Brand Portfolio Strategy and Firm Performance
Published 1/1/2009
Author: Neil Morgan & Lopo L. Rego
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Executive Summary
Most large firms operating in consumer markets own and market more than one brand (i.e., they have a brand portfolio). Although firms make corporate-level strategic decisions regarding their brand portfolio, little is known about whether and how a firm’s brand portfolio strategy is linked to its business performance. Because the theoretical literature suggests opposing viewpoints on many brand portfolio decisions and practice suggests widely diverging “theories in use” among firms, this is a difficult area for managers to navigate. Therefore, managers have no clear guidance when they face common brand portfolio questions, such as, “How many brands should we market?” “Across how many segments?” “Should our brands compete with one another for channel support and consumer spending, or should each brand be positioned differently and appeal to different segments?” and “Should we have a portfolio of high quality or low price brands?” Authors Morgan and Rego gain empirical insights into these questions by examining data from the American Customer Satisfaction Index and other secondary sources. They empirically examine the impact of the scope, competition, and positioning characteristics of brand portfolios on the marketing and financial performance of 72 large publicly traded firms operating in U.S. consumer markets over ten years (from 1994 to 2003). Controlling for several industry and firm characteristics, they analyze the relationship between five specific brand portfolio characteristics (number of brands owned, number of segments in which they are marketed, degree to which the brands in the firm’s portfolio compete with one another, and consumer perceptions of the quality and price of the brands in the firm’s portfolio) and firms’ marketing effectiveness (consumer loyalty and market share), marketing efficiency (ratio of advertising spending to sales and ratio of selling, general, and administrative expenses to sales), and financial performance (Tobin’s q, cash flow, and cash flow variability). Collectively, they find that firms’ brand portfolio strategy characteristics explain significant variance in firms’ financial (2%–21%) and marketing (8%–16%) performance. In addition, they find that each of the five brand portfolio characteristics examined explains significant variance in five or more of the seven aspects of firms’ marketing and financial performance examined. These results indicate the large economic and statistical significance associated with firms’ brand portfolio strategy decisions. The brand portfolio strategy–business performance relationships observed are more complex than may have previously been understood. The differing effects of different brand portfolio characteristics on different aspects of firms’ marketing and financial performance revealed in this study indicate that appropriate brand portfolio strategy decisions may depend crucially on the specific performance goals of the firm.
Biography
Neil A. Morgan is Associate Professor of Marketing and the Nestlé-Hustad Professor of Marketing in the Kelly School of Business, Indiana University. He has previously held faculty positions at the University of North Carolina’s Kenan-Flagler Business School, Cambridge University’s Judge Business School, and Cardiff University’s Cardiff Business School. He received his PhD in Business Administration from the University of Wales. His research interests include marketing strategy implementation and linkages between marketing-related resources and capabilities and firm performance. Neil has also consulted with numerous firms in both these broad areas across several different industries. His current research projects focus on brand strategy, category management, retail shoppability, marketing and brand management capabilities, and customer feedback systems.
Lopo L. Rego is Assistant Professor of Marketing in the Tippie College of Business, University of Iowa. He received his PhD in Business Administration from the University of Michigan. His research interests focus on better understanding the marketing–finance interface—namely, what influence marketing strategies and marketing actions have on firm financial performance and on creating shareholder value. Within this general framework, he is particularly interested in identifying which marketing metrics are most appropriate to measure and which ones are the most efficient in promoting superior business performance and shareholder value.
Journal of Marketing, Volume 73, Number 1, January 2009
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