Dominos offers a case study on the relationship between brand and value

Watch Dominos Pizza (DPZ) if you want a case study on the relationship between value and brand,.  Last spring (2009), two employees uploaded a video to YouTube that displayed misuse of the food they were preparing.  The company lost significant same-store sales in the 2nd quarter of 2009, yet, currently, Dominos’ market cap is higher than it has been in years.

There are some who say this indicates the new social media is not as strong as supposed--or, that properly managed, negative publicity in the social media can have just short-term effects. In any case, Dominos has embarked upon a very dangerous advertising strategy (as explained in the Washington Post). The campaign demeans the current quality of its own products, with Dominos’ own employees as spokespersons--then proposes a new and improved version.  This appears to convey the message that Dominos has lied to consumers for years.  How long have the corporate executives known their product is “the worst excuse for pizza I ever had?”

Most appraisers would agree that a company whose reputation index is low and continues to drift downwards tends to underperform its peers. We shall see.