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 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.