The primary focus of brand equity research has been on how brand knowledge creates value for firms through customer behavior in product markets. Using archival data and five experiments, this article tests a framework that outlines the unique role brands play in the labor market. The framework distinguishes between vertical and horizontal differentiation and shows that vertical brand differentiation is associated with lower pay, whereas horizontal brand differentiation is associated with higher pay. Employees are also vertically and horizontally differentiated, and firms high in horizontal brand differentiation pay more for employees who match their brands’ differentiating characteristics (i.e., brand-relevant complementarities). Results show that these brand–pay relationships have important downstream effects on employee behavior and, consequently, on firm profits. Specifically, leveraging vertical brand differentiation to lower pay represents a false economy because profits are attenuated by negative effects on employee productivity and retention. In contrast, when managers at firms high on horizontal brand differentiation pay more, profits increase via the same mediating employee behaviors. Six firm strategies and investments that influence firm bargaining power in the employee–brand matching process are found to moderate the brand–pay relationship and downstream effects on profits.
AkerlofGeorge A.YellenJanet L. (1986), Efficiency Wage Models of the Labor Market. Cambridge University Press.
2.
AkerlofGeorge A.YellenJanet L. (1990), “The Fair Wage-Effort Hypothesis and Unemployment,” Quarterly Journal of Economics, 105 (2), 255–83.
3.
BalachanderSubramanianStockAxel (2009), “Limited Edition Products: When and When Not to Offer Them,” Marketing Science, 28 (2), 336–55.
4.
BeckerGary S. (1964), Human Capital. Columbia University Press.
5.
BergerJonahHeathChip (2007), “Where Consumers Diverge from Others: Identity-Signaling and Product Domains,” Journal of Consumer Research, 34 (2), 121–34.
6.
BhattacharyaAbhiMorganNeil A.RegoLopo L. (2022), “Examining Why and When Market Share Drives Firm Profit,” Journal of Marketing, 86 (4), 73–94.
7.
BidwellMatthewWonShinjaeBarbulescuRoxanaMollickEthan (2015), “I Used to Work at Goldman Sachs! How Firms Benefit from Organizational Status in the Market for Human Capital,” Strategic Management Journal, 36 (8), 1164–73.
8.
BijmoltTammo H.A.WedelMichelPietersRik G.MDeSarboWayne S. (1998), “Judgments of Brand Similarity,” International Journal of Research in Marketing, 15 (3), 249–68.
9.
BronnenbergBart J.DubéJean-PierreMoorthySridhar (2019), “The Economics of Brands and Branding,” in Handbook of the Economics of Marketing, Vol. 1, DubéJean-PierreRossiPeter E., eds. North-Holland, 291–358.
10.
BucklinLouis P. (1978), Productivity in Marketing. American Marketing Association.
CableDaniel M.TurbanDaniel B. (2003), “The Value of Organizational Reputation in the Recruitment Context: A Brand-Equity Perspective,” Journal of Applied Social Psychology, 33 (11), 2244–66.
13.
CampbellBenjamin A.CoffRussellKryscynskiDavid (2012), “Rethinking Sustained Competitive Advantage from Human Capital,” Academy of Management Review, 37 (3), 376–95.
14.
CascioWayne F. (1982), Costing Human Resources. Kent Publishing Company.
15.
CelsiRichard L.OlsonJerry C. (1988), “The Role of Involvement in Attention and Comprehension Processes,” Journal of Consumer Research, 15 (2), 210–24.
CollinsChristopher J. (2007), “The Interactive Effects of Recruitment Practices and Product Awareness on Job Seekers’ Employer Knowledge and Application Behaviors,” Journal of Applied Psychology, 92 (1), 180–90.
18.
CollinsChristopher J.HanJian (2004), “Exploring Applicant Pool Quantity and Quality: The Effects of Early Recruitment Practice Strategies, Corporate Advertising, and Firm Reputation,” Personnel Psychology, 57 (3), 685–717.
19.
DattaHannesAilawadiKusum L.van HeerdeHarald J. (2017), “How Well Does Consumer-Based Brand Equity Align with Sales-Based Brand Equity and Marketing Mix Response?” Journal of Marketing, 81 (3), 1–20.
20.
DeciEdward L.KoestnerRichardRyanRichard M. (1999), “A Meta-Analytic Review of Experiments Examining the Effects of Extrinsic Rewards on Intrinsic Motivation,” Psychological Bulletin, 125 (6), 627–68.
21.
DelVecchioDevonJarvisCheryl B.KlinkRichard R.DineenBrian R. (2007), “Leveraging Brand Equity to Attract Human Capital,” Marketing Letters, 18 (3), 149–64.
22.
DesaiPreyas (2001), “Quality Segmentation in Spatial Markets: When Does Cannibalization Affect Product Line Design,” Marketing Science, 20 (3), 265–83.
23.
DommerSara LoughranSwaminathanVanithaAhluwaliaRohini (2013), “Using Differentiated Brands to Deflect Exclusion and Protect Inclusion: The Moderating Role of Self-Esteem on Attachment to Differentiated Brands,” Journal of Consumer Research, 40 (4), 657–75.
24.
DonthuNaveenYooBoonghee (1998), “Retail Productivity Assessment Using Data Envelopment Analysis,” Journal of Retailing, 74 (1), 89–105.
25.
DouttJefferey T. (1984), “Comparative Productivity Performance in Fast-Food Retail Distribution,” Journal of Retailing, 60 (3), 98–106.
26.
EckertChristinevan HeerdeHarald J.WetzelHauke A.HatulaStefan (2022), “Spotlight Personnel: How Hiring and Turnover Drive Service Performance Versus Demand,” Journal of Marketing Research, 59 (4), 797–820.
27.
EeckhoutJan (2018), “Sorting in the Labor Market,” Annual Review of Economics, 10, 1–29.
28.
EeckhoutJanKircherPhilipp (2018), “Assortative Matching with Large Firms,” Econometrica, 86 (1), 85–132.
GalizziMonicaLangKevin (1998), “Relative Wages, Wage Growth, and Quit Behavior,” Journal of Labor Economics, 16 (2), 367–91.
31.
GelbBetsy DuBoisRangarajanDeva (2014), “Employee Contributions to Brand Equity,” California Management Review, 56 (2), 95–112.
32.
GibbonsRobertWaldmanMichael (2004), “Task-Specific Human Capital,” American Economic Review, 94 (2), 203–07.
33.
HargensLowell L.HagstromWarren O. (1982), “Scientific Consensus and Academic Status Attainment Patterns,” Sociology of Education, 55 (4), 183–96.
34.
HayesAndrew F. (2013), Introduction to Mediation, Moderation, and Conditional Process Analysis. Guilford.
35.
HayesAndrew F. (2015), “An Index and Test of Linear Moderated Mediation,” Multivariate Behavioral Research, 50 (1), 1–22.
36.
HighhouseScottThornburyErin E.LittleIan S. (2007), “Social-Identity Functions of Attraction to Organizations,” Organizational Behavior and Human Decision Processes, 103 (1), 134–46.
37.
HotellingHarold (1929), “Stability in Competition,” Economic Journal, 39 (153), 41–57.
38.
JiangKaifengLepakDavid P.HuJiaBaerJudith C. (2012), “How Does Human Resource Management Influence Organizational Outcomes? A Meta-Analytic Investigation of Mediating Mechanisms,” Academy of Management Journal, 55 (6), 1264–94.
39.
KamakuraWagner A.RatchfordBrian T.AgrawalJagdish (1988), “Measuring Market Efficiency and Welfare Loss,” Journal of Consumer Research, 15 (3), 289–302.
40.
KellerKevin L. (1993), “Conceptualizing, Measuring, and Managing Customer-Based Brand Equity,” Journal of Marketing, 57 (1), 1–22.
41.
Kristof-BrownAmy L. (2000), “Perceived Applicant Fit: Distinguishing Between Recruiters’ Perceptions of Person-Job and Person-Organization Fit,” Personnel Psychology, 53 (3), 643–71.
42.
LancasterKelvin J. (1979), Variety, Equity, and Efficiency. Columbia University Press.
43.
LarkinYelena (2013), “Brand Perception, Cash Flow Stability, and Financial Policy,” Journal of Financial Economics, 110 (1), 232–53.
44.
LeeSanghoon (2014), “The Relationship Between Growth and Profit: Evidence from Firm-Level Panel Data,” Structural Change and Economic Dynamics, 28, 1–11.
45.
LeeNahBollingerBryanStaelinRichard (2023), “Vertical Versus Horizontal Variance in Online Reviews and Their Impact on Demand,” Journal of Marketing Research, 60 (1), 130–54.
46.
LiuPeggy J.McFerranBrentHawsKelly L. (2020), “Mindful Matching: Ordinal Versus Nominal Attributes,” Journal of Marketing Research, 57 (1), 134–55.
47.
LovettMitchell J.PeresRenanaShacharRon (2013), “On Brands and Word of Mouth,” Journal of Marketing Research, 50 (4), 427–44.
48.
LovettMitchell J.PeresRenanaShacharRon (2014), “A Data Set of Brands and Their Characteristics,” Marketing Science, 33 (4), 609–17.
49.
LucasRobert E.B. (1977), “Hedonic Wage Equations and Psychic Wages in the Returns to Schooling,” American Economic Review, 67 (4), 549–58.
50.
LuoXuemingHomburgChristianWiesekeJan (2010), “Customer Satisfaction, Analyst Stock Recommendations, and Firm Value,” Journal of Marketing Research, 47 (6), 1041–58.
51.
LynnFreda B.PodolnyJoel M.TaoLin (2009), “A Sociological (De)Construction of the Relationship Between Status and Quality,” American Journal of Sociology, 115 (3), 755–804.
52.
MackeyAlisonMolloyJanice C.MorrisShad S. (2014), “Scarce Human Capital in Managerial Labor Markets,” Journal of Management, 40 (2), 399–421.
53.
MathwickCharla (2017), “Business Model Innovation at Wildfang,” HBS No. NA0460. Harvard Business School Publishing.
54.
MayerKyle J.SomayaDeepakWilliamsonIan O. (2012), “Firm-Specific, Industry-Specific, and Occupational Human Capital and the Sourcing of Knowledge Work,” Organization Science, 23 (5), 1311–29.
55.
MizikNatalie (2014), “Assessing the Total Financial Performance Impact of Brand Equity with Limited Time-Series Data,” Journal of Marketing Research, 51 (6), 691–706.
MurphyGregory L.WrightJack C. (1984), “Changes in Conceptual Structure with Expertise: Differences Between Real-World Experts and Novices,” Journal of Experimental Psychology: Learning, Memory, and Cognition, 10 (1), 144–55.
60.
OrdabayevaNailyaFernandesDaniel (2018), “Better or Different? How Political Ideology Shapes Preferences for Differentiation in the Social Hierarchy,” Journal of Consumer Research, 45 (2), 227–50.
61.
PetrinAmilTrainKenneth (2010), “A Control Function Approach to Endogeneity in Consumer Choice Models,” Journal of Marketing Research, 47 (1), 3–13.
62.
PietersRik (2017), “Meaningful Mediation Analysis: Plausible Causal Inference and Informative Communication,” Journal of Consumer Research, 44 (3), 692–716.
63.
RaffDaniel M.G.SummersLawrence H. (1987), “Did Henry Ford Pay Efficiency Wages?” Journal of Labor Economics, 5 (4), S57–86.
64.
RiveraLauren A. (2012), “Hiring as Cultural Matching: The Case of Elite Professional Service Firms,” American Sociological Review, 77 (6), 999–1022.
65.
SchmidtFrank L.HunterJohn E. (1998), “The Validity and Utility of Selection Methods in Personnel Psychology: Practical and Theoretical Implications of 85 Years of Research Findings,” Psychological Bulletin, 124 (2), 262–74.
66.
SirianniNancy J.BitnerMary JoBrownStephen W.MandelNaomi (2013), “Branded Service Encounters: Strategically Aligning Employee Behavior with the Brand Positioning,” Journal of Marketing, 77 (6), 108–23.
SpillerStephen A.BelogolovaLena (2017), “On Consumer Beliefs About Quality and Taste,” Journal of Consumer Research, 43 (6), 970–91.
69.
StahlFlorianHeitmannMarkLehmannDonald R.NeslinScott A. (2012), “The Impact of Brand Equity on Customer Acquisition, Retention, and Profit Margin,” Journal of Marketing, 76 (4), 44–63.
70.
SteenkampJan-Benedict E.M. (1990), “Conceptual Model of the Quality Perception Process,” Journal of Business Research, 21 (4), 309–33.
71.
StengelJim (2011), Grow: How Ideals Power Growth and Profit at the World’s 50 Greatest Companies. Crown Business.
72.
TavassoliNader T.SorescuAlinaChandyRajesh (2014), “Employee-Based Brand Equity: Why Firms with Strong Brands Pay Their Executives Less,” Journal of Marketing Research, 51 (6), 676–90.
73.
TaylorJeannetteTaylorRanald (2011), “Working Hard for More Money or Working Hard to Make a Difference? Efficiency Wages, Public Service Motivation, and Effort,” Review of Public Personnel Administration, 31 (1), 67–86.
74.
TiroleJean (1988), The Theory of Industrial Organization. MIT Press.
75.
VombergArndHomburgChristianBornemannTorsten (2015), “Talented People and Strong Brands: The Contribution of Human Capital and Brand Equity to Firm Value,” Strategic Management Journal, 36 (13), 2122–31.
76.
WeissAndrew (2014), Efficiency Wages: Models of Unemployment, Layoffs, and Wage Dispersion. Princeton University Press.
77.
WellerIngoHymerChristina B.NybergAnthony J.EbertJulia (2019), “How Matching Creates Value: Cogs and Wheels for Human Capital Resources Research,” Academy of Management Annals, 13 (1), 188–214.
78.
WooldridgeJeffrey M. (2015), Introductory Econometrics: A Modern Approach. Cengage Learning.
79.
YangYupinShiMengzeGoldfarbAvi (2009), “Estimating the Value of Brand Alliances in Professional Team Sports,” Marketing Science, 28 (6), 1095–1111.
80.
ZaichkowskyJudith Lynne (1985), “Meausring the Involvement Construct,” Journal of Consumer Research, 12 (3), 341–52.
81.
ZhaoXinshuLynch Jr.John G.ChenQimei (2010), “Reconsidering Baron and Kenny: Myths and Truths About Mediation Analysis,” Journal of Consumer Research, 37 (2), 197–206.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
