Empirical Findings: The Corporate Brand.

• Author: Koch, Christian

INTRODUCTION

For decades, understanding how brands contribute to a company's value has been a research topic. Though ample scholarship has been written about how a product's brand can contribute to its sales, the corporate brand has been far less measured. While it is intuitive that a corporate brand contributes to value creation, the quantitative data to measure its impact has not been available on a large scale. Having the data and models for measuring the corporate brand and its impact are important to understand and quantify how much financial competitiveness is being exerted by the corporate brand as well as how to value it. Gehani (2016) states, "Brand value as a corporate asset is one of the primary measures of competitive advantage of an enterprise that is useful to gain customers' brand preference over rivals." Gaining a measured, quantitative understanding of corporate brand impact will help companies manage and implement their corporate branding strategy.

The objective of our paper is to extend existing research on the corporate brand by providing a framework for answering questions that have perplexed value investors for decades. The primary questions are: 1) What is the nature of the relationship between the corporate brand and revenue growth?; 2) Can brand be captured on the financial statements and valuation structure of a company?; 3) What can the business sell for, including its corporate brand value?

Specifically, the purpose of this study is to identify a linkage between corporate brand and revenue generation as well as the impact of corporate brand on the valuation structure of a business. Understanding how the corporate brand impacts these functions will help companies understand their value and how to allocate resources. Goranova (2015) notes, "Brands are elements of companies' property and the good reputation of a brand is literally part of a company's capital."

Using a design science research (DSR) approach, we established the following research objectives:

RO1: To design and build an innovative artifact (model/framework) to link corporate brand, revenue growth and business valuation

RO2: To evaluate such an artifact and its component parts

For this study, the quantitative measure of the corporate brand is evaluated in the context of public fundamental financial data. One hundred and nineteen companies were analyzed from 2011--2016; we examined the measures of brand strength and sales growth rates over that period. A correlation matrix of the relationship between brand growth and revenue growth is evaluated and a quintile analysis to understand how these companies perform at various strata within the consumer sectors.

Using the BrandPower data from the CoreBrand Index[R] (CBI) database, we developed a new model for financial analysis, investment decision making and security analysis. The new model is grounded in the value investing literature from the 1930s and the textbook Security Analysis by Graham and Dodd.

This grounding builds upon the existing knowledge in the field and allows us to look at our model with a unique perspective based on the corporate brand as another datapoint to aid decision making. We extend existing research by examining the companies in the CBI database's consumer sectors, consumer staples and consumer cyclicals to determine if we can identify those relationships.

REVIEW OF RESEARCH

To be able to measure the impact of a corporate brand, one must first understand what we mean by corporate brand (or corporate image). Gregory and Wiechmann (199l) conclude that "corporate image begins with the public's perception of a company--the preconceived ideas and prejudices that have formed in the minds of customers."

Notably, Warren Buffet has been successful investing in companies with a strong brand. Lowenstein (1995) explains, "What was not so apparent was that Buffett was also beginning to think differently-that is, to think in qualitative terms, as well as in the merely numerical terms that had appealed to Graham. When Buffett looked at a stock, he was beginning to see not just a frozen snapshot of assets, but a live, ongoing business with a unique set of dynamics and potential. Indeed, its most valuable commodity was its name."

For example, one of Buffet's first investments was American Express. Lowenstein (1995) states, "Buffett also learned the details of reading a financial statement, and how to spot a fraud. In essence, Graham taught him how to get from a company's published material to a fair value for its securities."

According to Gehani (2016), "brand value as a corporate asset is one of the primary measures of competitive advantage of an enterprise that is useful to gain customers' brand preference over rivals." (There has been increased understanding of brands as an important component of intangible capital. Goranova (2015) states, "brands are elements of companies' property and the good reputation of a brand is literally part of a company's capital."

THE CORE BRAND INDEX

Tenet Partners developed the CoreBrand Index[R] (CBI) to address the lack of quantitative data available on corporate brands. For the last two decades, this data has been the basis of models that measure how the brand contributes to stock performance and market cap.

The CBI is a telephone interview conducted among an audience of impartial observers. These respondents are business leaders and affluent consumers. They are Vice President (VP), Director and Manager level executives in the top 20% of U.S. businesses, based on revenue. Each respondent is asked to rate 40 companies. First, respondents are asked to rate their familiarity with each company. For companies the respondent rates as being more familiar than simply knowing the name of the company, the respondent is asked to rate the company's favorability...