Current marketing and economics literature classifies brands (product brands or corporate brands) as intangible assets that account for a substantial portion of firm value. Brands are regarded as the product of long-run marketing investments, and the creation of brand value or brand equity (measured in financial units) in general is the target of corporate strategy in the consumer goods sector as well as in other areas. Research on brand value, however, is laden with conceptual problems. Whereas literature on individual decision making behavior regards the brand as a utility-based product feature, the accounting perspective treats brand as a value component in evaluating the total value of a corporation (Ailawadi et al. 2003). Both approaches however should lead be integrated. By defining brand as the utility component of a product for buyers within a specific market, we can determine the contribution of brand value toward the market value of a firm. On the other hand, when analyzing considering brand equity as a value component of firm value, brand equity analysis must consider differences in brand evaluations across consumer segments and differences in the effectiveness of marketing instruments or strategic decision making of the firm.
Decision making in brand management and brand portfolio management is a high-risk business. There is considerable uncertainty about the effectiveness of operative investments in brands. Management often lacks the knowledge to determine how strategic decision making in brand politics (new brand development, renaming or purchase of existing brands, brand elimination) affect the firm value. Especially the decision for a brand elimination following a merger or acquisition involves high risk and can enhance or destroy firm value.
The first part of the project focuses on developing a modeling framework for individual buying decisions that allows the incorporation of strategic variables such as product introduction and elimination during the analysis of brand value. With our model, we should be able to estimate the impact of various types of risky strategies on brand equity. Based on scanner panel data, we first investigate how market entry with an innovative product affects brand value. We also examine the impact of market exit from a competitive market with multiple products from one supplier under the suspected effect of cannibalism.
The second part of the project addresses the link between strategy-dependent changes in brand value and firm value. Drops in firm value can be attributed to single brand strategic decisions. Changes in brand value are captured with a differentiated model that traces back to the level of the individual purchase decision. The goal is to develop an instrument for assessing the consequences of risky brand-strategic decisions on brand value and firm value. The guiding principle at the firm level is linking estimated brand values from the individual analysis to the brand-specific analysis results on brand manufacturers from the first part of the project.