BUSI 1110: Pricing Strategies, Brand Equity, and Marketing Investments

This report analyzes an article from the European Journal of Marketing investigating the impact of product differentiation, marketing investments, and brand equity on pricing strategies. The study, based on an aggregate dataset of 735 fast-moving consumer goods (FMCG) brands, uses regression and cluster analysis to explore these relationships. Key findings suggest a strong association between brand equity, marketing investment, product differentiation, and price, particularly concerning innovation and company type. The research examines implications for small and medium enterprises (SMEs), multinational companies (MNCs), and retailers, highlighting the role of value in brand performance. The study contributes by empirically testing pricing models, analyzing the impact of product differentiation on price based on innovation, and combining various research methods to provide deeper insights. The study's methodology involves a two-stage approach: regression analysis and cluster analysis. The report concludes with implications for managers, providing insights into how pricing strategies can be optimized based on brand equity, marketing investments, and product differentiation.

European Journal of Marketing
Impact of product differentiation, marketing investments and brand equity on
pricing strategies: A brand level investigation
Nebojsa S. Davcik Piyush Sharma
Article information:
To cite this document:
Nebojsa S. Davcik Piyush Sharma , (2015),"Impact of product differentiation, marketing investments
and brand equity on pricing strategies", European Journal of Marketing, Vol. 49 Iss 5/6 pp. 760 - 781
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Impact of product differentiatio
marketing investments and bra
equity on pricing strategies
A brand level investigation
Nebojsa S. Davcik
ISCTE Business School, University Institute of Lisbon (ISCTE-IUL),
Lisbon, Portugal, and
Piyush Sharma
Professor, Schoolof Marketing, Curtin Business School, Curtin University,
Bentley, Australia
Abstract
Purpose – This paper aims to show the effect of brand equity,marketing investment and product
differentiation on price in small and medium enterprises (SMEs), multinational companies (M
retailers (private labels).Academics have been researching brand equity,return on investment and
effects of product differentiation for many years, but there has been little work that has take
view.
Design/methodology/approach – The author studied an aggregate data set for 735 fast-m
consumer goods (FMCG) brands, taken from Nielsen (10,282 households). Regression analys
in the first step, a cluster analysis in the second step of modeling procedure.
Findings – The study suggests that brand equity, marketing investment and product differe
are closely associated with price. Using a cluster analysis, the authors found that the premiu
significantly associated with product differentiation based on innovation and company type.
Practical implications – Themanagerialimplications ofthe models estimated by regression
analysis are discussed as well as the results of the cluster analysis and possible research en
Originality/value – The role of the value in brand performance output has not been investi
the financial context,only in consumer or marketing mix context.Little is known about how price
strategy depends on brand equity, product innovation activities or marketing investments in
improve brand performance, neither how this strategy improves brand performance among
players in the market (retailers, SMEs and MNCs).
Keywords Branding, Food products
Paper type Research paper
Comments and suggestions from Colin Jevons, Richard Priem and Jonathan Bohlmann o
version of this manuscript are greatly appreciated. The authors thank to participants of
Marketing Congress 2013 (Melbourne) and 8th Global Brand Conference (Porto) for the
insights.Some parts of the early stages of this study were developed during the first aut
doctorate program at the University of Padua (Padova,Italy).The authors are grateful to the
Business Research Unit (BRU) of the University Institute of Lisbon (ISCTE-IUL) for their s
in the editing process.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0309-0566.htm
EJM
49,5/6
760
Received 8 March 2014
Revised 30 June 2014
7 October 2014
Accepted 7 December 2014
European Journal of Marketing
Vol. 49 No. 5/6, 2015
pp. 760-781
© Emerald Group Publishing Limited
0309-0566
DOI 10.1108/EJM-03-2014-0150
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1. Introduction
Most companies use marketing-performance measures such as brand loyalty,market
share, price premium and customer lifetime value to determine their success or failure.
Pricing is one of the most important elements of marketing mix, and pricing strategies
play an important role in a company’s marketing strategy (Kotler and Keller,2012;
Tirole, 1988). Hence, it is not surprising to see a large body of research on pricing in both
marketing and finance areas on pricing; however, the application of this type of research
to both theory and practice has not been as prevalent as other marketing variables
(Duke, 1994; Christopher, 2000).
One of the main reasons for this gap between theory and practice could be the
difference in the orientations of marketing and finance researchers, with researchers in
finance focusing on the impact of firm strategies and stakeholders’short-/long-term
expectations and marketing researchers on customerreactions and/orimpactof
branding on marketing strategies and decisions (Madden et al., 2006). A second reason
could be that finance researchers typically use firm-level data from equity markets and
the company’s financial statements, while marketing researchers generally use surveys
or an experimental-research approach (Madden et al., 2006).
As a result, it is not usual for marketing researchers to deal with huge databases that
can explain company, consumer or product (brand) patterns and behavior, nor is it usual
for them to conceptualize their research using the findings from either industrial
organizations (or any approach from a broad microeconomic theory) or other fields of
economic science (such as finance,etc.).As scholars have studied neither pricing
controversy (Myers et al.,2002)nor its antecedents in detail(Christopher,2000),the
pricing strategy is very often based on intuition and the working experience of
managers rather than on empirical findings. We address this lack of empirical research
on pricing using real-life data.
Many companiestry to improvetheir marketingstrategythroughbrand
differentiation, using innovations in the technology or marketing domain. However, the
question remains as to how do differentiations in pricing and branding relate with each
other for different types of players in the market, such as small and medium enterprises
(SMEs),multinationalcompanies (MNCs)and retailer (private label)brands.In fact,
there is hardly any empirical research on how and whether brand differentiation and
investments in brand building affect consumers’ willingness to pay a higher price, or to
what extent these effects vary across different contexts.This is the second gap we
address in this research.
In the words of Hanssens etal. (2009,p. 116),although the key marketing and
financial metrics are influential factors in market valuation and, consequently, a firm’s
market value“,how allthese marketing assets,capabilities and actions play out in
determining market value remains somewhat of a mystery. These issues are important
because managers make decisions about these factors every day and the intention of ou
study is to give them more information to support this decision-making process.The
literature on the interaction among brands, price and differentiation is scant. There is no
clear answer as to how drivers of brand equity influence a company’s competitive
strategy in a brand performance context (Chu and Keh, 2006; Peterson and Jeong, 2010).
We address this lack of evidence about the link between the drivers of brand equity and
marketing performance.
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To summarize, the aim of this study is twofold: first, to analyze the effects of
equity,marketing investments and product differentiation on price;and second,to
study the price in three different innovation types (conventional, organic and fu
and for three different market players (SMEs, MNCs and retailers). The food bra
clearly differentiated by the technology, quality and production standards appl
conventional food has the lowest innovativeness applied, whereas functional fo
the highest (Verbeke,2006;Sparke and Menrad,2009;Hamzaoui-Essoussi and Zahaf,
2012;Davcik,2013).In this process,this paper makes severalcontributions to the
existing business literature.First,we estimate a model that empirically tests pricing,
brand equity, marketing investments in the brand and several innovation varia
literature (Duke,1994;Christopher,2000) has reported the need for empirically based
and overallsolutions regarding relationships among brand price,brand equity and
innovation.Second,we study the impact of product (brand)differentiation on price,
based on innovation.
Our approach is in line with recent calls to study factors that determine the e
marketing assets on financialmetrics (Hanssens et al.,2009;Bharadwajet al.,2011;
Madden et al., 2006). Third, existing marketing and branding studies in the SM
(Keller, 1993; Peterson and Jeong, 2010; Sriram et al., 2007; Park and Srinivasa
Simon and Sullivan,1993)mostly use a single-method (e.g.customer surveys,panel
data,financial-reportdata),use a singleunit of analysis(consumer,financial,
organizational, etc.) and focus on one type of organization (MNC or public com
In this study, we combine several research measures and methods to provid
and deeper insights:
• a consumer approach, using data from real-life consumers;
• a financial approach, employing financial data from the companies whose
are part of the study; and
• a marketing approach,using a brand data setthatforms the basis for the
qualitative data employed in the study.
Our methodology is based on a two-stage approach.In the firststage,we use a
regression analysis to estimate how price performs in “Fast Moving Consumer
(FMCG) context. After studying the role of price, we test its performance using
analysis so as to determine how the product differentiation, driven by innovatio
lead to a premium price, as well as which player in the market (SME, MNC or re
may obtain this price. This is in line with Ketchen and Shook’s (1996) suggestio
using clusteranalysisin isolation butto augmentit with additionalstatistical
techniques, such as multivariate analysis.
This paper is structured as follows. We begin with a review of relevant pricin
branding literature to develop our framework and hypotheses.Next,we present the
two-stage model with detailed descriptions of the data set and the variables as
estimation ofthe pricing modelusing regression analysis and analysis ofproduct
(brand) differentiation using cluster analysis. The final section describes and in
the results of the study and concludes with implications for managers.
2. Conceptual background and research model
Companies usually compete in oligopolistic and open markets with similar tech
and marketing know-how. This implies creating competition on pricing is a dom
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business strategy and this will lower profits in the long term.To defend its current
position (i.e. price level and market share), an incumbent company has more incentives
to introduce new brands than an entrant because of the “efficiency effect” that tends to
bias market structure toward multi-brand situations (Tirole, 1988). The other side of the
coin is that an entrant has an incentive to proliferate and differentiate its brands to gain
new market power and a better position in the market (Schmalensee, 1982; Sriram et al.,
2007).However,there are no clear guidelines on how to create an appropriate and
efficient pricing strategy.
The theory of industrial organization (IO) suggests that consumers will be ready to
pay a premium price if alternative brands do not have the same quality as the preferred
brand,wherein the brands are differentiated and the cross-elasticity ofdemand is
limited to equal prices (Tirole, 1988). The principle of differentiation also explains why
companies generally do not want to position their brands in the same market place as
competing brands (Tirole,1988).The reason for this behavior is explained by the
Bertrand paradox because perfect and competing brand substitutes willface strong
price competition which willjeopardize the prospects for profit and growth in the
market.In IO terminology,product differentiation will create market niches and new
markets, allowing entrants (first-time movers into the new market) and/or incumbents
(dominantinnovators in the existing market)to enjoy some marketpowerover
competing brands for a period of time.
Contemporary pricing theory is based on rational, classical economic behavior that
views price as a signalof quality (Erdem et al.,2010;Ngobo,2011).This economic
mechanism suggests that higher prices correspond to higher quality, which implies that
a premium price might be achieved only by premium quality and differentiation based
on innovation (Schmalensee, 1982; Erdem et al., 2010; Kamakura and Russell, 1993). The
premium price represents consumers’willingness to pay more than the usualor
generally expected price.In a marketing context,this definition can be expanded and
understood as consumers’willingness to pay extra for the additionalvalue that the
brand offers. This mechanism takes place when a consumer is ready to pay for a product
because he/she also wants to acquire certain benefits from a brand. Hence, a firm should
set the price around the values that the brand offers to consumers.
The role of value in brand-levelperformance has rarely been investigated (Barth
et al., 1998; Peterson and Jeong, 2010), and little is known about how price depends on
brand equity, innovation activities or marketing investments intended to improve brand
performance. Pricing has a multi-decision consequence on a company’s performance. In
a multi-brand organization, the price decision made about one brand will influence the
performance ofanother.This is because ofthe internalcompetition and possible
cannibalistic situations that can occur among brands within the multi-brand company.
Firms must clearly differentiate their brands according to value cues and innovation, as
well as different price categories and strategies among internally competing brands.
The situation is similar in the marketplace, where competing brands are interconnected
like water tanks; in general, if one organization lowers/raises prices, or introduces new
enhancements or advertising campaigns, it will affect competing brands and change the
existing market equilibrium.
In the context of this research, we understand that a premium price is a higher price
than the average for a product category (i.e. cluster of products) in comparison to severa
otherand similarcategories across the same industry segmentand market.The
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literature suggests that a firm’s brand success is associated with a strong bran
of its ability to achieve a premium price (Ambler et al.,2002).The “strong-success”
correlation arises due to the customer perception that a recognized brand mus
reduce the risk associated with consumption and consumers’inability to base their
choice on experience due to frequent introductions of new models and improve
(Scitovszky,1944;Ambler etal.,2002;Madden etal.,2006);it is also due to the
loyalty-switching cost, which appears because of a stronger relationship betwe
and its consumers. To gain the lucrative benefits of branding and premium pric
organization has to manage its brand portfolio, so that a consumer can easily i
the unique brand values that are differentiated and sustained over a longer pe
time.
In summary,we develop our conceptual approach based on Schmalensee’s (19
analyticalmodel,which explained the role ofdifferentiation in brand performance
outputs (i.e. price and market share[1]). However, this model does not include
of the brand (usually conceptualized through brand equity), nor does it empiric
its own premises. From marketing literature, we use the approach set forth by
and Jeong (2010), who explained the role of brand value in a performance cont
the difference between brand assets and expenditures. However, this model is
limited in scope because it focuses on the interrelationship between brand valu
performance output, without including other explanatory effects of brand perfo
such as how much a company invests in its marketing activities or differentiate
brands from the competition.
The second limitation is their focus on the performance of stock market bran
because they did not include small and non-public companies in their analysis.From
finance literature,we benefitfrom Barth etal.’s (1998)work on the incremental
contribution ofbrand valueto price.Using the ordinary leastsquares(OLS)
measurement approach, they related different layers of brand value (e.g. value
equity,advertising expenses,brand marketshare)to share prices.However,the
conceptualfoundationsand theoreticaljustification ofthe constructsused are
somewhat limited and unexplained. They have not defined the nuances of und
brand forces, nor have they justified the causality between the employed const
using hypotheses/propositions.
As a result, it is not clear how different brand-value constructs – advertising
and value of brand equity,among others – interact and contribute to share prices.
However,their research idea and empirical approach are a valuable starting poin
our study, and we overcame these limitations by outlining clear and precise de
of constructs and their causality. In the following subsections, we will establish
hypotheses and investigate how price performs in the market and across differ
of innovation and companies.
2.1 Role of brand equity in price performance
Brand equity represents the value of the brand. This value is constituted by bra
such as high brand loyalty,perceived quality,nameawareness,strong brand
associations,trademarks,patents (Kotler and Keller,2012;Aaker,1991;Park and
Srinivasan,1994),production standards and applied innovation.From a marketing
point of view,brand equity represents the customer mindset about the brand an
includes perceptions, expectations, experiences, etc. (Ambler et al., 2002) and
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specific outcomes such as incrementalvolume,price premium,profit,etc.(Ailawadi
et al.,2003;Slotegraaf and Pauwels,2008).Brand equity may serve as a signal of the
brand’s credibility in the market (Erdem and Swait, 1998) and provide a goodwill value
that can reduce uncertainty (Broniarczyk and Gershoff, 2003), or it may be seen as an
incremental contribution to the firm as consumer’s choice of the brand gives rise to the
base product (Srinivasan et al.,2005;Park and Srinivasan,1994;Simon and Sullivan,
1993).
Numerous sources,measures and theoretical approaches exist in the field of brand
value, but there is no consensus on how to develop a unique measure of brand equity, or
what the drivers of brand equity performance in the market are. There is fierce academic
debate about the conceptualization of the appropriate theoreticaland measurement
approach in brand equity (Davcik, 2013). The major cause of this debate is the numerous
research approaches thatdefine different– and in many instances conflicting –
measurement approaches and research assumptions:customer based,market based,
finance based, etc. (Keller, 1993; Ailawadi et al., 2003; Sriram et al., 2007; Christodoulide
and de Chernatony, 2010). We follow the financial-based approach because this research
stream asserts the importance of financially based measurement and valuation of brand
value (Simon and Sullivan, 1993; Kamakura and Russell, 1993; Russell and Kamakura,
1994; Park and Srinivasan, 1994).
The stream of literature that is based on the customer-based brand equity concept
(Keller,1993;Erdem and Swait,1998)suggests that price is an indicator of brand
strength and brand equity. This research assumption is reasonable from the consumer
perspective where researchers are trying to determine interrelated value factors in an
experimental set-up. However, the financial-based approach (as used by us in this paper)
suggeststhat innovation and brand quality drivebrand equity through value
propositions,which in turn allows marketers to draw a price premium (Simon and
Sullivan,1993;Ailawadiet al.,2003;Kamakura and Russell,1993).In other words,
according to this alternate view, brand equity is presented as an antecedent rather than
outcome of pricing strategy. The contemporary research findings in marketing correlate
higher brand equity with higher prices,if the latter are based on high quality and
differentiation (Sriram et al.,2007;Suriet al.,2002;Knox,2000;Schmalensee,1982;
Erdem et al., 2010; Stiglitz, 1987). Price premium represents the effectiveness-orientated
concept of a firm’s performance because it is recognized in the literature as the value
delivered to the consumer (Sandvik and Sandvik,2003).Park and Srinivasan (1994)
explicitly address the importance of the impact and influence of brand equity on price
premium.
H1. The likelihood of a higher price will increase with a focus on brand equity due to
a greater emphasis on higher brand quality.
2.2 Role of marketing investments in price performance
Marketing investment in a brand represents expenses intended to increase its quality
and reputation.These investments consist of advertising expenditures on the brand,
promotional activities,etc.(Simon and Sullivan,1993;Sriram et al.,2007;Srinivasan
et al., 2005; Peterson and Jeong, 2010). A seminal paper by Schmalensee (1974) describe
marketing investmentas selling and promotionalexpenditures thatare important
sources of brand,which in turn has dynamic effects on demand through the pricing
mechanism.These expenditures are important because of their influence on brand
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performance (Rust et al., 2004). For instance, promotion has a key role in obta
price premium because higher prices suggest better quality in the consumer’s
assessment process of higher brand quality (Suri et al., 2002; Stiglitz, 1987). A
position in the market can yield price premium for a firm, but this market mech
can also provide an entry barrier for companies who have to overcome the incu
companies (Schmalensee, 1974; Chu and Keh, 2006).
Marketing investmentsmay influencethe consumers’experience,utility and
assessment of the brand quality (Fernandez-Olmos and Diez-Vial, 2013), as we
brand loyalty (Schmalensee,1974).Product quality affects price because a perceived
higher quality allows a company to charge a higher price; in return, a higher pr
enhance perceived quality of a brand, serving as a quality cue (Aaker, 1991). B
(1998)addressed this problem and found thatadvertising expenditures,with an
incremental effect on brand quality, have a negative relationship with the valu
equity.The brand equity and marketing investment may intertwine,and their joint
effects may boost revenues through higher prices and also serve as a barrier to
(Srivastava et al., 1998). Thus:
H2. The likelihood of a higher price increases with a degree of higher market
investments in a brand.
H3. There is a negative interaction between brand equity and marketing inve
such thatlower-quality brands generate a lowerprice performance than
higher-quality brands with the same level of marketing investments.
2.3 Role of differentiation in price performance
Differentiation involves creating a brand that is perceived to be unique and dis
comparison to others on offer (Porter, 1998a; Kotler and Keller, 2012). Differen
an actof creating a setof meaningfuldifferences thatmakes a company’s offers
distinctive from those of competitors (Kotler and Keller, 2012). The differentiate
provided by a firm,such as quality,reliability,service,etc.,can create an image of a
brand that might earn a 10-20 per cent price premium (Kotler and Keller,2012).If
differentiation is successfully applied,brands can reach a higher relative price (Knox,
2000;Chaudhuriand Holbrook,2001;Tirole,1988;Davcik and Rundquist,2012).
Successfulbrandsare characterized by a higherbrand valuedifferentiation in
comparison to less distinctive brands (Knox, 2000). Differentiation (marketing d
and innovation (technology domain)are the key elements ofthe brand paradigm
because they shape and drive a brand’s performance. For instance, Madden et
call for further empirical insights into the relevant differentiation in the interrel
between characteristics of strong brand and performance.
A company differentiates its brands through innovation because they want t
any price competition (Schmalensee, 1982; Tirole, 1988). This mechanism imp
firms will have less incentive to differentiate brands when they do not compete
which is not a very likely assumption in an open market.Distinctivebrand
differentiation among competing brands in the marketcan be achieved by more
innovative brands, which may help a firm maintain its dominant position for lon
it requires a new firm to have more resources to enter the market and/or to fillthe
innovation gap (Tirole, 1988). In contrast, cheap brands are preferred by consu
expect less differentiated and innovative brands (Sandvik and Sandvik,2003).In the
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FMCG context, differentiation can be achieved by the application of different innovation
types, such as technology and production standards applied in the creation of a brand.
If brand innovation is successfully applied by the company, that company will hold the
existing price level and/or a monopoly for longer periods of time. Hence:
H4. The likelihood of obtaining a premium price increases as the degree of brand
differentiation increases.
3. Methodology
3.1 Data description and measures
Several data sources have been employed in this research. The first is the scanner data
from ACNielsen research into the food consumption of 10,282 Italian households. Data
were used for the creation of different variables that describe consumption and market
behavior,such as price,qualitative behavior ofbrands,etc.The Consumer Panel
Solutions (CPS)and Homescan® paneltool were employed to obtain data from
ACNielsen. The CPS consumer-centric marketing solutions were used to make in-depth
analyses of purchase behaviors, demographic profiles, quantities sold, prices paid, etc.
Second,data were obtained from the Bureau Van Dijk Electronic Publishing AIDA
financialstatements database for companies in the Italian marketto develop the
measures of brand equity that are used in this study. The research framework has been
expanded to include quality-independent variables, extracted from these data sources,
according to observed quality characteristics of brands and the technology applied in
their creation. Table I shows the variables used in this research.
We obtained panel data at the stock keeping unit level, which we aggregated at the
brand level.Single brands,rather than individual consumers,have been employed as
units of observation in this study because aggregated consumer behavior at the brand
level will produce more reliable results for the branding research (Hanssens et al., 2001;
Chaudhuriand Holbrook,2001;cf. Russelland Kamakura,1994).In this way,the
research avoids the potential pitfalls in experimental manipulations and obtains more
accurate managerial implications because decision-making is effective at the level of
individual brands (Srinivasan et al., 2005).
The dependentvariable is price,which represents the amountof money that
consumers paid for a product in a store,aggregated at the brand level.We draw this
information from ACNielsen data. Brand equity represents an asset that is calculated by
a firm’s patents, licenses, etc. This value is taken from the BI position, intangible assets,
in the company’s balance sheets from the AIDA database.This variable has been
calculated using a single brand share indicator to allocate the brand equity value of a
specific brand:
␯jk ⫽ V jk␯␯ i ⫽ 1
N qij
Qjk␯ (1)
where vjk denotes brand j’s equity for firm k; Vjk represents firm k’s equity from brand j;
qij is quantity of brand j sold to consumer i; Qjk denotes overall quantity sold by firm k
of brand j.This measurement approach is conceptually based on Simon and Sullivan
(1993) and in line with Russell and Kamakura (1994) and Park and Srinivasan (1994,
p. 272), as it allows for estimation and “managing an individual brand in a multi-brand
firm operating in multiple product categories”.
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Marketing investments represent expenditure for the reputation of a brand,such as
advertising and sales promotion,as reported in a firm’s income statement.Prior
research (Fernandez-Olmos and Diez-Vial,2013)relates marketing resources to the
performance ofa brand as the ratio ofmarketing-related expenses to totalsales.
However, this measure is not precise because it captures the overall marketing
while neglecting the performance and influence of the individualbrand.Hence,our
measure is a better performance indicator because it captures the individual e
marketing resources in a branding framework.
We use company and innovation type as indicators of quality. It has been su
in the literature(Shepherd,1972;Chu and Keh,2006;Rubio and Yague,2009;
Galdeano-Gomezand Perez-Mesa,2012)that productquality (e.g.technological
standards and innovation)and company efforts (such as company culture,strategy,
size) are important variables that influence profitability and overall brand perfo
Productquality,based on innovation and company uniqueness,may provide the
opportunity to charge a premium price (Aaker,1991)and create differentiation and
market boundaries for new entrants (Sriram et al., 2007).
In the current study, applied innovation will be used as a proxy for product q
becausethe consumer’sassessmentof perceived valuecannotbe observed and
Table I.
Variables of the
brand performance
models
Variable Name Description Value Source
Price PR Amount of money that consumers have to pay
to obtain the brand (€/kg)
n/l Nielsen
Brand equity BEq Asset that is constituted by advertising
efforts, licenses, etc., allocated to the single
brand in a company brand portfolio (position
B. I – intangible assets in the company
balance sheets)
n/l AIDA
Marketing investment
in a brand
MI Lagged service expenses that are intended to
increase the quality and reputation of the
brand, allocated on a brand (position
b7 – services, in the company income
statement)
n/l AIDA
Market share ms A measure calculated as an overall market
revenue multiplied by brand share (following
Ailawadi et al., 2003; Slotegraaf and Pauwels,
2008)
n/l Nielsen
Firm size fs Parent firm sales, as described in Slotegraaf
and Pauwels (2008)
n/l Nielsen
Company type co Differences among private labeled brands
(⫽ 1), brands owned by the Italian SME
producers (⫽ 2) and brands owned by MNC
producers that have branches in Italy (⫽ 3)
1, 2, 3 QIV
Innovation type inn Type of brands according to the applied
technology: functional food (⫽ 3), organic food
(⫽ 2) and conventional food (⫽ 1)
1, 2, 3 QIV
Notes:AIDA ⫽ Company financialstatements (balance sheetdata);Nielsen ⫽ data from the
ACNielsen research; QIV ⫽ Quality independent variable; n/l ⫽ Not limited
EJM
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measured directly (Kamakura and Russell,1993;Aaker,1991;Mamalis,2009;Davcik
and Rundquist,2012).The innovation typerepresentsthe variable,which is
differentiated according to thetechnology and food standardsapplied,namely,
conventionalbrands,functionalfood (i.e.products with beneficialbacteria,etc.)and
organic food brands (food stuffproduced according to organic standards:national
organic program (NOP) [USA];EC 834/2007 [EU],etc.).Dummy variables have been
used to study the behavior of applied technology because marketing decisions should
depend on production technology (Schmalensee, 1989). It is possible to achieve this by
estimating the organic and functional brands in comparison to conventional brands.
Interested readers can assess this typology in detail from the food-orientated research
articles (Sparke and Menrad, 2009; Sorenson and Bogue, 2007, Hamzaoui-Essoussi and
Zahaf, 2012; Davcik, 2013).
In the presentanalysis,the difference between private-labelbrands,SMEs and
multinationalfood producers willbe controlled (Choiand Coughlan,2006).The
company type represents quality differences among private-label brands,brands that
are managed by the Italian SME producers and brands that are managed by MNCs. We
use several control variables that are well established in the literature for this type of
marketing study (Ailawadiet al.,2003;Slotegraaf and Pauwels,2008;Peterson and
Jeong, 2010). For instance, the importance of the control for market share effects and firm
size when analyzing the explanatory power of brand equity has been reported in the
literature(Kellerand Lehmann,2006,Slotegraafand Pauwels,2008).Following
Ailawadi et al. (2003) and Slotegraaf and Pauwels (2008), we calculate market share as
overall market revenue multiplied by brand share and we use parent-firm sales as a
control variable.
The research framework uses quality-independent variables that have been defined
and created as a combination of existing empirical data (Einav et al., 2010) and observed
brand quality characteristics,according to company and innovation type.The brand
sample employed in this study includes 735 brands.The descriptive statistics of the
variables used are presented in Table II.The empiricalresults have been estimated
using the Stata 12.1 SE statistical software.
Table II.
Descriptive statistics
Variables Mean SD Minimum Maximum
Price (log) 1.2127 0.6221 ⫺1.6013 2.4775
Brand equity (log) 11.6249 2.5579 4.4641 19.4066
Marketing investment (log) 13.2227 1.9725 7.8537 18.2651
Firm size (log) 4.4577 2.2211 ⫺0.7989 9.9532
Market share 0.0123 0.0144 0.0020 0.1227
Dummy innovation type – functional 0.3917663 0.4884694 0 1
Dummy innovation type – organic 0.2974768 0.4574519 0 1
Dummy innovation type – conventional0.310757 0.4631111 0 1
Dummy company type – private label0.1580345 0.3650158 0 1
Dummy company type – SME 0.6600266 0.4740147 0 1
Dummy company type – MNC 0.1819389 0.3860506 0 1
769
Brand level
investigation
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