A universally beloved brand is priceless. But a well-loved and well-hated brand may be worthless, at least when it comes to stock prices, a new study has found.
Researchers looked at the dispersion of brand ratings by consumers and analyzed the impact on stock returns. Brands with millions of devoted followers and a similar number of devoted haters actually have lower stock returns relative to the firm's own past performance, according to research by Xueming Luo of Temple University, Sascha Raithel of Ludwig Maximilian University of Munich and Michael Wiles, assistant professor of marketing at the W.P. Carey School of Business at Arizona State University.
"On the flip side, the good thing is that it can lower the firm's risk compared to the industry average," says Wiles.
Why is that?
A polarizing brand may inspire fervent haters, but the lovers are equally devoted.
Attracting hordes of lovers and haters "leads firms' future revenues to be more predictable. If people love the brand you can reliably count on them to keep buying the brand. You can recognize that (the people who hate your brand) aren't going to buy your products at all," Wiles says.
Love-it-or-hate-it brands, as the study calls them, tend to attract fewer fickle, middle-of-the road customers "who might shift back and forth among brands," says Wiles.
How can investors benefit?
Consumer brand ratings are a big business for marketers, and small investors may find that the research on brand dispersion is too costly to be practical. But there are indirect ways of monitoring how people feel about brands -- on social media, for instance.
"Increased social media buzz would suggest that brand is becoming more polarized," says Wiles.
As brand enthusiasm grows along with animosity, investors could see the stock values go down.
What do you think, is brand perception a consideration when making investments?
Read more about this phenomenon in an interview with Michael Wiles: Why polarizing brands won't make you rich.
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Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.