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