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Journal of the Academy of Marketing Science

, Volume 44, Issue 2, pp 261–280 | Cite as

Brand architecture strategy and firm value: how leveraging, separating, and distancing the corporate brand affects risk and returns

  • Liwu Hsu
  • Susan Fournier
  • Shuba Srinivasan
Original Empirical Research

Abstract

Despite evidence suggesting a growing incidence of brand architecture strategies beyond the branded house (e.g., Boeing and IBM) and house-of-brands (e.g., P&G with Tide and Cheer), and recognition that in practice these strategies are very different, there is still a need for research on how financial markets value the full range of brand architecture strategies pursued by firms. We replicate and extend Rao et al.’s (Journal of Marketing, 68(4), 126-141, 2004) investigation of brand portfolio strategy and firm performance by (1) adding sub-branding and endorsed branding architectures, (2) clarifying the “mixed” architecture to constitute a BH-HOB hybrid and remove sub- and endorsed branding variants, and (3) quantifying the impact of a company’s brand architecture strategy on stock risk in addition to returns. To explore the risk profiles of these five different strategies, we offer a brand-relevant conceptualization of the sources of idiosyncratic risk that may be exacerbated or controlled through brand architecture strategy: brand reputation risk, brand dilution risk, brand cannibalization risk, and brand stretch risk. We demonstrate superior results in terms of model performance using the expanded five-part architecture categorization and conclude with implications for practice. Our results show that risk/return tradeoffs for sub-branding, endorsed branding, and the BH-HOB hybrid differ significantly from what common wisdom suggests.

Keywords

Branding Brand architecture Brand portfolio strategy Firm performance Shareholder value Abnormal returns Risk Time-series econometrics 

Notes

Acknowledgments

This paper is dedicated to the memory of Thomas Madden whose curiosity about brand finance and its interplay with portfolio strategy inspired the research idea. The authors thank Vivek Goyal, Suryabir Dodd, Julie McCluney, Claudio Alvarez, and Anna Eng for help with the data and coding. Boston University School of Management is acknowledged for its Faculty and PhD research support.

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Copyright information

© Academy of Marketing Science 2015

Authors and Affiliations

  1. 1.College of Business AdministrationUniversity of Alabama in HuntsvilleHuntsvilleUSA
  2. 2.School of ManagementBoston UniversityBostonUSA

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