Measuring and Understanding Brand Value in a Dynamic Model of Brand Management

Ron N. Borkovsky (), Avi Goldfarb, Avery M. Haviv () and Sridhar Moorthy ()
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Ron N. Borkovsky: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
Avery M. Haviv: Simon Business School, University of Rochester, Rochester, New York 14627
Sridhar Moorthy: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada

Marketing Science, 2017, vol. 36, issue 4, 471-499

Abstract: 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, if brand equity were to depreciate more slowly, or if advertising were more effective at building brand equity, then brand value would increase. However, counterintuitively, we find that when the effectiveness of advertising is sufficiently high, increasing the rate at which brand equity depreciates can increase the value of a firm’s brand, even as it reduces the value of the firm overall.

Keywords: brand equity; empirical IO methods; dynamic oligopoly (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (20)

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