Purpose – The purpose of this paper is to examine the performance effects of brand identity in small and medium-sized enterprises (SMEs). Design/methodology/approach – The authors examine whether brand identity mediates the relationship between brand orientation and brand performance, and further, whether brand performance leads to better financial performance. The authors also study whether these performance effects are moderated by customer type and industry type. Differing from earlier research, this study analyzes brand identity through its constituent components: brand values, brand vision, and brand positioning. The data includes altogether 721 effective responses from Finnish SMEs. Structural equation modeling is used for testing the research hypotheses. Findings – Brand positioning and brand vision have a direct positive effect on brand performance, which in turn positively affects financial performance. Brand orientation drives the components of brand identity. Importantly, there is variation in some of the relationships between brand orientation, brand values, brand vision, and brand positioning across B2B firms and B2C firms, and across firms in service industries and in production industries. Research limitations/implications – The research is based on a single-country sample. Including additional factors to the model with the potential to moderate the described relationships is also called for. Future research could also consider new potential brand identity components currently not addressed in the paper. Originality/value – This paper contributes to the literature by increasing the knowledge of SME branding.

Introduction

The role branding plays in small and medium-sized enterprises (SMEs) differs from the common claim that, “every organization needs to develop strong brands as an essential part of their business strategy” (Kay, 2006, p. 742). SME owner-managers instead seem to think that branding is out of their reach (Merrilees, 2007) and also reflect this attitude in their behavior, as they often regard the brand as secondary to short-term sales figures (Krake, 2005). Lack of expertise in brand management and uncertainty about whether it contributes to their business performance may explain the limited efforts of SMEs in branding (Hirvonen and Laukkanen, 2014). Although researchers argue for the need for SMEs to include the brand in strategic planning (e.g. Horan, O’Dwyer, and Tiernan, 2011; Krake, 2005; Wong and Merrilees, 2005), there is no comprehensive answer to the question of how SMEs can implement such a strategy and whether they should – or even can – utilize the same branding practices as large firms (Berthon, Ewing, and Napoli, 2008). The present study addresses the above concerns by adopting brand identity as its primary research construct, examining its association with business performance among SMEs. Brand identity represents a key factor in implementing a brand-oriented strategy (Urde, 1999). It is an integral part of brand development (Hanna and Rowley, 2013) and has stimulated much interest in the branding literature (e.g. Aaker and Joachimsthaler, 2002; de Chernatony, 1999; Ghodeswar, 2008; Kapferer, 2008). However, there has been no comprehensive examination from the perspective of SMEs. According to our best knowledge, the study by Hirvonen and Laukkanen (2014) is one of the rare exceptions in this regard, as they integrate brand identity with the SME brand orientation framework and empirically examine the relationship between these concepts, showing that brand identity has a positive effect on brand performance in SMEs.