Article ID: | iaor20173269 |
Volume: | 36 |
Issue: | 4 |
Start Page Number: | 471 |
End Page Number: | 499 |
Publication Date: | Jul 2017 |
Journal: | Marketing Science |
Authors: | Moorthy Sridhar, Goldfarb Avi, Borkovsky Ron N, Haviv Avery M |
Keywords: | simulation, management, advertising, behaviour |
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