Executive Summary
Brands are paramount capital assets, but their intangibility makes it difficult to determine their monetary value. Brand value consists of both the going value of existing products that carry the brand name and the brand extension value, or the value derived from a brand owner’s right to introduce new products related to the brand. This article presents a practical approach to estimate effectively the monetary value of brand extensions.
In general, differences in customer responses to a branded product and an otherwise identical unbranded alternative reveal brand value. In this study, the authors use a matched sample of movie sequels and original movies to monetize the effects that result from differences in revenue generation and financial risk between branded products and unbranded products. The model also enables managers to calculate the effects of variation in key attributes of the extension product (e.g., whether a movie star continues on in a sequel) on brand extension value.
The model considers both forward and reciprocal spillover effects. Regarding the forward spillover effect—the effect of a parent brand on the revenues that the extension product generates—the authors use data from all 101 initial movie sequels released in North American theaters between 1998 and 2006 and a matched sample of original movies to estimate differences in expected revenues and risk through regression analysis. The results show that brand extensions provide two advantages over originals: (1) They generate higher average revenues, and (2) they are less risky. Use of the regression parameters enables the authors to isolate the risk-corrected forward spillover brand extension value for a potential sequel of an existing movie brand.
Because the introduction of a brand extension can also affect its parent, the reciprocal spillover effect—the impact of the extension product on the success of the parent—is measured and monetized. The authors use longitudinal data of parent-brand DVD sales and isolate sales that would not have occurred without the sequel release, explaining them through regression analysis. In this empirical context, in which the extension and the parent are complementary products, reciprocal spillover is substantial and positive (whereas cannibalization should occur for extension products that are substitutes for their parents). Again, monetary predictions can be made for a future sequel using the regression parameters, and estimations can be adjusted to align with an investor’s risk preferences.
To illustrate their approach, the authors calculate the monetary brand extension value (based on both forward and reciprocal effects) for an actual movie title and demonstrate how to account for different levels of risk tolerance. For a risk-neutral investor, the production of the sequel Spider-Man 2 returns approximatley $53 million more than making an identical film (i.e., same levels of budget, distribution intensity, rating, star power, and genre) without using the Spider-Man brand, reflecting the forward spillover effect of the Spider-Man brand. In addition, the rights owner of the Spider-Man brand can expect a sequel to generate, with 90% confidence, approximatley $11 million in abnormal DVD sales for the parent film.
Biography
Thorsten Hennig-Thurau (PhD, University of Hannover) is Professor of Marketing and Media Research at Bauhaus-University of Weimar’s School of Media and is Research Professor of Marketing at Cass Business School, City University London. Hennig-Thurau has published in Journal of Marketing, Academy of Management Journal, Journal of the Academy of Marketing Science, Marketing Letters, Journal of Service Research, and Journal of Interactive Marketing, among others. He is director of the Department of Film Economics of the Bauhaus Film Institute and has consulted for various clients in film and other industries. Hennig-Thurau has authored two books, is coeditor of the monograph Relationship Marketing, and is a member of the editorial boards of three journals. Hennig-Thurau has won 12 research awards, including the Overall Best Paper Award at the 2005 American Marketing Association Summer Educators’ Conference and the 2002 Excellence in Service Research Award from Journal of Service Research. His research interests are in media marketing, services marketing, and customer relationships.
Mark B. Houston (PhD, Arizona State University) is Eunice and James L. West Chair of American Enterprise and Professor of Marketing in the Neeley School of Business at Texas Christian University. He previously served on the faculties of the University of Missouri, Saint Louis University, and Bowling Green State University. Houston’s research on innovation strategy, channel relationships, and motion-picture success has been published in top journals, including Journal of Marketing, Marketing Science, Journal of Marketing Research, Journal of Consumer Research, and Journal of Quantitative and Financial Analysis. He has conducted research and has consulted for many organizations, including AT&T, Caterpillar, Emerson Electric, and Wellpoint. Houston received a national teaching award from the Academy of Marketing Science in 2006, cochaired the 2005 American Marketing Association Summer Educators’ Conference, and is a member of the American Marketing Association Academic Council and three editorial review boards. He will cochair the 2010 American Marketing Association/Sheth Doctoral Consortium.
Torsten Heitjans is a doctoral student and a teaching and research assistant at Bauhaus-University of Weimar’s School of Media. He studied business administration in Hannover and Maastricht and graduated with a diploma in Marketing and Strategic Management. His research interests are in the field of media and entrepreneurship. Heitjans is a researcher at the Weimar-based MovieSuccess Center and has consulted for various companies in the media industry.
Journal of Marketing, Volume 73, Number 6, November 2009
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