Executive Summary
Extensive research in marketing has encouraged marketing managers to focus on building brand equity by enhancing consumers’ awareness and associations with their brands. However, the extant literature offers limited insights into the financial returns of such efforts. The primary focus of this research is to offer a better understanding of these benefits. Specifically, the authors evaluate the financial value of branding by linking trademark registrations of firms with their financial performance. They broadly classify trademarks into two categories, brand-identification and brand-association trademarks, and propose that they are indicators of firms’ efforts to build consumer brand awareness and associations, respectively. Their examination of 22,060 trademark registrations made by 108 firms across multiple industries and over the 1995–2005 period confirms that efforts aimed to build brand awareness and associations among consumers have significant financial implications for firms. Overall, the authors observe that brand-association trademarks positively affect a firm’s cash flows, Tobin’s q, return on assets (ROA), and stock returns, as well as reduce the variability of future cash flows. Of particular significance is the observation that, on average, each additional brand-association trademark is associated with $7.8 million of future cash flows, a .05% increase in future ROA, and a .3% increase in the future stock returns of a firm. In addition, the authors’ findings confirm that by improving consumers’ awareness of brands and by protecting such efforts with brand-identification trademarks, firms enhance the future cash flows that brand associations generate. Together, their findings will assist marketing managers in more cogently communicating the financial value of branding to senior management. This becomes especially important during lean economic conditions, when firms may be inclined to make cuts in their brand-related investments. Furthermore, scholars have noted that marketing managers rarely work closely with the legal function of their firms. Therefore, marketers may not be aware of many categories of trademarks that have gained legal precedence only recently. The results of this study show the value potential of trademarks and should therefore motivate marketers to work more closely with their legal counsel. Relatedly, the research aims to motivate firms to review their trademark portfolios more closely to uncover unappreciated trademark opportunities and to benchmark against the best performers in their industries.
Biography
Alexander Krasnikov is Assistant Professor of Marketing in the School of Business at George Washington University. Previously, he was a visiting research fellow with the Center for Research in Technology and Innovation in the Kellogg School of Management at Northwestern University. His research interests are investigating the performance outcomes of marketing capabilities and market-based assets, with specific emphasis on customer-centric capabilities and customer relationship management. His research has been published in Journal of Marketing. Krasnikov holds a PhD in Marketing from the University of South Carolina, an MBA from the University of North Carolina, Charlotte, and an MD from Rostov-na-Donu State Medical University (Russia). He has worked in sales and marketing positions with two global pharmaceutical companies in Russia.
Saurabh Mishra is Assistant Professor of Marketing in the Desautels Faculty of Management at McGill University, Canada. Before joining McGill, he was a postdoctoral research fellow with the Center for Research in Technology and Innovation in the Kellogg School of Management at Northwestern University. His research interests are understanding the role of marketing resources, capabilities, and strategies in enabling firm financial performance and innovations. He earned a PhD in Marketing from the Kelley School of Business at Indiana University, Bloomington, an MA in Economics from the Delhi School of Economics at the University of Delhi, India, and a BA (Honors) in Economics from the Sri Ram College of Commerce at the University of Delhi, India. He has also worked as a manager in a marketing strategy consulting firm in the United States.
David Orozco is Assistant Professor of Business Law in the School of Business and Economics at Michigan Technological University. He received his BS in Economics from New York University and his JD from Northwestern University School of Law. He also completed a postgraduate fellowship in the Kellogg School of Management’s Center for Research in Technology and Innovation at Northwestern University. Orozco’s research examines the management of trademark portfolios and other topics related to intellectual property and firm performance. His research has been funded by the Marketing Science Institute and has appeared in American Business Law Journal and the Wall Street Journal.
Journal of Marketing, Volume 73, Number 6, November 2009
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