Rebranding campaigns seem to be popping up at an accelerated pace. A mere four months into 2018, we have already observed multiple rebranding events in the marketplace.
MONI, OM Asset Management, Link Motion, Encompass Heath, and Weight Watchers all launched rebranding campaigns in early 2018. Firms employ rebranding initiatives to rebuild brand associations, regain market recognition, update brand identity, and improve brand strategy.
When a firm’s external or internal environment changes, it needs to revise its brand strategy and identity to enhance marketing communications with various stakeholders. However, rebranding campaigns carry significant costs and risks.
For example, Gap’s logo change in 2010, which was later considered a failure, reportedly costed Gap $100 million. The cost of Pepsi’s rebranding campaign in 2008 was estimated at over $1 billion.
Moreover, the public’s reaction to rebranding is extremely uncertain. For example, when Starbucks refreshed its brand identity by dropping “STARBUCKS COFFEE” from its long-existing logo in 2011, a backlash ensued on social media.
Given the benefits and risks, there is no hard evidence of whether or not it is worthwhile for a firm to invest in rebranding projects.
In light of practical rebranding concerns and the lack of empirical evidence in the area, we conducted a study (Zhao, Yanhui, Roger J. Calantone, and Clay M. Voorhees. "Identity change vs. strategy change: the effects of rebranding announcements on stock returns." Forthcoming at the Journal of the Academy of Marketing Science) to answer two questions of managerial importance:
- First, is it worthwhile to rebrand? Specifically, do the benefits of rebranding outweigh its costs and risks?
- Second, what factors should firms consider when rebranding?
Is Rebranding Worthwhile?
In this study, we examined how rebranding campaigns influence investors’ valuation of firms. Our sample consisted of 215 rebranding announcements across a 20-year span (1996–2015).
Our results suggest that, on average, rebranding events are associated with positive stock returns. We observed an average increase of 2.46% in stock prices, which is equivalent to an average gain of $31 million in market value of the sample firms.
Therefore, we conclude that investors appreciate and reward firms’ rebranding efforts, and that rebranding produces significantly positive changes in firm value. Generally speaking, it is worthwhile to rebrand.
However, not every firm benefited from rebranding. We observed that 89 out of 215 rebranding events in our sample were followed by negative stock market reactions. As such, we are interested in further identifying and understanding what factors influence investors’ valuation of the worth of rebranding.
The Fit of Rebranding to Competitive Conditions
We found that investors’ valuation of the worth of rebranding is significantly driven by the fit of rebranding to the current competitive conditions.
Specifically, we offer the following observations:
Investors reward corporate name changes in less competitive industries (3.82% increase in stock price) and brand logo changes in competitive industries (5.15% increase in stock price). A highly competitive environment carries more risk for complete corporate name changes than a less competitive environment. For example, because of the pressure of competition, Research in Motion changed its name to Blackberry in 2013, but a 7.5% decrease in stock price followed their rebranding announcement. Therefore, in the face of fierce competition, a firm should refrain from changing its name, and limit its rebranding efforts to aesthetic elements (e.g., logo).
Investors reward brand strategy revisions when a firm is facing increasing competition. When a firm is under fierce attacks from competitors, firm investors demand a signal of strategy changes and will reward the firm for signaling such changes. For example, when competitors were increasingly encroaching on its traditional computer business, Apple Computer Inc. announced in 2007 that it was changing its name to Apple Inc. to signal its brand transition, and the stock market reacted very positively (10.87% increase in stock price). Investors may also punish firms that do not modify their brand strategy when facing increasing competition. For example, part of the reason that investors negatively reacted to Starbucks’s rebranding campaign in 2011 (2.86% decrease in stock price) was that they did not see brand strategy changes in Starbucks’s rebranding efforts.
Firms should be especially cautious when abandoning long-standing brand identities. We observed a significantly negative impact of brand identity age on the worth of rebranding. For example, when the long-term firm Phillip Morris announced its name change to Altria in 2001, there was a 6.9% decrease in its stock price.
About Dr. Zhao
Dr. Yanhui Zhao (Ph.D. in Marketing – Michigan State University) is an Assistant Professor of Marketing at the University of Nebraska at Omaha. He received his M.A. and B.A. in Marketing from Nanjing University, China.
Dr. Zhao's primary research interests fall within the domain of marketing strategy, including brand management, sales management, and inter-organizational relationship. His research has appeared or is forthcoming in the Journal of the Academy of Marketing Science, Journal of International Marketing, and Journal of Personal Selling and Sales Management, among others.
His research received the 2016 James M. Comer Award for the Best Contribution to Selling and Sales Management Theory. He teaches Marketing Management (MKT 4300) and Principles of Marketing (MKT 3310) at UNO.