The key objective of the Marketing Due Diligence process is to link marketing strategies directly to the creation or destruction of shareholder value. This requires an assessment of the particular risks associated with any proposed marketing strategy, as risk and the corresponding required rate of return are directly linked.
Unfortunately the normal financial focus of marketing strategies and plans is on predicting outcomes, not assessing the associated risks. These potential financial outcomes are often presented as single-point, apparent certainties rather than being expressed as a range of the possible outcomes that may result, given the volatility of future business environments.
Where risk is taken into consideration, this is normally done by altering the discount rate that is applied to the predicted future cash flows; thus, higher risk strategies have a higher discount rate applied to all these cash flows. This can give a false result particularly, as is the case for many marketing strategies, where the strategy depends on the successful completion of a sequence of individually somewhat risky activities, such as are involved in the development and launch of a new product or the entry into a new market.
The Marketing Due Diligence process looks at the specific risks associated with each element of the marketing strategy, so that individual probability assessments of success/failure and the consequent impact ...