My fellow marketing professors call these “myopic” marketing spending decisions – “myopic” being a fancy word for shortsighted. They often happen before initial public offerings, share repurchases and executive retirements.
While these myopic decisions have short-term benefits, they harm investors, customers and other stakeholders in the long term. After companies myopically cut marketing spending, they often lose market value; that’s why such cuts are linked with worse stock-market performance in the long run. A tool that helps investors identify myopic marketing spending would help them protect their portfolios from negative long-term consequences.
Our method isn’t just backward-looking – it can be used to forecast future shortsighted cuts to marketing spending. Investors could use it to analyze publicly available earnings-calls transcripts for useful data up to four times a year. We estimate that for every US$100 invested, using our method to avoid investing in shortsighted companies could return an additional $6.44 over four years compared with conventional methods. Marketing firms and advertising agencies could also use it to identify companies that plan to pare their marketing budgets.
What’s next
As part of our research efforts, my team has published the algorithm and data necessary to replicate our findings. This will let individual investors and other stakeholders gain valuable insights into executives’ intentions regarding the funding of their marketing and research departments.
While our research has primarily focused on transcribed text from earnings calls, we see more potential in analyzing the audio and video from these calls. Audio analysis could reveal insights from tone, pitch, pauses and filler words, while video analysis could capture the brief involuntary facial expressions known as micro-expressions.
