Protecting the Brand: Evaluating the Cost of Security Breach from a Marketer’s Perspective

Abstract

Cyberattacks have increased over the years both at the individual and firm level. Yet, the organizational budgets directed toward information security remains low. One reason is that the ramifications of information breach, such as increased consumer perception of risk and brand equity erosion remain, to the senior executives and board of directors in organizations, almost invisible. The second reason is that managers are required to justify budgets. The cost of system breach is often difficult to quantify. There are direct and enduring costs of information breach. As such, it has implications that impact not just the downtime during a data breach but loss of customers, trust, loyalty and brand equity, all of great concern to marketing managers. This paper analyzes the impact of a breach announcement on the market valuation of the company. Such an analysis using the event study methodology provides a clear indication of how the market reacts to the firm’s breach in information. The results of the study indicate that the market punishes the firm with a small but significant negative abnormal return on the announcement of the breach, and this trend persists. This result, together with the indirect or enduring costs related to brand erosion, provides a good justification to senior executives for protecting the integrity of information, and by so doing, protecting the equity of the brand.