Exploring the impact of advertising on brand equity and shareholder value

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2004

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Jeong, Jaeseok

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The primary objective of this research was to test whether advertising can contribute directly to brand equity and indirectly to shareholder value and, if it can, determine how much value advertising can deliver to brands and firms. If advertising can play a key role in developing and maintaining brand equity and shareholder value, it should be considered an investment rather than an expense. Mainstream advertising effectiveness research has traditionally focused on the relationship between advertising and market performance measures such as sales volume and market share. Even though this approach has produced interesting findings on how advertising works or should work, its contributions to our knowledge about the role of advertising in a competitive, complicated, and ever-changing market environment has been limited. The present research employed a conceptual framework by Srivastava and his colleagues (1998) in order to address posited relationships between advertising, R&D, brand equity, and shareholder value. Using secondary data from various industry and academic sources during a ten-year time span, simple and multiple regression analyses were performed in conjunction with path analyses to evaluate the posited relationships. The findings of the research showed that advertising can not only work to improve market performance measures but also to develop and maintain brands. R&D was also found to positively affect brand equity by presumably enhancing a firm’s intellectual market-based assets. With regard to the relative effectiveness of advertising and R&D, expenditures on R&D were more effective than expenditures on advertising in contributing to brand equity when measuring absolute effects of expenditures. When measuring changes in brand equity, however, changes in advertising were more effective than changes in R&D. Thus, R&D can be more important than advertising in contributing to the total value of brand equity, but advertising can be more effective than R&D in contributing to the marginal value of brand equity.

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