Do brands actually contribute to firm
performance?
Yolanda Jordaan, University of Pretoria, South Africa
Brand equity, in simple terms, is the public’s
A recent study, using data from 252 comapnies
valuation of a brand. The power of brand
from the EquiTrend database, COMPUSTAT
equity therefore lies in the hands of the
and the Centre for Research in Security Prices,
consumer. So, how does consumer-based
has offered insight into the impact of
brand
consumer-based brand equity on firm risk.
equity
(CBBE)
influence
the
performance of an organisation?
These companies involved were operating in
consumer markets during
When
investors
managers
potential
and
2000 - 2006.
evaluate
investments,
The authors adapted risk
they tend to do so based
measures that are well
on two things: risk and
established
in
return. Whilst investors
literature,
using
concern
themselves
ratings to capture debt-
with assessing both a
holder risk and the stand-
firm’s expected returns
ard deviation of stock
and the associated risks,
returns to measure equity
marketing activity has
holder risk. This was then
tended to ignore risk
broken down further into
finance
credit
and focus solely on returns.
‘systematic’ and ‘unsystematic’ equity risk.
Marketers often state that brands (as market-
Without delving in too much detail into the
based assets) can allow firms to not only
methodology of the study, the results of
increase returns but also lower the risks
demonstrated that a firm CBBE is associated
associated with these returns, thus increasing
with firm risk and this can be used to explain
their value. However, with the growing
changes in risk measures. The study also took
evidence linking brands and stock returns,
a closer look at existing finance models and
more research is needed into the effect of
explained the “risk relevance” of CBBE
brands on firm risk. So the real question is:
beyond the changes explained by these
what is the role of CBBE in explaining firm
models.
risk?
Essentially, what the results indicated was that
contribution to firm performance and this is
CBBE has a stronger role in predicting firm-
done by managing firm risk. Marketers should
specific
than
also include calculations regarding the firm’s
systematic risk. It also has a strong role in
cost of capital when influencing chief financial
protecting equity holders from downside
offers so that they can demonstrate reductions
systematic risk.
achieved through investing in a firm’s brand
unsystematic
risk
rather
Higher levels in the average CBBE of a firm’s
assets.
brand therefore have a strong impact when it
Furthermore,
the
results
suggest
that
comes to reducing debt-holder risk. This, in
investments in creating and maintaining CBBE
turn, directly contributes to lowering the cost
are a direct way for managers to reduce risks
of capital for the firm. Furthermore, firms that
that are distinctive to the firm. What this
possess brands with strong CBBE are able to
means is that brand management should be
reduce their equity risk quite considerably.
viewed as an additional tool when planning
and executing a firm’s risk-management
So what should marketers take from this
research?
strategy. Overall, the results suggest that
managers should make brand management part
The results of the study strongly suggest that
of the firm’s risk management strategy and
investments in brand equity affect firm
should protect or even increase investment in
performance. Marketers therefore need to
CBBE during periods of economic uncertainty.
communicate that brands matter in their
Professor Yolanda Jordaan
Department of Marketing Management at the University of Pretoria, South Africa
The full reference for this study:
Source: Lopo L. Rego, Matthew T. Billett, & Neil A. Morgan. 2009. Consumer-Based Brand Equity and Firm
Risk. Journal of Marketing, Vol. 73 (November 2009), 47–60.
Copyright (c) 2014
Article produced by the Academic Group of the European Marketing Confederation (EMC). All rights reserved
Editor; Hannah McGivern
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