Drugs you see. Once you start you can’t stop. But then maybe if a CEO can’t develop an effective strategy to grow the company, he/she can always fall back on advertising to make up for it. At least for a while. And then again, maybe it’s just a temporary campaign in advance of a sale. Situational strategy?