LLoouuiissiiaannaa SSttaattee UUnniivveerrssiittyy LLSSUU DDiiggiittaall CCoommmmoonnss LSU Doctoral Dissertations Graduate School 2009 BBrraanndd ppoorrttffoolliioo mmaannaaggeemmeenntt aanndd tthhee rroollee ooff bbrraanndd aaccqquuiissiittiioonnss Yana Kuzmina Louisiana State University and Agricultural and Mechanical College Follow this and additional works at: https://digitalcommons.lsu.edu/gradschool_dissertations Part of the Marketing Commons RReeccoommmmeennddeedd CCiittaattiioonn Kuzmina, Yana, "Brand portfolio management and the role of brand acquisitions" (2009). LSU Doctoral Dissertations. 3354. https://digitalcommons.lsu.edu/gradschool_dissertations/3354 This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Doctoral Dissertations by an authorized graduate school editor of LSU Digital Commons. For more information, please [email protected]. BRAND PORTFOLIO MANAGEMENT AND THE ROLE OF BRAND ACQUISITIONS A Dissertation Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Doctor of Philosophy in The Interdepartmental Program in Business Administration (Marketing) by Yana Kuzmina B.S., Moscow State Technical University (Russia), 2001 M.B.A., Southeast Missouri State University, 2004 August, 2009 ACKNOWLEDGEMENTS Looking back at this journey, I must express my gratitude to those who stood behind me and supported me during the past five years. There were some people in particular, however, without whom I would have never been able to complete this dissertation and the program. I would like to extend my special thanks to these individuals. I would first like to thank my parents for their unconditional love I felt every minute and for allowing me to go 5000 miles away to follow my dreams. I will always be indebted to my dissertation chair, Dr. Black, for sharing with me every piece of his knowledge and for spending long and often odd hours working on my dissertation. Without his guidance, feedback, and endless support I would have never completed the dissertation. His wisdom, unselfishness, encouragement, and understanding never failed to amaze me. My respect and admiration for him will last a life time. He truly made me understand why in Europe we call a dissertation chair a “doctoral father”. Further, I would like to thank Yves Damoiseau, my partner and best friend, for always believing in me and helping me to believe in myself. He has seen it all, and yet always found the right words to say and the time to listen. I sincerely thank my dissertation committee - professors Alvin Burns, Arthur Bedeian, Randle Raggio, and Anne Osborne for the guidance and feedback during the dissertation process. Last, but not least, through out this dissertation and the PhD program which it completes, my peers became my closest friends. It was very special to learn not only with them, but also from them. I would like to thank Anna Walz and Mousumi Godbole for all of the laughs and tears we had together, and for the endless kindness they shared with me. I also thank Mazen Jaber and Kate Pounders for always reminding me the importance of having fun! ii TABLE OF CONTENTS Acknowledgements.......................................................................................................................ii List of Tables................................................................................................................................vi List of Figures..............................................................................................................................vii Abstract.......................................................................................................................................viii Chapter 1: Introduction...............................................................................................................1 The Role of Brand Portfolio Management....................................................................................................2 Brand Portfolio Expansion.................................................................................................................................3 Research Objective................................................................................................................................................5 Chapter 2: Brand Portfolio Expansion Via Acquisition or Creation......................................7 Brand Creation.......................................................................................................................................................7 Differences from New Product Development..............................................................................................................8 Defining Brand Creation.............................................................................................................................................9 Brand Acquisition...............................................................................................................................................10 Forms of Brand Acquisition....................................................................................................................................11 Advantages and Disadvantages of Brand Acquisitions...............................................................................12 The Practice of Brand Acquisitions................................................................................................................................15 Chapter 3: A Decision Model For Brand Creation and Brand Acquisition..........................17 Conceptual Bases................................................................................................................................................18 Market Configurations.........................................................................................................................................................18 Transaction Cost Economics..................................................................................................................................19 Firm Growth..................................................................................................................................................................19 Capital Market Influences........................................................................................................................................20 Combining the Four Perspectives........................................................................................................................20 Market­Level Factors........................................................................................................................................20 Market Concentration...............................................................................................................................................21 Competitive Intensity................................................................................................................................................22 Market Growth.............................................................................................................................................................24 Firm­Level Factors.............................................................................................................................................25 Prior Experience..........................................................................................................................................................25 Marketing Experience...............................................................................................................................................26 R&D Productivity........................................................................................................................................................28 Human and Financial Capital.................................................................................................................................29 Portfolio­Level Factors.....................................................................................................................................31 Portfolio Diversification...........................................................................................................................................31 Product Category Depth...........................................................................................................................................32 A Conceptual Model of Brand Portfolio Expansion................................................................................33 Chapter 4: Methodology.............................................................................................................35 Selection of Primary versus Secondary Data Sources...........................................................................35 Evaluation of Primary Data Sources...................................................................................................................36 iii Evaluation of Secondary Data Sources...............................................................................................................38 Choosing Between Primary and Secondary Data Sources.........................................................................39 Specifying the Sampling Frame.....................................................................................................................41 Identifying Brand Creations and Acquisitions................................................................................................41 United States Patent and Trademark Office (USPTO).................................................................................................43 Business and Company Resource Center..........................................................................................................................44 AdSpender......................................................................................................................................................................................44 Brands and Their Companies.................................................................................................................................................45 Million Dollar Database.............................................................................................................................................................46 Barcodes..........................................................................................................................................................................................46 Selecting a Suitable Data Source...........................................................................................................................................47 Selecting Firms for the Sampling Frame...........................................................................................................48 Selection Criteria.........................................................................................................................................................................48 Firm Selection...............................................................................................................................................................................50 Final Firm Sample........................................................................................................................................................................52 Operationalizing the Dependent and Independent Variables...........................................................53 Data Sources..................................................................................................................................................................54 Dependent Variable: Brand Creation and Brand Acquisition...................................................................55 Independent Variables..............................................................................................................................................56 Market‐Level Variables.............................................................................................................................................................57 Firm Level Variables..................................................................................................................................................................62 Brand Portfolio Level Variables............................................................................................................................................67 Control Variables.........................................................................................................................................................68 Summary................................................................................................................................................................70 Chapter 5: Results.......................................................................................................................71 Sample....................................................................................................................................................................71 Sample Size....................................................................................................................................................................71 Sample Characteristics.............................................................................................................................................72 Model Specification and Interpretation.....................................................................................................75 Model Estimation................................................................................................................................................78 Group Profiles...............................................................................................................................................................79 Assessing Multicollinearity.....................................................................................................................................80 Univariate Tests...........................................................................................................................................................83 Estimating Block Models..........................................................................................................................................85 Estimating the Final Model.....................................................................................................................................86 Hypothesis Testing.....................................................................................................................................................88 Market Level Variables..............................................................................................................................................................90 Firm Level Variables..................................................................................................................................................................91 Portfolio Level Variables..........................................................................................................................................................92 Magnitude of Significant Effects............................................................................................................................92 Discussion of the Results.................................................................................................................................93 The Overall Model.......................................................................................................................................................94 Market Level..................................................................................................................................................................95 Firm Level......................................................................................................................................................................98 Portfolio Level...........................................................................................................................................................102 Chapter 6: Conclusions............................................................................................................103 Contributions to the Literature...................................................................................................................103 Limitations..........................................................................................................................................................104 Future Research................................................................................................................................................105 iv References..................................................................................................................................107 Appendix: Correlation Table...................................................................................................113 Vita.............................................................................................................................................114 v LIST OF TABLES Table 1 The Advantages and Shortcomings of Primary and Secondary Data Sources................40 Table 2 Data Sources Considered in Collecting the Dependent Variable....................................49 Table 3 Firms in the Final Sample................................................................................................53 Table 4 Operationalization of the Market-Level Variables (H1, H2 and H3)..............................61 Table 5 Operationalization of the Firm-Level Variables (H4, H5, H6, H7, H8).........................66 Table 6 Operationalization of the Brand Portfolio-Level Variables (H9, H10)..........................68 Table 7 Sample Firms Profiles......................................................................................................73 Table 8 Brand Portfolio Expansion Activity by Industry.............................................................73 Table 9 Firm Profiles on Variables in Conceptual Model............................................................75 Table 10 Profiles of Variables Associated With Brand Acquisitions and Creations....................81 Table 11 Profiles of Variables Associated With Brand Acquisitions and Creations....................84 Table 12 Collinearity Diagnostics: Condition Index....................................................................84 Table 13 Results of the Univariate Models...................................................................................85 Table 14 Results of the Block Model Estimation.........................................................................87 Table 15 Results of Testing the Full Conceptual Model..............................................................89 Table 16 Correlations Among Independent Variables................................................................113 vi LIST OF FIGURES Figure 1: Assignments recorded in the USPTO database.............................................................13 Figure 2: The Three Types of Factors Impacting Brand Expansion Strategy..............................21 Figure 3: A Conceptual Model of Brand Portfolio Expansion by Brand Acquisition..................34 vii ABSTRACT This dissertation is the first study to propose and empirically test a framework outlining factors that influence the choice of brand acquisitions versus brand creations in a brand portfolio expansion strategy. Drawing on research on make-or-buy decisions, a multilevel interdisciplinary conceptual model was developed, identifying three potential levels of influence: the market, the firm, and the brand portfolio. Twenty-two firms were selected from the ACSI sample of firms, and secondary data sources were utilized to collect data for the variables in the analysis. The model was tested using logistic regression. The results revealed that factors at the market and firm levels seemed to have the greatest influence. Competitive Intensity of the market has the strongest effect on the choice of brand portfolio expansion strategy, followed by the firm’s Financial Leverage, Market Concentration, and Market Growth. The contributions of the study and directions for future research are also discussed. viii CHAPTER 1: INTRODUCTION In today’s knowledge-intensive era, the importance of creating and deploying intangible assets as an element of a firm’s competitive advantage cannot be overstated. It is now widely acknowledged that intangible assets are a key driver of innovation and corporate value in the 21st century (Coombs and Deeds, 1996; Del Canto and Gonzalez, 1999; Bounfour, 2003) and the appropriate allocation and exploitation of intangible resources is an important strategic decision for organizations (Halliday et al., 1997). Among the firm’s intangible assets, brands have become one of the most manageable and critical assets of the firm. The shift in the strategic role of brands occurred in the 1980’s. Before this time, acquisitions and mergers were valued primarily on the tangible assets involved. But in the 1980’s, firms realized that brand names were often many times more valuable than the primary assets of a firm. As a result, the values of brand names such as Marlboro, Buitoni, or Orange increased substantially because buyers paid several times the “book value” of the acquired brands and other intangible assets. This increased value of brand names marked a turning point regarding the role of brands - not only from a marketing perspective, but also from the viewpoint of overall corporate strategy. Today, more than two decades later, brands have become major artifacts of modern society. Brands penetrate all spheres of our life: economic, social, cultural, athletic, and even religious (Kapferer, 2004). Within academia, researchers in almost every discipline have studied brands, creating a variety of perspectives regarding their definition. In consumer research, a brand is defined as a set of mental associations; in finance, an intangible and conditional asset; in legal research, a tool in differentiating a company’s offering from that of its competition; and in marketing, a name with considerable power to influence buyers. The unifying theme of these diverse perspectives is that a brand is an important asset of the company, an asset that provides a 1