Natalie Mizik and Robert Jacobson
Executive Summary
Understanding the differential impacts and the dynamics of financial returns to brand-building initiatives is a critical marketing challenge. The authors develop a model that links key customer mind-set outcomes of brand-building initiatives (perceived brand differentiation, relevance, esteem, knowledge, and energy) to firm value and show that different brand asset components have different implications for firm financial performance. These findings could help managers fine-tune their brand-building strategies.
Using stock return response modeling, the authors examine the effect of changes in brand asset components on stock market valuation. The data come from Young & Rubicam’s Brand Asset Valuator, I/B/E/S analysts’ forecast, COMPUSTAT, and the University of Chicago’s Center for Research in Security Prices (CRSP) databases. The research data set encompasses the 1993–2004 period and includes 275 publicly traded “monobrand” firms— that is, firms in which a single brand represents the bulk of their business.
The study makes three major contributions. First, this research led to the discovery and validation of a new key brand asset component, which the authors label “brand energy.” A review of the existing brand equity models revealed that a dimension was needed that would tap into the future-term capabilities of the brand. A brand has value to its current customers because of both its ability to fulfill customers’ present needs and its future promises. Customers may value brands more and build stronger relationships with those they expect will be available in the future. The energy measure is based on two constructs that reflect respondents’ perceptions of a brand’s innovativeness and dynamism: the brand’s ability to adapt and its ability to respond in a timely manner to changing customer tastes and needs.
Second, the authors find that some brand asset components influence stock return directly, whereas others do so indirectly. Specifically, analyses show that perceived brand relevance and brand energy have a direct impact; they provide incremental information to accounting measures and other brand asset components in explaining stock returns. Esteem and knowledge do not have a direct impact; their effects are reflected in current-term accounting measures and in perceived brand relevance and energy.
Third, differentiation does not have a direct impact on stock returns. The financial markets do not view perceived brand differentiation as having incremental information content; however, they should. Changes in differentiation are indicative of future-term accounting performance, which in turn affects stock returns. The authors document a differentiation-based market anomaly—next-year stock returns are significantly related to the previous-year change in perceived brand differentiation.
The conclusions of these analyses are invariant to the use of alternative accounting performance measures and risk adjustments and to the inclusion of additional brand attributes into the analysis.
Biography
Natalie Mizik is Gantcher Associate Professor of Business at theColumbia University Graduate School of Business. She holds a PhD in Business Administration (Marketing) from University of Washington, Seattle, and an MS in Economics from MGIMO University, Moscow. Her research interests include financial valuation of intangible assets (e.g., brands, corporate reputation, firm strategy) and direct-to-physician pharmaceutical marketing. Her research has been published in Marketing Science, Management Science, Journal of Marketing, and Harvard Business Review, among other sources.
Robert Jacobson is Evert McCabe Distinguished Professor of Marketing and Transportation at the University of Washington, where he has been a faculty member since 1984. He received his BA and PhD in Economics from the University of California, Berkeley. His research interest is in the area of marketing strategy; his current work focuses on the interactions between firm strategy and the financial markets. Jacobson’s work has appeared in a variety of outlets, ranging from Journal of Marketing to Journal of Accounting and Economics to the Wall Street Journal. He is a two-time winner of Journal of Marketing’s Alpha Kappa Psi Award for research contributing to the advancement of the practice of marketing.
Journal of Marketing Research, Vol. XLV, No. 1, February 2008
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