Branding and Firm Value

Abstract

Branding is widely recognized as an important marketing activity, yet marketing executives are challenged to prove the value of branding in clear financial terms. The objective of this chapter is to integrate emerging insights from the literature on branding and shareholder value into a process framework that helps enumerate and explain the brand-finance link. This chapter begins by discussing the reasons why using shareholder value (i.e., stock returns and risks) is an appropriate metric to assess brand performance and brand equity value. The authors introduce common metrics of shareholder value (e.g., Tobin’s q, abnormal returns, and idiosyncratic risk) and three distinct metrics of brand equity: customer, product-market, and finance-based. Next, the chapter delineates the mechanisms that govern the branding-finance interface to address whether and how branding affects shareholder value; key findings from the extant literature on branding and shareholder value are summarized to support these process routes. In conclusion, the chapter considers three antecedents of brand-equity creation, again reviewing extant literature to qualify effects on firm value and cash flow: organization-level strategy (e.g., corporate name strategy, mergers & acquisition), brand strategy (e.g., brand extensions and brand portfolio strategy) and brand management tools (e.g., advertising). The chapter concludes with an agenda for future studies that address gaps and challenges in this important and growing area of research.

Keywords: Branding, Shareholder Value, Firm Risk, Brand Management, Marketing-Finance

JEL Classification: M31