Measuring and Understanding Brand Value in a Dynamic Model of Brand Management
74 Pages Posted: 27 May 2015 Last revised: 2 Jun 2016
Date Written: May 27, 2016
We develop a structural model of brand management to estimate the value of a brand to a firm. In our framework, a brand's value is the expected net present value of future cash flows accruing to a firm due to its brand; our brand value measure recognizes that a firm can change its brand equity by investing in advertising. We estimate quarterly brand values in the stacked chips category for the period 2001-2006, and explore how those values change over time. Comparing our brand value measure to its static counterpart, we find that a static measure, which ignores advertising and its ability to affect brand equity dynamics, yields brand values that are artificially high and that fluctuate too much over time. We also explore how changing the ability to build and sustain brand equity affects brand value. At our estimated parameterization, when brand equity depreciates more slowly, or when advertising becomes more effective at building brand equity, brand value increases. However, counterintuitively, we find that when the effectiveness of advertising is sufficiently high, increasing the rate at which brand equity depreciates increases the value of a firm's brand, even as it reduces the value of the firm overall.
Keywords: branding; brand value; structural estimation; dynamic oligopoly
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