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Brand orientation in small firms: an

empirical test of the impact on brand
performance
a a
Saku Hirvonen & Tommi Laukkanen
a
Department of Business , University of Eastern Finland ,
Joensuu , Finland
Published online: 18 Sep 2013.

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Brand orientation in small firms: an empirical test of the impact on brand performance, Journal of
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 Journal of Strategic Marketing, 2013
http://dx.doi.org/10.1080/0965254X.2013.819372

Brand orientation in small firms: an empirical test of the impact

on brand performance
Saku Hirvonen* and Tommi Laukkanen

Department of Business, University of Eastern Finland, Joensuu, Finland

(Received 7 April 2013; accepted 21 June 2013)
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Increasing attention has been paid to the concept of brand orientation over the last
decade. However, research on brand orientation in small firms is only in its infancy, the
present study being among the first contributions to this emerging stream of research. An
empirical dataset of 255 responses from small service firms operating in Finland is used
to test a model of the performance effects of brand orientation in the small business
context. In addition, the moderating effects of internal branding are investigated.
Confirmatory factor analysis is used in validating the constructs. The research
hypotheses are tested using structural equation modeling. The results show a positive
relationship between brand orientation and brand performance. However, brand
orientation does not have a direct effect on performance, but instead the effect is fully
mediated by brand identity. Interestingly, internal branding does not moderate any of the
paths in the conceptual model.
Keywords: brand orientation; brand performance; brand identity; internal branding;
small firms; moderation; mediation

Introduction
The central tenet of contemporary branding theory suggests that the brand should be
included in a firm’s strategic planning processes. This approach has been referred to as
brand orientation (Gromark & Melin, 2011). The seminal papers on brand orientation
describe how firms should perceive their brands as strategic resources rather than
operational marketing tools (Urde, 1994, 1999). However, in many small firms, such an
orientation toward branding is a low priority. Although small and medium-sized enterprises
(SMEs) ‘do something about brand management’, many of them still perceive branding ‘to
be far from a high priority issue’ (Krake, 2005, p. 230). Often, developing a strong brand is
not made an explicit goal (Krake, 2005) nor is brand performance systematically monitored
(Horan, O’dwyer, & Tiernan, 2011). SMEs rather adopt a ‘survival mentality’ (Berthon,
Ewing, & Napoli, 2008). That is, they stress daily operations and short-term sales over
brands simply to keep the business running (Krake, 2005; Ojasalo, Nätti, & Olkkonen,
2008; Wong & Merrilees, 2005). Small firms also seem reluctant to turn down customer
calls of any kind as it would mean reduced sales and profits. Such an approach contradicts
with the central idea of brand orientation as a mindset that regards brands as strategic
resources instead of unconditional responses to customers’ wants and needs (Urde, 1999).
More attention thus needs to be paid to the ways by which small firms come to manage
their brands strategically. However, to date, little has been written about brand orientation
in small businesses (Reijonen, Laukkanen, Komppula, & Tuominen, 2012). We argue that
as long as small firms remain unaware of whether brand orientation contributes to their

*Corresponding author. Email: saku.hirvonen@uef.fi

q 2013 Taylor & Francis

 2 S. Hirvonen and T. Laukkanen

brand performance, and what it requires from them, the probability that they keep
emphasizing a short-term business focus remains high. Making a commitment to invest in
branding represents a major risk and source of uncertainty for small firms if no adequate
information is available. This study endeavors to shed light on these questions.
The objective is to investigate how brand orientation affects brand performance in the
small business context. The study furthermore examines how brand orientation relates to
brand identity and whether internal branding moderates these relationships. This allows us
to see if there are mediators and/or moderators affecting the performance effects of brand
orientation. To this end, a structural model is developed and empirically tested. We limit
our investigation to small firms. Small firms represent an interesting subject of enquiry as
it has been found that it is the smallest firms which find marketing unsuited to their
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businesses (Reijonen, 2010). We adopt the official definition proposed by the European
Commission, according to which small businesses represent those firms that employ fewer
than 50 persons and have annual turnover and/or balance sheet total less than e10 million.
The rest of the paper unfolds as follows. The next section discusses the concept of
brand orientation and the three brand management constructs related to it, namely brand
performance, brand identity, and internal branding. A conceptual model of small business
brand orientation and the research hypotheses are then developed, followed by a
discussion on data collection and the sample. Finally, results are presented, conclusions
drawn and future research agendas proposed.

Literature review
Brand orientation
Brand orientation has been defined as:
an approach in which the processes of the organization revolve around the creation,
development, and protection of brand identity in an ongoing interaction with target customers
with the aim of achieving lasting competitive advantages in the form of brands. (Urde, 1999,
p. 117)
It has been suggested to serve as a framework for the creation, development, and ongoing
management of the brand (Merrilees, 2005). Wong and Merrilees (2005) argue that brand-
oriented firms consider branding as a significant issue in all business decisions. They
formally define brand orientation as ‘the extent to which the marketing strategy and
activities are centred on the brand’ (2005, p. 157). A broader definition is offered by
Hankinson (2001a), who refers to brand orientation as ‘the extent to which the organisation
regards itself as a brand’ (p. 232). She states that brand orientation indicates the acceptance
of the theory and practice of branding.
Brand orientation rests on the market orientation concept (Baumgarth, 2010;
Mulyanegara, 2011; Reid, Luxton, & Mavondo, 2005; Wong & Merrilees, 2007).
However, it has been suggested to go one step further than market orientation as it
considers the role of brand in achieving market leadership (Simões & Dibb, 2001). It has
been referred to as market orientation plus (Urde, 1999) or a specific type of marketing
orientation which stands out because of the greater strategic importance attached to brands
(Baumgarth, 2010). Others have suggested brand orientation to represent an inside-out
approach, according to which brand development should be guided by the vision, mission,
and values of an organization (Urde, Baumgarth, & Merrilees, 2013). This contrasts with
the market orientation paradigm of placing the customer perspective at the center of
company operations (e.g. Kohli & Jaworski, 1990; Narver & Slater, 1990). Although
 Journal of Strategic Marketing 3

paying attention to customer needs is still considered important, the way and the extent to
which these needs are reacted to become reliant on the brand. Brand-oriented firms are said
to use the brand as a framework within which customer needs are satisfied (Urde, 1999).
Researchers have approached brand orientation from two perspectives, namely
philosophical and behavioral (Urde et al., 2013). Brand orientation as a philosophy is said
to exhibit organizational values, beliefs, and attitudes toward branding, whereas the
behavioral perspective focuses on the extent to which a firm’s marketing practices support
the brand. However, the behavioral perspective has recently been criticized for failing to
acknowledge that the brand must first be established at the philosophical level (Evans,
Bridson, & Rentschler, 2012).
The recent studies by Baumgarth (2010) and Evans et al. (2012) address the problems
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connected to the behavioral perspective. Baumgarth (2010) identifies four layers of brand
orientation, namely values, norms, artifacts, and behaviors. Brand-oriented values are
presented as the basis of brand supporting behaviors. Evans et al. (2012, p. 1471) similarly
suggest that values affect behaviors, referring to brand orientation as ‘the extent to which
the organization embraces the brand at a cultural level and uses it as a compass for
decision-making to guide brand behaviors’. Wong and Merrilees (2008) also refer to the
philosophical perspective, defining brand orientation as a mindset.

Brand performance
Brand performance has been defined by Wong and Merrilees (2008) as the success of a
brand within the market. Brand image, brand awareness, customer brand loyalty, and
brand reputation are identified as factors pertaining to the concept. This definition is akin
to the concept of customer-based brand equity (e.g. Aaker, 1996; Keller, 1993). For
instance, Aaker (1996) conceptualizes customer-based brand equity as a four-dimensional
construct comprising loyalty, perceived quality, associations, and brand awareness. Yoo
and Donthu (2001) argue that brand equity refers to the difference in customers’ response
between two identical offerings, of which one carries a brand name, while the other is
unbranded.
Researchers have also measured brand success from a financial perspective. This
perspective is referred to as company-based brand equity. Wood (2000) notes that
company-based performance measures are often used for accounting purposes rather than
marketing diagnostics. It is widely agreed that customer-based brand equity drives a
brand’s financial performance (e.g. Ailawadi, Lehmann, & Neslin, 2003; Keller, 1993;
Lassar, Mittal, & Sharma, 1995). Keller (1993) goes as far as to argue that if no underlying
value for the brand (i.e. customer-based brand equity) has been created, it makes little
sense to focus on financial issues. Thus, in this paper, we adopt brand performance as the
primary performance metric for use in our empirical study.

Brand identity
Brand identity has been defined by Ghodeswar (2008, p. 5) as ‘a unique set of brand
associations implying a promise to customers and includes a core and extended identity’.
This definition resembles the one by Aaker and Joachimsthaler (2002), who divide the
brand identity construct into three layers, namely core identity, extended identity, and
brand essence. The core identity is suggested to reflect the strategy and values of the
organization, whereas the extended identity adds texture and completeness. Brand essence
in turn refers to a single thought that captures the soul of the brand.
 4 S. Hirvonen and T. Laukkanen

Another attempt to delineate what constitutes a brand is reported by De Chernatony

and Dall’Olmo Riley (1998). Their ‘double vortex’ brand model shows how ‘inside the
firm, managers craft their brand by deciding on its vision, mission and its associated
values, blended with the firm’s culture and heritage’ (1998, p. 1086). Both tangible (e.g.
name) and intangible elements (e.g. values) are highlighted. Furthermore, it is argued that
brand identity elements should be developed and applied in a sequential order. Developing
brand identity begins by drafting a brand vision and defining brand values (De Chernatony
& Dall’Olmo Riley, 1998; Harris & De Chernatony, 2001; Keller, 2003). De Chernatony
(1999) suggests that the brand’s vision and culture drive its positioning, personality, and
subsequent relationships (e.g. with customers). Brand identity elements should also be
congruent in order for the brand to be successful. Kapferer (1997), for example, argues that
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brand values should determine the appearance of tangible brand symbolism visible to
customers (e.g. brand logo and name).
Brand identity targets two audiences. First, it guides employee behaviors.
According to Aaker and Joachimsthaler (2002), brand identity creates a focus for the
organization. It comes to characterize the way an organization thinks and acts, leading a
firm’s employees to pay attention to the level of congruence between their behaviors
and the wanted brand image. Second, brand identity connects the firm to its customers.
Brand identity offers customers a base on which they can start building a relationship
with the brand. Customers are said to create an emotional bond to brands, especially
through the values the brand represents (Urde, 2003). Moreover, besides making a
promise to the customers, brand identity aims at differentiating the brand from the
competitors.

Internal branding
Internal branding refers to coordinated programs aimed at educating and training
employees on the brand message and how to incorporate it in their work (Aurand,
Gorchels, & Bishop, 2005). It has been found to enhance employees’ brand commitment,
brand identification, and brand loyalty, as well as brand supporting behavior among
employees (Punjaisri, Evanschitzky, & Wilson, 2009). Internal branding is especially
important for service brands since the customer service personnel serve as the
human face of the brand (King & Grace, 2006; Papasolomou & Vrontis, 2006; Punjaisri
et al., 2009).
Two-way communication, daily briefing, group meetings, notice boards, and corporate
magazines are suggested as means of communicating the brand message to employees
(Punjaisri et al., 2009). Henkel, Tomczak, Heitmann, and Herrmann (2007) further note
that both formal (e.g. written instructions) and informal control mechanisms (e.g.
discussions between managers and employees) have a role to play in enhancing
employees’ brand supporting behaviors. Henkel and colleagues also highlight the
importance of employee empowerment. De Chernatony and Cottam (2006) likewise
discuss the level of freedom employees should have, and propose that a certain level of
freedom is necessary in order for the employees to be able to act appropriately in situations
that need to be addressed in different ways. Furthermore, internal branding should not
solely be the responsibility of the marketing people. Internal branding activities should
cover all human resource activities from employee recruitment to creating incentives for
existing employees (Aurand et al., 2005; Henkel et al., 2007). De Chernatony and Cottam
(2009) argue that marketing, human resource, and customer service personnel must work
together for higher brand performance.
 Journal of Strategic Marketing 5

Conceptual model and research hypotheses

Small business brand orientation
The conceptual model (Figure 1) proposes that brand orientation refers to the mindset of
an organization, placing the brand at the core of the business strategy and serving as an
initiator for brand identity development (Urde, 1999; Wong & Merrilees, 2008). Brand
orientation delineates the focus of an organization, and accordingly has wide-ranging
effects on the way a business is developed. The initiative for brand orientation originates
from managers’ understanding of and attitudes to branding (Baumgarth, 2010). This is
especially the case in small firms, where the owner/manager plays a major role in all
branding-related decisions (Centeno, Hart, & Dinnie, 2013; Krake, 2005).
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The model distinguishes between mindset issues (brand orientation), brand

management behaviors (brand identity, internal branding), and performance (brand
performance). That is, we conceptualize brand orientation from the philosophical
perspective while suggesting that the behavioral perspective is best defined through brand
management terminology. Following the recent study by Evans et al. (2012), it is argued in
this study that the behavioral perspective fails to pay adequate attention to the question of
whether the brand is indeed the driver of company operations. More emphasis should be
placed on ascertaining what is needed for branding activities to take place in such a way
that no act of brand management conflicts with the long-term objectives of the brand.
This conceptualization is further influenced by an appreciation of the characteristics of
small firms. The marketing operations of small firms are often haphazard and informal
(Gilmore, Carson, & Grant, 2001) and oriented toward tactics more than strategies
(Reijonen, 2010). Consequently, small firms that employ different brand management
practices may not have developed a ‘true’ brand orientation, but instead find branding a
tactical tool useful in responding to market changes and customer needs. As customer
needs change, so does brand identity. However, when these firms develop a brand-oriented
mindset, they approach brand management from a long-term perspective. A brand-
oriented mindset ensures that small businesses employing different means of branding

Brand orientation Brand management Brand performance

(Mindset) (Behaviors) (Performance effects)

Internal
branding

H4
H5 H6
Brand H1 Brand
Orientation Performance
H2 H3

Brand
Identity

Ensuring long-term orientation Implementing brand orientation Concretizing the benefits

Figure 1. Conceptual model of small business brand orientation.

 6 S. Hirvonen and T. Laukkanen

coordinate their efforts in such a way that the long-term objectives of the brand are not
jeopardized.

Brand orientation and brand performance (H1)

Brand orientation provides the company with a general understanding of how to manage
business processes in a manner supportive of the brand. The generally accepted view in the
branding literature supports the idea that brands are vital success factors. When managing
brands as a strategic success factor, companies may even sacrifice short-term profits in
order to achieve their long-term brand objectives (Urde, 1999). Thus, companies develop
their brands with an understanding of what is best for the brand in the long term. It has
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been argued by M’zungu, Merrilees, and Miller (2010) that both creating and protecting
brand equity begin with a brand-oriented mindset. Recent studies report that brand
orientation positively affects brand performance (Hankinson, 2012; Wong & Merrilees,
2008). Hence:
H1: Brand orientation has a positive effect on brand performance.

Brand orientation and brand identity (H2)

The concept of brand identity is central to brand-oriented businesses (Reid et al., 2005).
According to Urde (1999, p. 117), brand orientation is ‘an approach in which the processes
of the organization revolve around the creation, development, and protection of brand
identity’. Brand identity can be seen to translate the positive attitudes of managers into
greater concreteness. Indeed, Wong and Merrilees (2005) argue that a brand-oriented
mindset of the manager sets the strategic direction for an organization, yet needs to be put
into practice. Baumgarth (2010) suggests that after establishing brand-oriented values (i.e.
determining the role of the brand in strategy development), firms need to formulate and
disseminate brand-oriented norms and artifacts. He defines brand-oriented norms as
explicit and/or implicit rules guiding the brand strategy execution, and artifacts as brand
symbolism reinforcing the norms and thus facilitating their adoption within the
organization. Brand-oriented norms and artifacts can be used to advise employees on the
way they are supposed to act. Supportive to this is the observation by Urde et al. (2013)
that brand-oriented firms use the brand identity as their ‘guiding light’. Hence:
H2: Brand orientation has a positive effect on brand identity.

Brand identity and brand performance (H3)

The conceptual model also suggests that brand identity has a positive effect on brand
performance. The essence of brand identity centers on brand values (Keller, 2003) through
which the customers create an emotional bond with the brand (Urde, 2003). Brand identity
can improve customer loyalty, trust, and commitment (Ghodeswar, 2008). Madhavaram,
Badrinarayanan, and McDonald (2005) similarly suggest that brand identity has a positive
effect on brand equity. Brand identity also offers employees behavioral guidelines on how
they should act (Aaker & Joachimsthaler, 2002; De Chernatony, 1999). Failure to create a
brand identity makes it difficult to maintain coherence in brand communications, create a
close personal bond with the customers, and ultimately improve brand performance. Thus:
H3: Brand identity has a positive effect on brand performance.
 Journal of Strategic Marketing 7

Moderation effects: internal branding (H4, H5, H6)

Finally, it is argued that the effect of brand orientation on both brand performance and
brand identity, along with the effect of brand identity on brand performance, can be further
enhanced through internal branding. Internal branding is crucial especially for service firms
as the strength of a service brand depends on the service employees and their actions during
service encounters (King & Grace, 2006; Punjaisri et al., 2009). Lacking organization-wide
commitment to the brand is detrimental to external brand consistency and consequently to
brand performance (De Chernatony & Cottam, 2006). Internal branding facilitates the
adoption of brand identity within the organization and the general acceptance of the
branding ideology (M’zungu et al., 2010). Greater employee involvement may also
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contribute to the development of brand identity (Papasolomou & Vrontis, 2006). Through
internal branding a company can ensure that the employees understand, are committed and
loyal to the brand, and thus act in a manner consistent with the intended brand image (Harris
& De Chernatony, 2001; Henkel et al., 2007). Aurand et al. (2005) argue that firms achieve
their greatest advantages when employee actions and brand identity reinforce each other.
Hence:
H4: Internal branding moderates the effect of brand orientation on brand performance.
H5: Internal branding moderates the effect of brand orientation on brand identity.
H6: Internal branding moderates the effect of brand identity on brand performance.

Methodology
Sampling frame
The sampling frame included all the fitness (gyms, fitness centers, and fitness clubs) and
physiotherapy firms operating in Finland which had reported their e-mail addresses to
public online registers. Besides being categorized as small businesses, these firms have
other characteristics that make them interesting subjects for research. Fitness and
physiotherapy services are in a situation where the branding decisions will largely
determine the future of the firms. Demand for fitness and wellness services is growing
rapidly (Afthinos, Theodorakis, & Nassis, 2005; Lam, Zhang, & Jensen, 2005). However,
at the same time, firms offering these services have to compete ever harder for customers’
time and money with a number of providers both inside and outside their immediate field
of operation. Moreover, customer retention is a problem, especially in the fitness industry
(Kniveton, 2005).

Questionnaire development
The questionnaire (Table 1) comprised 27 items used for measuring brand orientation
(v1 – v5), brand performance (v6– v11), brand identity (v12 –v19), and internal branding
(v20 – v27). A seven-point Likert scale with opposite ends denoting totally disagree (1) and
totally agree (7) was used throughout the questionnaire for recording responses.
The five-item brand orientation scale was derived from the work of Wong and
Merrilees (2008). It captures the core of brand orientation well as it stresses the strategic
importance associated with the brand. Brand performance was also measured using the
scale by Wong and Merrilees (2008). The scale addresses such strategic achievements of a
brand as loyalty and reputation. The brand performance scale was supplemented by two
items extracted from Henkel et al. (2007). Furthermore, one of the items (‘we are very
satisfied with our brand marketing’) developed by Wong and Merrilees (2008) was
 8 S. Hirvonen and T. Laukkanen

Table 1. Measure items in the questionnaire.

Construct Source
Brand orientation
1 1
v1 Branding is essential to our strategy Wong and Merrilees (2008)
1
v2 Branding flows through all our
marketing activities
1
v3 Branding is essential in running this
company
1
v4 Long-term brand planning is critical
to our future success
1
v5 The brand is an important asset for us
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Brand performance
1 1
v6 We have developed the desired brand Wong and Merrilees (2008)
image in the market v6: ‘Our advertising/promotions create
1
v7 Our firm has built a strong brand the desired brand image in the market’
2
awareness in the target market Henkel et al. (2007)
1
v8 Our firm has built a solid reputation v10: ‘Because of our brand customers
1
v9 Our firm has built strong customer are interested in new products of our
brand loyalty company’
2
v10 Our brand image helps us in v11: ‘Because of our brand the costs for
launching new services acquiring new customers are low’
2
v11 Our brand image helps us in
acquiring new customers
Brand identity
1 1
v12 We have differentiated our brand Wong and Merrilees (2008)
from the competitors v12: ‘Our products/services are differ-
v13 * We have created a brand that is entiated from those of the competitors’
personal and memorable v14/v15: ‘We know where we are
1
v14 We know where we are heading in heading in the future and how to market
the future the business to get there’
1 2
v15 We know what needs to be done to Hankinson (2001b)
achieve our future goals v16: ‘A charity brand is an expression of
2
v16 Our brand represents the values of what the charity does and the values it
our organization represents’
v17 * Our marketing is guided by our v19: ‘The charity’s name and logo
brand values should reflect what the charity does and
v18 * We strive for the integration of our the values it represents’
marketing activities * New item
2
v19 Our office layout, logo, and clothing v13: Brand personality is an element of
represent our brand values brand identity (Aaker & Joachimsthaler,
2002; De Chernatony, 1999; Kapferer,
1997)
v17: Brand identity centers on brand
values (Aaker & Joachimsthaler, 2002;
Keller, 2003; Urde, 2003)
v18: Brand elements have to be
consistent (Kapferer, 1997)
Internal branding
1 1
v20 Our employees are informed of our Aurand et al. (2005)
brand values v20: The (brand) values are reinforced
2
v21 We regularly discuss branding in our through internal communications
company v24: The skill set necessary to deliver
2
v22 We counsel our employees in these values is considered in staffing
branding issues decisions
(continued)
 Journal of Strategic Marketing 9

Table 1. (Continued)

Construct Source
2
v23 We encourage our employees to v25: Annual performance reviews
improve the brand consistency of their include metrics on delivering the values
2
behavior Henkel et al. (2007)
1
v24 Brand values influence staffing and
recruitment decisions
1
v25 We review our employees’ behavior
as a part of our branding process
2
v26 We allow our employees a high
degree of initiative when dealing with
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our customers
2
v27 We are confident that our employees
support the brand message when
dealing with our customers

excluded from the questionnaire because it was not considered to measure brand
performance per se.
With regard to brand identity, no existing scale was considered perfectly suitable.
Brand identity is suggested to differentiate the brand from the competitors and to make a
promise to the customers (Aaker & Joachimsthaler, 2002; Ghodeswar, 2008). Brand
vision, mission, and values (De Chernatony & Dall’Olmo Riley, 1998), as well as
personality (Aaker & Joachimsthaler, 2002) and visual or otherwise concrete elements
(Keller, 2003) contribute to brand identity. In order to cover the various elements that
make up brand identity, as well as the fact that they need to work together (De Chernatony,
1999; Kapferer, 1997), the third, eight-item brand identity scale included either
completely new items or variations of existing items derived from the literature. Finally,
the internal branding scale incorporated items from Aurand et al. (2005) and Henkel et al.
(2007), addressing such topics as internal communications, motivation, empowerment,
and recruitment policies.
The questionnaire was pre-tested by reviewing it with the owner-managers of two
physiotherapy firms and also several industry outsiders in order to ensure that each item
was sufficiently accessible for those respondents with limited understanding of marketing
terminology. Some item wordings were reformulated on the basis of the feedback
received, but the overall structure of the questionnaire remained unchanged. Table 1
summarizes the measurement items and their sources. We also report original items in
cases where the modifications to the wording can be regarded as more than minor.

Data collection
A cover letter with an accompanying link to an online questionnaire was e-mailed to 985
businesses. The questionnaire was sent to all the fitness and physiotherapy firms in Finland
who had reported their e-mail addresses to public online registers. In order to ensure as
many e-mail addresses as possible, different listings were cross-referenced to find missing
firms and e-mail addresses. The questionnaire was directed to the managers or owners of
the businesses since the assumption was that they would be the most knowledgeable to
answer the questionnaire.
Due to incorrect or outdated e-mail addresses, 34 messages failed to reach the recipients.
After the initial mailing round and two subsequent reminders used to activate the
 10 S. Hirvonen and T. Laukkanen

Table 2. Sample characteristics.

Per cent Number

Industry Physiotherapy 74.1 189
Fitness 22.4 57
Physiotherapy & fitness 3.5 9
100.0 255
Annual turnover (e) 0– 99,999 39.2 100
100,000– 199,999 28.6 73
200,000– 499,999 23.5 60
500,000– 2,000,000 8.7 22
100.0 255
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Number of personnel 1– 9 90.6 231

10 –19 7.1 18
20 –49 2.3 6
100.0 255

non-respondents, 255 effective responses were returned. Out of the 255 companies, 189
offer physiotherapy services and 57 operate in the fitness industry. Nine of the respondents
offer both physiotherapy and fitness services. All the firms represent small firms since none
of the firms has more than 50 employees or annual turnover over two million Euros
(Table 2).

Non-response bias
The first and fourth quarters of the respondents were chosen to represent early and late
respondents (respectively) and were then compared against each other in order to
investigate non-response bias. This approach draws on extrapolation methodology
(Armstrong & Overton, 1977), where non-response bias is assumed if there are significant
differences between early and late respondents. That is, late respondents are argued to
have more similarities with non-respondents than early respondents (Ferber, 1948). The
results showed that early and late respondents differed from each other only with respect to
variable v3 (t ¼ 2.119, p ¼ .036). The potential negative effects of non-response bias were
regarded as negligible and no further action was taken.

Results
Confirmatory factor analysis
Confirmatory factor analysis (CFA) was used to examine the validity of the constructs. All
constructs were specified as reflective, where change in measured items is traced to change
in latent construct (Jarvis, Mackenzie, & Podsakoff, 2003). The indicator items of each
construct were considered to share a common theme and thus expected to correlate with each
other. A review of the correlation matrix showed notable correlations between items within
each construct (all above 0.30, p , .001), lending support for the use of a reflective model.
The measurement model (Table 3) included three latent constructs namely brand
orientation, brand identity, and brand performance. Factor loadings ranged from 0.882 to
0.920 for brand orientation, 0.622 to 0.852 for brand identity, and 0.692 to 0.856 for brand
performance. All loadings were significant at p , .001. No items were deleted, thus the final
model included five items for brand orientation, eight items for brand identity, and six items
 Journal of Strategic Marketing 11

Table 3. Construct validity and model fit (measurement model).

Corr2 Model fit

Construct CR AVE BO BI x 2(d.f.) Sig. x 2/d.f. RMSEA CFI
Brand orientation (BO) 0.96 0.81a 340.63(144) , .001 2.37 0.073 0.95
Brand identity (BI) 0.94 0.54a 0.51b
Brand performance (BP) 0.93 0.58a 0.19b 0.41b
Note: a Convergent validity satisfied;
b
Discriminant validity satisfied (AVE . Corr 2).

for brand performance. The measurement model represented a good fit (x 2(d.f.) ¼ 340.63(144),
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p , .001, x 2/d.f. ¼ 2.37, CFI ¼ 0.95, RMSEA ¼ 0.073).

Average variance extracted (AVE) and shared variance (the square of the correlation
between two constructs) were calculated to test discriminant and convergent validity
(Fornell & Larcker, 1981). AVE measures the amount of variance in observed variables
captured by the latent construct, whereas shared variance is the amount of variance that a
latent construct is able to explain in observed variables related to another latent construct
(Farrell, 2010). Table 3 shows that all the AVE values are above the threshold level of
0.50, indicating good convergent validity. Discriminant validity is also satisfactory as the
AVE values for each construct are larger than the variance shared with the other constructs
(i.e. squared correlations between constructs). Construct reliabilities (CR) for all the
constructs are above the recommended threshold level of 0.70.

Structural model (H1, H2, H3)

Given that the theory guiding our study suggests that brand orientation, brand identity, and
brand performance are directly interrelated, the backward search approach described in
Chou and Bentler (2002) was applied instead of the traditional approach of forward search.
Hence, the analysis started with a saturated structural model where all pairwise relations
among latent constructs are freely estimated and the model is then improved in order to
find a more constrained model.
After the initial analysis, the direct path from brand orientation to brand performance
was found statistically non-significant. Thus, hypothesis H1 was rejected. The model was
modified accordingly by constraining the direct path from brand orientation to brand
performance to zero. A revised model was then examined.
The results (Table 4) support the hypothesis that brand orientation has a positive effect
on brand identity (H2: 0.712, p , .001) as well as the hypothesis of a positive effect of
brand identity on brand performance (H3: 0.634, p , .001). Full mediation of brand
identity was further tested with a Dx 2 test where the fully mediated model and the partially

Table 4. Structural model results.

Structural model (H1– H3) Std est. Sig.
H1: Brand orientation ! brand performance 2 0.046 NS*
H2: Brand orientation ! brand identity 0.712 , .001a
H3: Brand identity ! brand performance 0.634 , .001b
Note: NS ¼ non-significant ( p . .05) (H1 rejected); *path omitted from the final model.
a
H2 supported;
b
H3 supported.
 12 S. Hirvonen and T. Laukkanen

mediated model were compared against each other. The results show that constraining the
path from brand orientation to brand performance did not have a significant negative effect
on model fit (Dx 2 ¼ 0.27, Dd.f. ¼ 1, p . .05), thus confirming full mediation.

Moderation analysis: high vs low internal branding

K-means clustering procedure was used to determine the two groups of the moderator,
namely low internal branding (n ¼ 87) and high internal branding (n ¼ 168). The items
used in the clustering procedure were v20– v25 (see Table 1). The mean of the summated
six items was 3.22 for low internal branding (SD ¼ 0.89) and 5.72 for high internal
branding (SD ¼ 0.80). The clustering procedure was preceded by confirmatory factor
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analysis, which was used to confirm the validity of the internal branding scale. Two
variables, namely v26 and v27, were deleted due to low factor loadings.

Measurement invariance
Following the relevant literature (e.g. Byrne, 2010; Hair, Black, Babin, & Anderson, 2010;
Steenkamp & Baumgartner, 1998), measurement invariance was first addressed in order to
ensure the equivalence of measurement instruments (brand orientation, brand identity, and
brand performance) across the groups of the moderator (low vs high internal branding).
Measurement invariance is a precondition for testing moderation effects, although the
required level of invariance depends on the research objectives. In this study, configural,
metric, and factor variance invariance were regarded as sufficient.
First, configural invariance was tested by estimating the model simultaneously for both
groups of the moderator. No constraints were introduced, but instead the model was freely
estimated (Model 1). After studying configural invariance, metric invariance was
examined by constraining factor loadings equivalent across groups (Model 2). As the final
step, factor variance invariance was tested by constraining factor variances equal across
groups while still holding factor loadings constrained across groups (Model 3).
Configural invariance was examined based on the usual model fit indices. The results
(Table 5) prove configural invariance satisfactory along with model fit indices of x 2(d.
f.) ¼ 497.35(288), p , .001, CFI ¼ 0.93 and RMSEA ¼ 0.054. In order to test whether
factor loadings were invariant across groups (i.e. metric invariance), a Dx 2 test was
conducted. Hair et al. (2010) note that the Dx 2 test is advisable due to its ability to
determine the statistical significance of the differences between alternative models. If
statistically insignificant results are found, then the more constrained model can be
accepted over its less constrained counterpart (e.g. Model 2 over Model 1). The results
show that full metric invariance is satisfied (Dx 2 ¼ 17.83, Dd.f. ¼ 16, p . .05). Following
a similar procedure, factor variance invariance was next tested. The results show that full
factor variance invariance is also satisfied (Dx 2 ¼ 2.38, Dd.f. ¼ 3, p . .05).

Table 5. Measurement invariance.

Model fit Model differences

Level of invariance x2 d.f. Sig. CFI RMSEA Dx 2 Dd.f. Sig.
(1) Configural invariance 497.35 288 ,.001 0.93 0.054
(2) Metric invariance 515.18 304 ,.001 0.93 0.052 17.83 16 NS
(3) Factor variance invariance 517.56 307 ,.001 0.93 0.052 2.38 3 NS
Note: NS ¼ non-significant ( p . .05) (invariance supported).
 Journal of Strategic Marketing 13

Table 6. Moderation analysis results.

Moderation analysis (H4– H6)

High IB Low IB Moderation
Std est. Sig. Std est. Sig. Dx 2
Dd.f. Sig.
H4: Brand orientation
! Brand performance 0.076 NS 20.254 NS 3.34 1 NS*
H5: Brand orientation
! Brand identity 0.624 , .001 0.553 , .001 0.03 1 NS
H6: Brand identity
! Brand performance 0.519 , .001 0.404 .001 1.90 1 NS
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Note: NS ¼ non-significant ( p . .05) (H4–H6 rejected); *path omitted from the final moderation model.

Moderation effects (H4, H5, H6)

Finally, the moderating effects of internal branding were tested. Multigroup moderation
analysis was conducted instead of using the full sample as with hypotheses H1 –H3. A
number of Dx 2 tests were conducted to test hypotheses H4 – H6.
With regard to the brand orientation – brand performance relation, the results (Table 6)
show that the path is statistically insignificant in both subgroups. Furthermore, the
moderation analysis shows that there are no statistically significant differences between
the two groups (Dx 2 ¼ 3.34, Dd.f. ¼ 1, p . .05), rejecting H4. This path was
subsequently omitted from the final moderation model used in testing H5 and H6.
The results also show that internal branding does not moderate the brand orientation –
brand identity relation (Dx 2 ¼ 0.03, Dd.f. ¼ 1, p . .05). Hence, H5 is not supported.
Finally, regarding the effect of brand identity on brand performance, no statistically
significant differences were found between high and low internal branding (Dx 2 ¼ 1.90,
Dd.f. ¼ 1, p . .05). Hence, H6 gains no support.

Conclusions
The purpose of this study was to examine the performance effects of brand orientation in
the context of small firms. Although branding has been argued to be relevant and
worthwhile also for small firms, it has been found that many small businesses refrain from
or have a short-term approach to branding (Horan et al., 2011; Ojasalo et al., 2008; Wong
& Merrilees, 2005). It was argued in this study that as long as small firms remain unaware
of whether brand orientation contributes to brand performance, and what it requires from
them, this remains to be the case. To date, little has been written about brand orientation in
small firms (Reijonen et al., 2012). In order to shed light on these questions, a conceptual
model was developed and empirically tested using a dataset from small service firms
operating in Finland.
The results show that brand orientation does not have a direct effect on brand
performance. This finding contradicts Hankinson (2012) and Wong and Merrilees
(2008), where such an effect was found. Instead, this study finds that among small firms,
brand orientation influences brand performance indirectly through brand identity. This is
in accordance with Baumgarth’s (2010) recent study, where mindset issues are suggested
to have no direct effect on performance. Our findings also support Urde (1999) in that
brand orientation has a strong positive effect on brand identity development.
 14 S. Hirvonen and T. Laukkanen

Brand-oriented firms have been argued to use the brand identity as their ‘guiding light’
(Urde et al., 2013).
In the conceptual model, the positive effect that brand orientation has on brand identity
manifests a change in focus from mindset issues to brand management. That is, the attitudes
of managers are translated into greater concreteness. The findings of this study suggest that
only then can firms enhance their brand performance. It has been argued that brand-oriented
firms may even sacrifice short-term profits in order to achieve their long-term brand
objectives (Urde, 1999). However, in order to identify which opportunities to pursue and
which not to pursue, firms need to develop a frame of reference that allows them to make
such decisions – that is, brand identity. If a firm focuses only on brand orientation with
limited attention being paid to its implementation through the development of brand
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identity, it may well come to appreciate the importance of branding, yet not fully
understand what its brand is all about and stands for. This decreases brand consistency,
negatively affecting brand performance. Put provocatively, brand orientation per se lacks
relevance not only in the eyes of customers, but also in the eyes of employees.
First, brand orientation shapes and influences the direction of the business and how it
will be developed in the future. However, it has no relevance outside the organization. It
does not directly provide the customer with value. For the customers, it is brand identity
that counts. The essence of brand identity has been argued to center on brand values
(Keller, 2003) through which the customers create an emotional bond with the brand
(Urde, 2003).
Second, it has been argued that managers need to transmit their commitment to the
brand to the rest of the firm (Krake, 2005). Even in small firms, where top managers often
work side-by-side with company employees, the mindset of a manager may not be
automatically shared by employees. For those employees with no direct responsibility for
marketing or business strategy, the brand may appear superfluous. Small business
branding is often the responsibility of the manager with no one else involved in marketing
decision making (Krake, 2005). This can be prejudicial to performance, especially in
service firms where front-line employees greatly affect brand success. Brand identity
provides the employees with a means of relating to the brand (De Chernatony, 1999).
Greater brand consistency will be achieved as all internal actions are supportive of the
brand promise communicated to the customers.
Indeed, it was found in this study that brand identity has a strong positive effect on
brand performance. This is in accordance with the literature arguing for the importance of
brand identity in terms of higher brand performance (e.g. Aaker & Joachimsthaler, 2002;
De Chernatony, 1999; Ghodeswar, 2008; Kapferer, 1997).
Overall, the results show that brand orientation greatly contributes to brand
performance in small firms. However, small firms have been found to think that only big
businesses can be brands, not small ones (Merrilees, 2007). Such a mindset may have
developed because of the limited understanding that small firms have about the
performance benefits of branding. This study reports empirical evidence of the importance
of branding also for small firms. However, given that the effect of brand orientation on
brand performance is only indirect, small firms are urged to pay great attention to the
development of brand identity.
Finally, the moderating effect of internal branding was examined. Internal branding
has been found an effective tool for ensuring brand-oriented employee behavior (Henkel
et al., 2007; Punjaisri et al., 2009). However, with respect to the hypothesized moderating
effect of internal branding over the three relations conceptualized in the model, no
supportive empirical evidence was found.
 Journal of Strategic Marketing 15

This finding may be due to the characteristics of small firms. Regarding the brand
orientation – brand performance relation, our findings may relate to internal branding being
mainly related to educating and training employees on the brand message, rather than the
importance of a brand-oriented strategy. With regard to the brand orientation –brand
identity relationship, internal branding may not serve as a moderator because of the major
role that the owner/manager plays in small firms. Krake (2005), for instance, notes that the
character of the entrepreneur is critical in building and acquiring recognition for the small
business brand. In fact, the entrepreneur is the brand (Krake, 2005). In another study,
Boyle (2003) describes how a small firm can develop a strong brand by associating it with
the person of the owner/manager. Centeno et al. (2013) similarly find a close relationship
between the personality of the owner and the personality of the brand. Because of the
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personal importance attached to the brand by the small business owner, s/he may be
unwilling to involve others in developing brand identity.
On the other hand, internal branding as a means of facilitating the development and
adoption of brand identity may be less productive if employees are activated in brand
identity development in the early stages of the process. In such cases, employees are likely
to support the brand identity although no formal internal branding activities take place.
This conclusion is implicitly supported by the results reported by Kotey and Folker (2007),
according to which smaller firms are less likely to employ formal means of employee
training.
Other potential explanations for our results may relate to the close customer
relationships that small firms often have (Gilmore, Carson, O’Donnell, & Cummins,
1999). Friendship and emotional bonds can determine the strength of the brand in the
minds of the customers, not brand consistent acts presented by service employees.
Furthermore, internal branding may appear as a zero-sum game if employees feel that
they are forced to act in a predetermined manner during service encounters. The outcome
is then expressed in terms of reduced service quality. These speculations of course need to
be tested in future studies.

Future research
This study makes some important contributions to the literature on brand orientation and
that on small firm marketing strategies, yet at the same time has limitations that future
research should address. First, brand orientation was approached from the perspective of
small business owner/managers. However, it has been argued that brand orientation
represents an organization-wide approach to branding so that everyone within an
organization is committed to the brand (Baumgarth, 2010; Wong & Merrilees, 2007). The
results do not explicitly reveal how employee brand orientation affects brand performance.
Future research should address this issue.
The role played by internal branding also merits further scrutiny. The study reported
here found no support for the hypotheses of the moderating effect of internal branding.
Although this requires further research, other directions can also be taken. For example, if
employee brand orientation is examined as suggested above, researchers could try to
investigate the relation between brand identity and employee brand orientation, and
whether this relation is moderated by internal branding. With respect to the research
context, some important issues rise. First, this study was conducted in a specific industry
(fitness and physiotherapy firms). This raises a concern as to whether the results can be
generalized to different industries and furthermore, geographic areas other than Finland.
Moreover, although the measurement scales used in this study were carefully chosen and
 16 S. Hirvonen and T. Laukkanen

validated, future studies could strive for examining and enhancing the extent to which
different measurement scales encapsulate the characteristics of small firms (see also
Berthon et al., 2008).

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