New research from professors at the Kelley School of Business has found companies that differentiate themselves through brand equity see more advertising benefits.
The research showed the brand equity these businesses develop creates intangible firm value that can set companies apart from those simply looking to be cost leaders, according to an IU press release.
Niket Jindal, an assistant professor in Kelley, said both differentiation and cost leading are valid strategies.
“Advertising can increase awareness,” Jindal said in the release. “It can increase sales regardless, but only for those companies that have a differentiation strategy where advertising’s going to build up brand quality.”
Jindal, along with Albert Cannella Jr., a management professor at the W.P. Carey School of Business at Arizona State University, and Leigh McAlister and Raji Srinivasan, marketing professors at the McCombs School of Business at the University of Texas, wrote a paper based on the research.
Their paper, “Advertising Effectiveness: The Moderating Effect of Firm Strategy,” was accepted to be published in the Journal of Marketing Research, according to the release.
In their research, the team reviewed financial statements from before and after the implementation of Security Financial Reporting Release No. 44, which requires publicly traded companies to report advertising expenditures that are considered “material.”
Before the accounting regulation went into affect in 1994, all firms were required to report advertising expenditures.
The researchers compared reports by S&P 500 companies from 1990 to 1994 and 1996 to 2009, looking specifically at differentiation strategy.
They predicted companies with a differentiation strategy would disclose their marketing costs because it was “fundamentally central to their strategy” and of interest to shareholders, according to the release.
The researchers also predicted and found shareholders would build intangible market-based assets through mechanisms rather than through advertising when businesses use a cost leadership strategy.
“These are not inferior firms by any means,” Jindal said in the release. “They are really healthy firms, but the role of marketing in these firms is a very different thing.”
According to the release, many popular brands operate with a differentiation strategy, while less well-known commodity firms, manufacturers and budget retailers use a cost leadership model.
Boeing, an example of a business-to-business firm, develops assets through their selling organizations rather than through advertising.
“We’re not saying that cost leaders are the poor stock performers,” Jindal said in the release. “They can add great stock price. What we’re saying is advertising isn’t going to have any impact on that stock price.”
The researchers also addressed marketing education, looking into textbooks’ introduction to the marketing career path.
“Some students may find themselves in firms that are cost leaders where marketing responsibilities and career opportunities of the marketing job that they accept differ significantly from the responsibilities and career opportunities that their marketing textbooks lead them to expect,” the researchers wrote in their paper.
Carley Lanich
