New study by Drucker Professor Jenny Darroch shows combination of marketing and innovation pays off for businesses
Jenny Darroch, professor of marketing at the Drucker School of Management, has released a new study that shows organizations practicing a combined marketing and innovation strategy outperform organizations that do not.
The study appears to be the first to examine the role that marketing and innovation together play in creating firm value.
Darroch, the Founding Director of the Center for Marketing and Innovation Studies, developed the MKG + INV 100 based on data for the 2009 calendar year. The list contains 100 firms with high levels of spending on both marketing and innovation.
Automakers Ford, Honda and Nissan lead the list. Computer programming and data processing firms, such as Microsoft, Yahoo, eBay, Activision and Intuit dominated the MKG +INV 100 with a total of 29 entries, and drug companies, such as Pfizer, GlaxoSmithKline and Bristol-Myers Squibb also featured strongly with 17 entries.
“What surprised me was just how much value a combined marketing and innovation strategy added,” Darroch said.
Darroch found that the Return on Assets (ROA) for the MKG + IN 100 was 4.79 percent, Return on Sales (ROS) 6.97 percent, and Return on Equity (ROE) 12.55 percent. To allow for comparison, Darroch calculated performance ratios for a control group of firms that did not spend anything on marketing or innovation. The ROA for the control group was only 0.51%, the ROS 3.02% and the ROE 4.26%.
“It makes sense that an organization should pursue a combined strategy because in order to create value, an organization needs to be capable of developing ground breaking innovations,” Darroch said. “But at the same time, it needs to identify market opportunities, successfully launch new products by demonstrating to consumers how new products meet unmet consumer needs or better satisfy existing needs, build consumer demand for the new products and develop and nurture brands once the new products are in the market.”
The findings confirm what Peter Drucker once famously said: “Because its purpose is to create a customer, the business has two – and only two – functions: marketing and innovation. Marketing and innovation create value, all the rest are costs.”