FORETHOUGHT MARKETING Talk About Brand Strategy by Natalie Mizik and Robert Jacobson A distinctive brand is good for business, of course. But you'd be surprised how impor- tant it Is toa firm's overall performance. We studied how customer perceptions of brand differentiation related to stock price over the course of 11 years in275*monobrand” compa nies such as AT&T, Krispy Kreme Doughnuts, and Reebok. (Customer brand-perceptions data came from Y&eR's Brand Asset Valuator survey.) ‘We divided the firms into to groups for each year: The first comprised those whose brands, customers felt, had become less difer- entiated, The second included those whose brands had become more differentiated. We then looked at differences between the compa- nies’ annual riskadjusted stock retums, Curi ‘ously, we saw no effect of changes in brand dit ferentiation on stock returns in the years the changes occurred, but we did see a pro nounced delayed effect: One year later, fzms whose brands had become more distinct out: performed those whose brands had become less differentiated. Specifically, the average nextyear rskadjusted stock return for firms ‘with increased differentiation was 4.8%, while the average for those with decreased diffeenti- ation was 4.3% ‘That brand enhancements improve stock price is not surprising But the lag we identified has impottant implications for companies. In simple terms, walle individual consumers per: ceive differentiation directly and react in real time (buying more Coke, say, as marketing in- creases differentiation), financial markets, it appears, don't respond until they see the im- pact on earnings later on. The markets don't Seem to anticipate the future impact of im- proved differentiation~or perhaps they don't Tecognize the change in differentiation in the first place. ‘Though managers often think their volun- tary disclosures have litle impact, its been shown empirically that disclosures, ranging from new product announcements to explana tions of financial results affect financial market, ‘outcomes such as share price, trading volume, and bidask spreads, If companies are to reap the full and immediate benefits of brand difer- entiation, managers need to do a better job of| ‘communicating their brand strategy (and its n- ‘tangible outcomes) tothe financial community. Natale tazk (am2o7e@columbia.edu) is an assistant professor of marketing at Columbia Bus- ness Schoo in New York, and Rober Jacobson (Wsho@u.washington eu) isthe vert McCabe Professor of Marketing and Transportation atthe University of Washington Busines School in Seat Reprint F0St0 ‘Toorder see the next page ‘reall 800-988-0886 oF 617-783-7500 (or go to www.hbr.org NARVARD BUSINESS REVIEW + OCTORER 2005, ‘This artic is made avelaboto you with compliments of Natalie Mik Futher posing, copying or latrbuting is copyright intingemont. To order more copas goto www roxy or call 260-268-0886,