THE IMPACTS OF BRAND MANAGEMENT PRACTICES ON BRAND PERFORMANCE AND FIRM VALUE By Yanhui Zhao A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of Business Administration—Marketing—Doctor of Philosophy 2016 ABSTRACT THE IMPACTS OF BRAND MANAGEMENT PRACTICES ON BRAND PERFORMANCE AND FIRM VALUE By Yanhui Zhao Brands are among the most important of firm assets, serving as crucial sources of competitive advantage. The realization of such competitive advantage requires effective, robust, and flexible brand management practices that accommodate internal and external contingencies. My dissertation uses two essays to investigate how a selection of brand management practices influences brand performance and firm value. Essay 1 employs two studies to examine cross- category variation in the effect of marketing mix variables on brand sales and brand equity. Empirical evidence from analyzing Information Resources, Inc. scanner data (study 1) and consumer survey data (study 2) suggests that brand relevance in category (BRiC) – a product category characteristic – interacts with marketing mix decisions (e.g., product variety, distribution coverage) to affect brand sales and brand equity. The focus of Essay 2 is rebranding strategies that aim to update a firm’s brand image by changing brand identity or brand strategy. Empirical evidence from analyzing 229 rebranding events shows that, on average, rebranding initiatives are associated with positive abnormal stock returns. More importantly, these financial returns can be predicted by the degree of rebranding and the fit between the degree of rebranding and competitive factors (firm competitive position and industry competition intensity). TABLE OF CONTENTS LIST OF TABLES…………………………………………………………… ………….….…… v LIST OF FIGURES…………………………………………… …………………………….….. vi CHAPTER 1 ………………………………………………………………… ………………..….1 Brand Relevance in Category and Marketing Mix Impacts……… ………………………1 Literature Review on Marketing Mix Influences………………… ……………………....5 Effects of Marketing Mix Variables on Objective Performance Metrics… ..……..6 Effects of Marketing Mix Variables on Subjective Performance Metrics…….…..8 Cross-Category Variation in the Effects of Marketing Mix…… ………………....9 Model and Hypotheses…………………………………………………………….……..10 BRiC and Product Variety…………………………………………………… ….11 BRiC and Brand Price……………………………………………………………12 BRiC and Promotional Activities ……………………………………… ……….13 BRiC and Distribution Coverage…………………………… …………………...16 Study 1: Marketing Mix Variables × BRiC →Brand Sales ………… …………………17 Data………………………………………………………………………… …....17 Measures…………………………………………………………………… …....18 Analysis…………………………………………………………………………..19 Results………………………………………………………………… ………....21 Study 2: Marketing Mix Variables × BRiC → Brand Equity …………………… …….24 Data Collection…………………………………………………………… ...…...24 Questionnaire Structure and Measures……………… ………………………..…25 Measurement Validity……………………………………………………………25 Model Estimation…………………………………………………………… …...26 Results ………………………………………………………………… ……...…27 Discussion ………………………………………………… ………………………...…..29 Theoretical Implications………………………………………………… ………30 Managerial Implications………………………… ………………………………32 Limitations and Future Research………………………… ……………………...33 APPENDICES ………………………………… ……… ………………………………..35 APPENDIX A: TABLES …………………………………… ……...… …….….36 APPENDIX B: FIGURES ………… …………………………… …….…...……42 APPENDIX C: Study 2 Measures ……………… ………………… ……………44 REFERENCES……………………………… ………………………………….……….46 CHAPTER 2 …………………………………………………………………………… .………51 Rebranding and Firm Value: An Event Study on Abnormal Returns to Rebranding Announcements…………………………………………………………………..............51 Literature Review ………….……………………………………………………….……55 What is Rebranding? ……………………………………………………… …….55 Why Rebrand? ……………………………………………………..…………………..56 So What? …………………………………………………… ………….……..…58 iii Conceptual Framework and Hypotheses …… ……………………………………..……59 Two Dimension of Rebranding…………………………………………………..60 The Impact of Competitive Factors on Rebranding……………………………...61 How Rebranding Affects Future Shareholder Value…………………… ……….63 The Fit between the Degree of Rebranding and Competitive Factors … ……..…66 Data and Method……………………………………………… …………………………68 Data Sources………………………………………………………… …………..68 Measures of Key Variables…………………………………………… …………69 Measures of Additional Variables………………… …………………………….73 Analysis……………………………………………………………….………….76 Hypotheses Testing……… ………………………………………………………...…….77 Hypothesis Testing: Model-Free Evidence………………………………………77 Hypothesis Testing: Degree of Rebranding Results……………………… …..…77 The Worth of Rebranding………………………………… ……………………..78 Hypothesis Testing: Abnormal Returns Results……………………………. ..….79 Robustness Tests…………………………………………………… ……………82 Discussion……………………………… ……………………………………………..…82 Theoretical Implications……………………………………………………. ..….84 Managerial Implications…………………………………………… …………....86 Limitations and Future Research……………………… ………………………...89 APPENDICES………… ……………………………………………………..………….91 APPENDIX A: TABLES…………………... ……………………… ………..….92 APPENDIX B: FIGURES……………………...… …… … ……………………..99 REFERENCES…………………………………..…………………………………………....102 iv LIST OF TABLES Table 1-1: Descriptive Statistics and Correlations (Study 1)……………………….……………36 Table 1-2: Variance Estimates of Null Models for All Level 1 Variables (Study 1)……… ……37 Table 1-3: Three-Level Mixed Effect Model Results (Study 1, DV: Brand Sales)…………. …..38 Table 1-4: Best Linear Unbiased Predictions of Random Slopes…………………… ….……….39 Table 1-5: Descriptive Statistics and Correlations (Study 2)…………………………………….40 Table 1-6: Two-Level HLM Results (Study 2, DV: Brand Equity)…………… ………………..41 Table 2-1: Variable Operationalization…………………………………………. ..……………..92 Table 2-2: Correlations and Descriptive Statistics……………………………….………………94 Table 2-3: Degree of Rebranding Results (Path Model Part 1)…………………….……… ……96 Table 2-4: Abnormal Returns and Test Statistics Across Various Event Windows… ……..……97 Table 2-5: Abnormal Returns Results (Path Model Part 2)……………………………….… …..98 v LIST OF FIGURES Figure 1-1: Conceptual Model……………………….………………………………..……… …42 Figure 1-2: Predicted Effects of Marketing Mix Variables in Different Categories…… ……….43 Figure 2-1: Research Model……………………………………………………………….……..99 Figure 2-2: Degree of Rebranding and Examples………………………………………………100 Figure 2-3: Interactions between Degree of Rebranding and Competition Factors…….. ….… 101 vi CHAPTER 1 Brand Relevance in Category and Marketing Mix Impacts To survive in the fiercely competitive consumer packaged goods (CPG) industry, both manufacturers and retailers have continuously employed marketing mix elements in extreme ways. Given the strategic importance of marketing mix variables, it is not surprising that the outcomes of marketing mix have been heavily researched. Ample evidence has shown that marketing mix decisions have strong effects on brand sales (Bayus and Putsis, 1999; Boulding, Lee, and Staelin, 1994) and customer-based brand equity (Yoo, Donthu, and Lee, 2000; Buil, de Chernatony, and Martinez, 2013). Prior research has demonstrated not only that marketing mix variables significantly contribute to brand sales, but also that the contribution varies across product categories (Fader and Lodish, 1990; Narasimhan, Neslin, and Sen, 1996). Research trying to identify category- level moderators has been fruitful. Category penetration, inter-purchase times, price levels, the number of brands, and consumer propensity to stockpile have been identified as key category variables that moderate the effect of marketing mix variables on brand sales (Fader and Lodish, 1990; Narasimhan, Neslin, and Sen, 1996). Close scrutiny of this stream of literature suggests that the category-level moderators identified are not exhaustive. One key category-level factor identified by brand scholars, brand relevance in category (BRiC), has been missing from the study of cross-category variation in marketing mix effects. Building on the notion that consumers usually employ marketing mix variables as extrinsic brand quality cues, a stream of literature on the effects of marketing mix variables on brand equity has found that marketing mix variables can have very different, sometimes even opposite, effects on brand equity (Yoo, Donthu, and Lee, 2000; Buil, de Chernatony, and 1 Martinez, 2013). For example, advertising expenditures and distribution channel expansion are positive brand quality cues and thus encourage the growth of brand equity, while frequent price promotion is a negative brand quality cue and thus undermines brand equity. Although the above findings are interesting and managerially relevant, absent from this stream of literature is a discussion of whether and how the influence of marketing mix variables on brand equity varies across product categories. To fill the above-mentioned literature gaps, we propose and empirically test a model highlighting BRiC’s role in influencing the effectiveness of marketing mix decision variables. BRiC is a concept that has recently emerged from the brand management literature. It refers to “the importance of brand for consumer decision making” (Fischer, Volckner, and Sattler, 2010,). Fischer, Volckner, and Sattler (2010) noted that the overall importance of brands for consumer decision making differs across product categories. For example, consumers care more about brand name when buying razors or shampoo, while caring less about brand name when buying paper towels, toilet paper, or pencils. Because BRiC pertains to the importance of brand