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Working Paper

How Brand Attributes Drive Financial Performance

Natalie Mizik and Robert Jacobson, 2005 [05-111]

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Quantifying financial returns on brand-building initiatives is a critical marketing challenge. Here, authors Mizik and Jacobson develop a model that links outcomes of brand-building initiatives (brand differentiation, relevance, quality, familiarity, and vitality) to current and future accounting performance and to firm value.

Using stock return response modeling, they examine the effect of changes in each brand asset component, as well as changes in an aggregate brand asset measure, on accounting performance (i.e., earnings) and stock market valuation. Their dataset includes 275 publicly traded firms in which a single brand represents the bulk of the firm’s business.

They find that brand assets influence stock return both directly and indirectly (by impacting current earnings, which in turn affect stock returns). Among their findings:

• A one-unit change in the Brand Asset Index is associated with a 4% change in the market value of a firm.

• Only about 1/3 of the effect of brand assets on financial performance is reflected in current-term earnings; 2/3 reflects information about future-term performance.

• The brand asset components reflecting relevance and vitality have direct effects on stock returns incremental to current-term earnings.

• The brand asset components of quality, familiarity, and differentiation impact stock returns indirectly through their effects on current earnings.

This study provides a framework for assessing the dynamic impact of the brand asset, and its components, on firm financial performance.

Included in the following collections:
MSI Reports 2005

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