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Bridging the gap between marketing and finance

June 29, 2006

If Victor Cook could give Southwest Airlines one piece of advice, it would be spread the LUV.

The low-cost carrier is a favorite with both consumers and investors, but Cook says Southwest is failing to maximize shareholder value by not incorporating its resonant ticker symbol—LUV—into its company logo.

“Most passengers don’t know that LUV is the ticker symbol for Southwest Airlines,” says Cook, Freeman School professor of marketing strategy. “Apparently, it never occurred to management that it would be valuable to make a visual connection between the markets for their common stock and their airline services.”

Connecting the traditionally isolated worlds of stock markets and product markets has been a research interest of Cook’s for more than 25 years, and it’s also the subject of his new book, Competing for Customers and Capital (Thomson). The book is the first major work to link sales to market value and, significantly, the first to deliver marketing metrics tied to a company’s balance sheet.

“There are complicated and subtle interactions between product and stock markets that have gone unnoticed because of the specialization of finance and marketing,” Cook says. “My book is basically microeconomics 101 using financial accounting data to deal with strategic marketing opportunities and threats.”

Breaking with the tradition of valuing companies primarily on financial accounting ratios and cash flow, Cook uses the selling, general and administrative expenses of public companies—the section of their income statements that report on enterprise marketing expenditures—to develop a measure of relative earnings quality, and he captures the interaction between sales revenues and market value in a measure called risk-adjusted differentials. Combining these two basic metrics, Cook creates a competitive stock-pricing model that suggests product markets not only influence shareholder value, they actually drive it, and to prove it, he applies his theory to dozens of high-profile examples, including Southwest, Amazon, IBM, Dell, eBay, Honda, Wal-Mart and Yahoo.

Competing for Customers and Capital also serves as a capstone to Cook’s 29-year career at Tulane. On June 30, he will become professor emeritus, officially relinquishing his full-time post, but he plans to continue his research as well as teach in the doctoral program. “I’m free to do the things I love most at the university, which are research and research,” Cook says with a laugh. “I’m happy as can be.”