Identifying the contribution of financial and non-financial measures in value creation: An exploratory empirical analysis of economic value added and customer satisfaction

A primary question in the field of marketing strategy involves the role of marketing constructs in the strategic management of an enterprise. A key element of strategy is that firms can choose to follow either a cost or differentiation strategy to create a competitive advantage. Traditional theory suggests that a firm should choose Dose one approach because it is either too difficult to develop a dual cost and differentiation strategy or because the attention of top management is limited in enacting and monitoring a dual strategy. The choice of which performance measures to use to monitor and evaluate the effectiveness of the chosen strategy is an important decision for driving firm performance. Critics have suggested that the exclusive use of traditional financial measures fails to effectively capture the value created in the firm and that non-financial measures need to be added to increase the understanding of new sources of firm value.;Research has provided evidence that non-financial measures such customer satisfaction can be linked to increased firm performance and firm value in conjunction with traditional financial measures. In this study, questions about the relationship between economic efficiency, customer satisfaction measures, and firm value metrics are investigated including the size and structure of these relationships. The goal is to relate the value gained by following either a cost strategy or a differentiation strategy or a combination of strategies to assist managers and investors in identifying the relationship between a firm's current condition and its capacity to produce future wealth.;In order to explore these relationships, data were gathered from publicly available sources including the American Customer Satisfaction Index (ACSI) and the Stern Stewart Performance 1000. Key variables include the firm's ACSI score, Economic Value Added (EVA), and Market Value Added (MVA). A series of regression models are used to test the structure of how customer satisfaction and financial metrics are reflected in measures of market value added. In addition, a matrix evaluating firms based on their position relative to average EVA and ACSI is created to illustrate the relative effects of cost and differentiation strategies on the level of MVA created over time.;The results suggest that the interaction of customer satisfaction measures (ACSI) with the financial metric of economic value added (EVA) is a significant positive predictor of market value added (MVA) and provides incremental value to the sole use of financial measures or non-financial measures in predicting firm value creation. In addition, firms that have both greater than average levels of customer satisfaction and cost efficiency have higher average levels of MVA compared with firms that are lower on either or both cost and differentiation measures. Implications are drawn for marketing practitioners and additional supplemental research topics for strategic marketing analyses are presented.