Handbook of Marketing and Finance
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Handbook of Marketing and Finance

Edited by Shankar Ganesan

Many organizations have found that the value to business operations and financial performance created by the marketing function has become very important. The need to demonstrate this importance has also become clear. Top managers are constantly challenging marketers to document marketing’s contribution to the bottom-line and link marketing investments and assets to metrics that matter to them. This Handbook relates marketing actions to various types of risk and return metrics that are typically used in the domain of finance. It provides current knowledge of this marketing-finance interface in a single, authoritative volume and brings together new cutting-edge research by established marketing scholars on a range of topics in the area.
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Chapter 4: Financial Portfolio Theory and Customer Management: Insights and Research Directions

Michael D. Hutt, Crina O. Tarasi and Beth A. Walker


Michael D. Hutt, Crina O. Tarasi and Beth A. Walker For an investor, financial portfolio theory demonstrates that optimal performance, for a given level of risk, can best be achieved by building a diversified mix of investment assets that includes the stocks of both large and small firms, drawn from diverse industry sectors and representing both US and foreign companies. In building a customer portfolio, similar benefits can be realized by diversifying across different customer categories. To illustrate, after the technology bubble, many information technology (IT) companies, like IBM and Microsoft, were surprised to observe that small and medium-sized business (SMBs) fueled the recovery in IT spending (Veverka, 2003). Why? Most of the SMB customers did not overindulge in massive hardware and software upgrades to the same extreme extent during the bubble as their large enterprise counterparts did. So, SMB customers were the first to return and aggressively buy IT products and services. As a result, those IT firms that devoted a meaningful weighting to SMB organizations in the customer portfolio enjoyed an edge over rivals that were less focused on this customer group and were ‘caught waiting’ for large enterprise customers to return. Traditional treatments of market segmentation in textbooks and in the broader marketing literature fail to address the issue of risk or to consider the way in which a particular combination of segments might advance or inhibit firm performance during different stages of a business cycle or under different economic scenarios. By highlighting the role that risk...

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