Investigation of The Relationship Between Brand Value And R&D Activities: Fortune 500 Companies Analysis

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Procedia Computer Science 158 (2019) 1019–1024

3rd World Conference on Technology, Innovation and Entrepreneurship (WOCTINE) 3rd World Conference on Technology, Innovation and Entrepreneurship (WOCTINE) Investigation of The Relationship Between Brand Value And R&D Activities: Fortune 500Between Companies Analysis Investigation of The Relationship Brand Value And R&D Activities: Fortune 500 Companies Analysis T.C. Istanbul Aydin University, Beşyol Mah.Inönü Cad.No: 38, Istanbul 34295, TURKEY

Abstract

T.C. Istanbul Aydin University, Beşyol Mah.Inönü Cad.No: 38, Istanbul 34295, TURKEY

In the global world where technology is developing very rapidly, consumption has also increased at the same rate. Information Abstract can reach to the other side of the world in an instant, consumer goods can be delivered to the other end of the World in a very In thetime. globalProducers world where technology is developing veryinrapidly, consumption has also increased at the same is rate. Information short are also in a serious competition the global environment where rapid consumption achieved. This situation become strategy to world ensureinthat becomegoods a brand society the sense of the marketing. can reachhas to the otheraside of the an consumers instant, consumer canconsuming be delivered to theinother end of World inInaorder very to respond this consumption have focused onenvironment R&D strategies to provide innovative technology-based short time. to Producers are also inapproach, a seriouscompanies competition in the global where rapid consumption is achieved. This situation a strategy tobetween ensure that consumers become output a brandand consuming in the sense of the marketing. In order products. has To become make a relationship R&D as an innovation brand associety a consumption input, brand value and R&D expenditure will beapproach, examined.companies have focused on R&D strategies to provide innovative technology-based to respond to this relation consumption products. To make a relationship between R&D as an innovation output and brand as a consumption input, the brand value and R&D expenditure relation will be examined. © 2019 The Author(s). Published by Elsevier B.V. © 2019 The Authors. Published by Elsevier B.V. Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and © 2019 The Author(s). Published by Elsevier B.V. Entrepreneurship Entrepreneurship Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Keywords: R&D, patent, brand value, panel data Entrepreneurship Keywords: R&D, patent, brand value, panel data

1. Introduction

1. Introduction In the 21st century, the globalization process has been completed and technology is rapidly developing. Consumption also continues to increase rapidly. With the development of technology, consumption habits have In thetechnology-based 21st century, the globalization has Itbeen and technology is rapidly developing. become consumer goods process or services. has completed been transformed into a structure that is produced Consumption also continues increase delivered rapidly. With the development of Technology-based technology, consumption habitsgoods have quickly, communicated to thetoconsumer, and instantly consumed. consumption become consumer goods or services. It has been intoinvestment a structureinthat is produced or servicetechnology-based production has been the reference point of competition by transformed providing more R&D, resulting quickly, communicated to the consumer, delivered instantly consumed. Technology-based goods in the emergence of innovative products or services.and In addition, these developments identify allconsumption the characteristics or the service production hasbrand beenidentity the reference point of competition by providing more in R&D, resulting of products with the in the marketing approach. This has enabled theinvestment brand to reach the consumer in the quickly emergence or services. In addition, these the characteristics more and of to innovative become a products communication tool that will enable thedevelopments consumer to identify be in theallsubconscious. This of the products with the brand identity in the marketing has enabled the brand to reachwhich the consumer situation has enabled consumers to consume brand as aapproach. product. This In summary, innovative products, are the more quickly to become communication that will the consumer to beit in subconscious. This output of R&Dand activities, havea become a brand tool consumed by enable consumers. In this study, is the intended to investigate situation has enabled consumers to consume brand as a product. In summary, innovative products, which are the output of R&D activities, have become a brand consumed by consumers. In this study, it is intended to investigate 1877-0509 © 2019 The Author(s). Published by Elsevier B.V. Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship 1877-0509 © 2019 The Author(s). Published by Elsevier B.V. Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship

1877-0509 © 2019 The Authors. Published by Elsevier B.V. Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship 10.1016/j.procs.2019.09.143

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Serkan Kurt / Procedia Computer Science 158 (2019) 1019–1024 Serkan Kurt/ Procedia Computer Science 00 (2019) 000–000

the degree of this relationship between R&D and brand. It is intended to emphasized that innovative goods or service products are delivered to consumer as an output of R&D activities and as an input of the brand. The positive impact of R&D on the brand is intended to be explained by linking between companies’ brand values and R&D activities. 2. R&D, Innovation and Brand The concepts of R&D and Innovation are still confused today and sometimes difficult to distinguish. In order to distinguish these concepts and to classify the data gathered to form an indicator, all definitions and concepts related to Innovation are explained in the Oslo Manual. In this manual, the definition of innovation is as follows: An Innovation is the development of a new or significantly improved product (goods or service), or process, a new marketing method or a new organizational method in business practices, workplace organization or external relations [1]. Innovation activities are defined as: Innovation activities are all scientific, technological, organizational, financial and commercial steps that are intended to lead to the implementation of innovations. Innovation activities also include R&D that is not directly related to the development of a specific innovation [1]. The minimum requirements for an innovation from an activity defined in the Oslo Manual are that the product, process, marketing method or organizational method is new for the company. These innovations may have been developed for the first time in the company or adapted from other organizations. According to Moslow, people tend to desire to realize their physiological, security, social (love-loving), respect, and self-realization needs respectively. Moslow's needs hierarchy is a fundamental basis for the development of marketing strategies. Firms develop new products (goods or services) that meet the needs of people or add innovations to their existing products. Thus, companies are trying to improve their commercial performance. Looking at this basic situation, it is clear that companies need to focus their product development on Innovation activities in order to keep people in need and to meet these needs continuously. There is a direct link between R&D and Innovation. A systematic and scientific study is carried out with basic and applied research and development activities to develop a new product or idea with R&D. As a result of this study, new information and ideas are revealed. These outputs are the basis for developing new products, creating innovations in the current product, process, marketing and organizational innovations. In short, the process of commercialization of the achievements obtained as a result of R&D is the activities carried out with innovation and must be carried out together. Companies have focused on increasing their demands on the needs of consumers, and consumers have started to diversify their wishes by responding at the same speed. Waiting for different features in the products they use to meet the needs of people has made the need to become a diversified range of demands. This has led manufacturers to diversify their products and develop new features that will attract customer interest. In addition, it has directed the manufacturers to introduce their products as brands and to create brand perception in order to create a commitment to their products. When we look at the traces on the use of the brand, it shows that marking has been used since ancient times. In the walls of the Lascaux Caves in southern France; A number of handprints that were believed to be based on the 15000 BC were found [2]. Until today, different definitions have been made with different approaches made on the brand. The American Marketing Association (AMA) defined the business-oriented brand in 1960 as follows. “The name, term, sign, symbol or design that identifies and distinguishes the products or services of a seller or a group of sellers from their competitors is called a brand” [3]. The consumer-oriented brand definition is: “The brand is the promises made by the companies regarding the characteristics that the consumer buys and satisfies the consumer” [3]. 3. Literature Review In the academic studies examined, the relationship between brand and R&D is discussed in different ways. Below is a table and a summary of the academic studies examined.



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Table 1: Literature Review Summary Table Author/Year

Topic

Result

Lee J. Y. (2013)

How Customer-Centric Structures Leverage the Effects of Advertising and R&D on Brand Equity and Firm Performance [4]

The level of the impact of advertising and R&D expenditures on brand value and brand quality depends on the level of customer focus.

Sharma P. et al (2016)

Product Innovation as a Mediator in the Impact of R&D Expenditure and Brand Equity on Marketing Performance [5]

The effects of the R&D expenditures of the valuable brands on the marketing can give negative results compared to the SME and retail companies as well as the positive results.

Ho Y. K. Et al (2005)

The Effects of R&D and Advertising on Firm Value: An Examination of Manufacturing and Nonmanufacturing Firms [6]

It is determined that R&D and advertising have more positive effects on one-year stock performance in manufacturing firms than nonmanufacturers.

Peterson R. A. and Jeong J. (2010)

Exploring the impact of advertising and R&D expenditures on corporate brand value and firm-level financial performance

Advertising and R&D expenditures effect the brand value and financial performance of the company positively.

Akyüz A. M. And Berberoğlu M. (2016)

The Moderator Effect of R&D Expenses on the Relationship Between Advertising Expenditures and Market Values of Enterprises [8]

Advertising and R&D expenditures increase the market value (20%) of the companies.

[7]

Many researchers emphasize that investment in R&D will increase marketing effectiveness, financial income, economic growth and exports. Lee (2013), using the data of IPO companies in the period of 2005-2011, advertisement and R&D spending on the brand value of the company and the activity performance of the company is based on the focus of customer orientation. As a result of his work, the author emphasizes that in order for a company to increase the brand value and the perceived brand quality of advertising and R&D expenditures, it should be on customer orientation. Although it does not deny its brand awareness and its contribution to brand quality, the level of this contribution shows that advertising and R&D activities are directly related to the level of customer orientation. However, the extent of this impact is explained by the organizational structure of the company. In another study, Sharma, Davick and Pillai (2016) investigated the role of innovation in the impact of R&D expenditures and brand value on marketing performance. The authors used regression and pro bit analysis to examine a panel data for a 1.356 food brand. It shows that international companies attach importance to R&D expenditures in order to increase their innovation and markets compared to SMEs and retailers. Strong brand values indicate that they can adversely effect product innovation and performance of new products. The authors examined the impact of R&D expenditures and brand value on market share separately. They compared the impact of SMEs with international companies and SMEs with retail companies. • R&D expenditures have a strong positive impact on the market share of international companies compared to SMEs and retail companies, • Compared to SMEs and retail companies, brand value has a negative effect on the market share of international companies. As a result, the authors have strongly demonstrated that R&D has a positive impact on Innovation, but have demonstrated that international branded and valuable branded companies may have positive or negative impacts on SMEs and retail companies in the R&D-based product Innovation strategy. In another study, Ho, Keh and Omg (2005) examined the value of R&D and advertising expenditures of the manufacturers and non-manufacturers in the one-year and three-year periods in the data set they prepared for a 40year period between 1962-2001. It was determined that the investment in R&D had a positive effect on the annual stock performance of manufacturing firms and the same situation was not observed for non-manufacturer firms.

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However, they also find evidence of a nonlinear relationship between R&D and advertising and firm value, and they see this result as a constraint in the research study. Furthermore, they suggest that the research study should be expanded in order to see how the impact of R&D and advertising interaction on US firms to the value of the firm will have an impact on sectors and other countries. In a study by Peterson and Jeong (2010), they analyzed empirically under four data conditions by presenting a framework linking advertising and R&D expenses to the firm's brand value and financial performance. These are the data form, the brand type, the financial performance criterion and the delay structure. The data obtained from 125 companies belonging to the period of 1991-2007 were used. As a result of the analysis of variance, it has been shown that advertising and R&D expenditures effect the brand value positively and that the brand value effects the financial performance positively. In another study, Akyüz and Berberoğlu (2016) examine the moderator effect of R&D expenses on the relationship between enterprises' advertising expenses and market values. In Borsa İstanbul, panel data analysis method was used by using the expenses of 46 enterprises belonging to 2007-2011 periods as data. The analyzes revealed that advertising and R&D expenditures increased the market value of companies by 20%. In addition, in the study, it is observed that the advertising expenditures in the firms with high R&D expenditures are low and the advertising expenditures in the firms with low R&D expenditures are high. This is because branded products with high R&D spending need less advertising. 4. Data and Methodology In our research study, data sets have been prepared by using data of some indicators on the basis of companies in order to examine the relationship between R&D activities and brand value. The companies with the Fortune 500 list are listed as the top 500 companies with the highest income in the annual report. The data of these companies included in the Fortune 500 are related with brand values, patent numbers and R&D expenditures. Panel data analysis will be performed by using the annual brand values of the 28 companies in the Fortune 500 list with their annual brand values, revenues, R&D expenditures and patent numbers. In our study, since the effect of brand value on indicators related to R&D activities is examined, brand value is dependent variable and R&D indicators are determined as independent variables. Descriptions of dependent and independent variables are given in Table 2. Table 2 Definition of Variables No

Name of Variable

Variable

Description of Variable

BV

Brand Value of Companies (Milton Dollar)

Dependent Variables 1

Brand Value

Independent Variables 1

Revenue

Revenue

Annual revenue from companies' total sales (Million Dollars)

2

Number of Patents

Patent

Number of patents registered by the US Patent Office (USTPO)

3

R&D Expenditure

RD

Annual R&D Expenditures of Companies (Million Dollars)

The following model is defined using these variables (1) Model : independent variable coefficients; i each section; t time series; constant value; In this model, refers to the error term. Using the estimation data obtained from the analysis of the model, the following hypotheses will be examined: H1: There is a relationship between the brand value and the R&D expenditures of the companies that are involved in Fortune 500. H2: There is a relationship between the brand value and revenues of Fortune 500 companies H3: Fortune 500 companies have a relationship between the number of patents and brand value.



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5. Results Hausman test was used to determine the conformity of our model to fixed effects or random effects model. If there is a correlation between the error term and the independent variables, the null hypothesis is accepted and the model will be explained according to the random effects model. If there is no relationship between the error term and the independent variables, the alternative hypothesis is accepted. Hausman test results are given in Table 3. As a result of the test, the probability value is not significant as 11,99%> 5% is obtained. So null hypothesis is accepted and the results of the random effects model will be considered. Tablo 3: Hausman Test Fixed Effect Model

Random Effects Model

Var (Diff.)

Prob.

Revenue

0.035070

0.043043

0.000019

0.0679

Patent

-1.017485

-0.628415

0.698818

0.6416

RD

5.819281

5.400862

0.043002

0.0436

Chi-Sq. Statistic

5.835179

Chi-Sq. d.f.

3

Prob>Chi-Sq

0.1199

The results of random effects regression analysis are given in Table 4. When the F test result is considered, the probability value is less than 0.05 and our model is statistically significant. The value of R-squared is 0,484. Indepentent variables can explain 48.4% of the dependent variables in our model. The low level of explanatory level indicates that other parameters should be included in the model in order to explain the brand value dependent variable. Tablo 4: Test Results Model Variables

Fixed Effects Model

Random Effects Model

Revenue

0.035070 (0.0074)

0.043043 (0.0005)

Patent

-1.017485 (0.5196)

-0.628415 (0.6388)

RD

5.819281 (0.0000)

5.400862 (0.0000)

Constant

-678.4899 (0.7889)

-708.4484 (0.8574)

F

41.27331

56.03732

0,0000

0,0000

Prob>F R-Sqr

0.894524

0.492835

Adjusted R-squared

0.872851

0.484040

According to the results of the T test, it is seen that the R&D and revenue variables are less than 0.05 significance level and have a significant effect on the brand value. Although there is a positive relationship between them, the effect of revenue variable on brand value is less. As a result, since the R&D expenditures and revenues have a significant and positive relationship on the brand value, H1 and H2 hypotheses will be accepted. We can say that there is no effect on the brand value because the patent variable is greater than 0.05. Because the patent variable does not have a significant and positive relationship on the brand value, the H3 hypothesis will be rejected.

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6. Conclusion In this study, the relationship between the brand value and the R&D activities of some companies in the Fortune 500 most valuable companies list is being investigated. In the global market, the income levels of companies with high brand value are high. According to the list of companies with the highest revenue, the brand values of these companies are high. Companies are working hard to increase their competitiveness in the global market and thus to reveal innovative products to improve their economic performance. Therefore, they make significant investments in R&D. Innovative products and patents obtained as the output of this investment are the most important success criteria. There is a positive relationship between R&D expenditures and revenue and brand value. However, there was no relationship between the number of patents and brand value. The number of patents was considered as an output of R&D activities and was expected to be related to brand value such as R&D expenditures. The number of patents of companies was a parameter that limited our analysis. This was due to the number of patents that companies only registered with the US patent office (USTPO). In addition, the number of patents for all companies has not been reached and the number of observations has decreased. In our study, which was modeled with revenue, R&D expenditure and patent variables, the explanatory level was calculated as 48.4%. This is an intermediate level, even a low explanatory rate. This is due to the fact that the brand is intangible, the outputs of the R&D activities are tangible, the income has a significant effect on the determination of the brand value, and having high revenue and brand value against the low R&D intensity of the companies. 48.4% of our model is overlapping with the explanatory level. As a result, we can say that R&D expenditures are related to brand value. It is estimated that the analyzes on the basis of the companies by classifying according to the sectors will give results with higher explanatory level. For example this study, can be expanded by classifying high-tech sectors with high R&D intensity, such as technology, automotive, pharmaceutical and biotechnology, and sectors with low R&D intensity such as energy, retail, finance, food and apparel. In similar research studies, the contribution of R&D to financial performance, economic growth and marketing activities of companies is being investigated. Marketing activities are focused on creating brand perception on consumers and increasing brand value. With this study, it can be said that R&D, which is the main activity where innovative products are produced as output, contributes to the literature in terms of establishing a relationship between innovative products and brand which is the basic input in consumption activities. The model developed to explain this situation in the research study can be improved by using more data related to R&D. The findings of the study show that R&D activities can effect the financial performance and marketing activities as well as brand value. It is tried to emphasize that companies should take into account the impact of R&D investments on brand value while creating investment strategies. References [1] Oslo Manual–Guidelines For Collecting and Interpreting Innovation Data, Third Edition, 2005, OECD and Eurostat: 46-47 [2] Hatipoğlu Serhat Kemal, (2010) “Investigation of Brand Management Process and An Application Towards New Brand Building Process” (Master Thesis) Turkish Patent Institute Trademark Department:.3 [3] TAŞKIN Çağatan and AKAT Ömer (2012) “Brand and Brand Strategies” Alfa Akademi Press 2nd Edition:8 [4] LEE Ju-Yeon (2013) “How Customer-Centric Structures Leverage the Effects of Advertising and R&D on Brand Equity and Firm Performance” (Doctor of Philosophy) University of Washington: 62 [5] SHARMA Piyush, DAVCIK Nebojsa S. and PILAI Kishore Gopalakrishna (2016) “Product Innovation as a Mediator in the Impact of R&D Expenditure and Brand Equity on Marketing Performance” Journal of Business Research in press Vol 69 No 12: 5662-5669 [6] HO Tew Kee, KEH Hean Tat. and OMG Jin Mei (2005) “The Effects of R&D and Advertising on Firm Value: An Examination of Manufacturing and Nonmanufacturing Firms” IEEE Transactions on Engineering Management Vol 52 No 1 : 12 [7] PETERSON Robert A. and JEONG Jaeseok (2010) “Exploring The Impact of Advertising and R&D Expenditures on Corporate Brand Value and Firm-Level Financial Performance” Journal of the Academyof Marketing Science No 38: 677–690 [8] AKYÜZ Ahmet Mutlu and BERBEROĞLU Murat (2016) “The Moderator Effect of R&D Expenses on the Relationship Between Advertising Expenditures and Market Values of Enterprises” Gümüşhane University Institute of Social Sciences Electronic Journal Vol 7 No 17: 249-263