Channel governance through brand equity: how brand equity shapes distribution channel structure

Abstract

The relationship between brand equity and channel governance is recognized in practice and is of particular interest to senior managers. However, research in marketing on this topic is limited and practitioners and scholars seem divided on the nature of this relationship. To guide practice and enrich scholarship on this issue, we investigate the causal impact of brand equity on channel governance. We advance a theoretical framework and estimate a Bayesian Panel Vector Autoregression, on a large panel data set (n=6,292) covering 44 sectors. Our results reveal that brand equity has a direct, powerful, but lagging impact on channel governance such that higher brand equity leads to a less hierarchical channel governance structure. Furthermore, reverse causality analysis suggests that this effect is more powerful, pronounced, and persistent than the reverse effect. We contribute to three literature streams and provide actionable managerial insights, primarily in the areas of channel governance and capital allocation decision-making. Valuation Insight: Investment in brand equity may generate value by increasing the firm’s influence on downstream channel members, improving channel coordination and, thereby, boosting the firm’s financial performance and value.