What is marketing?

Marketing is a way for companies to reach out and speak directly to their current and future customers, including potential investors.

A woman standing among high rises shouts news through a megaphone.

Image source: Getty Images

There are many important activities for businesses to engage in beyond their core competency. Like public relations, marketing helps to influence the perception of a business with people outside the company, especially when it comes to buying decisions.

What is marketing?

On the surface, marketing is designed to sell products or services to the public, but it goes a lot deeper than that. Marketing can also introduce people to companies for the first time, even if their interest isn't so much in the product as in the business itself. Investors can learn a lot about a company from how it markets itself.

With less well-known publicly traded companies, sometimes marketing is the best tool for getting their name out where potential investors can meet them for the first time. The primary goal is to push their products or services, but it doesn't have to be the only goal. Marketing can be used to sell anything — including an interest in buying shares in a company.

Why a marketing strategy matters to investors

If brand recognition was a useless pursuit, big companies such as Coca-Cola (NYSE: KO), Woolworths Group Ltd (ASX: WOW) or Qantas Airways Limited (ASX: QAN) wouldn't bother to continue to run commercials, pay for expensive billboards, and run huge colour ads in publications.

Most people are aware of these publicly traded brands because of their ubiquity in our culture. You see Coke and Woolies products everywhere, and most Australians would be aware of the country's national airline.

When it comes to high-profile companies, the goal with marketing is less about being seen for the first time as it is communicating with the public in a more subtle way. Such brand marketing can signal a company's values and who its customers believe themselves to be.

Knowing these things about a company makes it easier to figure out if it is worth your investment. After all, you're buying shares of a real business and will have voting rights with those stocks if you choose to exercise them. Understanding their marketing can help you choose from myriad solid, investable companies out there.

The effects of marketing on a company's value

Good marketing is hard to come by, but when it sings, it can literally create buzz for a product that might otherwise be pretty lacklustre or at least not all that original. Vital tweets from brands can send product sales soaring, create new streams of unexpected revenue (brand merchandising, for example), and generate new awareness for a company that might need a visibility boost.

If the hype can be captured and sustained, it can have far-reaching implications for the company's financial health. A well-managed company can take this kind of wild ride and turn it into real, permanent growth. For an investor, that's really the good stuff. When you can see returns that are years ahead of your expected timeline, you quickly realize the value of marketing.

Other ways marketing can influence markets

Creating a new source of income is obviously a positive that comes from marketing, but there's also a flip side to it when it comes to investing. A 2019 investigation by Jura Liaukonyte and Alminas Zaldokas discovered that retail investors could also be heavily influenced by marketing efforts when it comes to their favourite stock picks.

The pair found that television advertisements lead to an increase in Google searches for a company's financial information within 15 minutes of the airing of an advertisement. The searches increase trading volume in the stock of the specific company being marketed.

Building brand awareness is one of the most important functions of marketing, and the link between retail investors and marketing is undeniably influential.

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.