Brand Has Great Value A brand is the most valuable asset a company can own.

It can also be the most confounding because, while products have a tangible, physical reality, brands are all about perceptual reality. Brands exist in the minds and hearts of consumers.

Brand Valuation Has Not Been Scientific Brand management in the 20th century is replete with many success stories. Brand analysis, however, cannot make the same claim. Its tendency to focus on lagging indicators often means that corporations spot brand problems after they have taken root in consumers minds. Thats often too late. After all, driving is tough when you only look at the rearview mirror. But they are all meaningful and marketers are constantly facing new questions. These can be little (What kind of brands should an airline be serving on board its planes?), big (Which country should we expand this brand to next?) or positively critical (What strategic partnerships will add to our brands, rather than dilute them?)

Y&R Approach Has Been Revolutionary It is important to assess a brands current achievements and stature. It is even more powerful when the future potential of a brand can be measured as well. Young & Rubicams BrandAsset Valuator offers this opportunity. Combining exhaustive amounts of consumer data with a proven model of brand-building, BrandAsset Valuator tracks future operating earnings and operating margins. This can enhance the marketing-decisions process in a variety of substantive ways. BrandAsset Valuator can help managers understand marketplace opportunities and the types of risk that go with them. It can provide a deeper understanding of consumer behavior: for example, shedding light on why some segments are willing to pay a higher price for a highly differentiated brand. BrandAsset Valuator stands apart from other brand study aids in a number of ways. It s predictive, focusing on leading indicators instead of lagging. It s exhaustive in every way, size and scope. And, importantly, it evaluates brands in the entire world of brands, not in categories, which is the way marketers, not consumers, view the world of brands. Moreover, BrandAsset Valuator is not just useful for creating a brand. It is useful for managing brands in the long term through ups and downs.

2000 Young & Rubicam Inc. All rights reserved. BrandAsset and BrandAsset Valuator are registered trademarks, and BAV and

are trademarks, of Young & Rubicam Inc.

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The Four Key Brand Metrics of BrandAsset Valuator BrandAsset Valuator demonstrates that brands are built in a very specific progression of four consumer perceptions: Differentiation, Relevance, Esteem and Knowledge. More than 100,000 consumer interviews conducted across the globe, measuring more than 50 different consumer perceptions with regard to brands, have shown these four measures the Four Pillars of BrandAsset Valuator to be consistently linked to a brands ability to deliver revenue and profit for its owner no matter the category, no matter the country, no matter the age of the brand. These Pillars measure a brands strength and stature its value as an asset capable of creating wealth. To appreciate the diagnostic advantages of BrandAsset Valuator, it is worthwhile to examine the fundamental nature of brands.

How Brands Are Built

Four Primary Aspects
Knowledge

The culmination of brand building efforts: relates to consumer experiences Consumer respect, regard, reputation: relates to fulfillment of perceived consumer promise Relates to usage and subsumes the 5P s of marketing: relates to sale The basis for consumer choice: the essence of the brand, source of margin

Esteem

Relevance

Differentiation

Brand Value Lies in Consumers Minds Brands are intangible. They are difficult to isolate, hard to measure. There are no simple formulas for measuring a brands return, or when cared for poorly measuring its drag on financial performance. But a brands intangibility is also what makes it so valuable (and in turn makes a sensitive measurement tool for brands all the more valuable). A brand is not finite, like a machine, and therein lies its power to deliver an infinite return. Consider the enormous wealth that has been created in the stock market in the last two decades. Over that period, few companies have delivered a higher return for shareholders than Coca-Cola Co. At the end of 1997, Coca-Cola ranked second among all public companies in the ratio of its market capitalization to capital employed (Source: Stern Stewart). Yet Coca-Colas physical assetsplants, equipment and suchare unremarkable. Or consider the hyper-driven stock market of the late 90s. One of the highest fliers in the market, Amazon.com owns a brand that hasnt created any real profits yet. But investors see the potential, and Amazons careful brand management has created a brand that now reflexively stands for huge investment returns. Because brands are intangible, one might ask how science can be applied to the study of brands. The only way is to focus the microscope on the places where brands liveand keep it there. That means talking to the people in whose minds the brands exist. It means talking to a lot of people, and talking to them a lot.
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BrandAsset Valuator Mirrors How Relationships Are Built Studying brands means studying relationshipsthe relationships between brands and the people who buy them. Or dont buy them. It means studying the inner workings of relationships, not just assessing whether those relationships are healthy. As just about every individual knows from personal experience, relationships are hard to build and maintain. Theres a real balancing act to a good relationship, and a progression to the way it develops. Consider the start of a relationship: Something catches a persons eye. Something different, something that stands out. Something that makes a person think, Hey, this is worth investigating more. Which is when they decide whether it s appropriate or relevant to their life. Then theres esteem the more a person gets to know someone or something, the more respect develops. Finally, theres the knowledge that comes from intimacy, really knowing the brand. BrandAsset Valuator demonstrates that brands are built this way, too. And the four pillars, like the stages in a relationship described above, provide the cornerstone to understanding brands.

The Four Pillars Diagnose Brand Health The Four Pillars of BrandAsset Valuator Differentiation, Relevance, Esteem and Knowledge were selected because movement in these, more than any other combination of dimensions, explains why brands grow, how they can get sick and how they can be managed back to health. The quantitative relationships among these dimensions provide the basis of brand diagnosis. Out of more than 50 consumer perceptions measured by BrandAsset Valuator for 13,000 brands, the Four Pillars have shown themselves to be consistently meaningful to brand growth. Brands can be evaluated by these individual measures, but it is the relationships between the measures that show the true picture of a brands healthits intrinsic value, its capacity to carry a premium price and its ability to fend off competitors. Similarly, brands can be measured against other brands within a category, but it is by measuring them across all categories that a brands true strengths and weaknesses become clear. BrandAsset Valuator differs from other typical brand studies by reporting how well a brand performs on key measures vs. all the other brands in a particular country. Thus, a brands score on a pillar such as Differentiation is the percentile rank the brand achieved vs. all others. Amazon.com, for example, had a percentile rank of 88 in the United States in 1999, which means that it ranked higher than 88 percent of the 1,909 brands covered by BrandAsset Valuator.

Amazon.com

Base: 1999 USA Adults

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By plotting all four measures Differentiation, Relevance, Esteem and Knowledge and ranking brands across all categories, BrandAsset Valuator serves as an exceptional diagnostic tool for building and managing brands.

Differentiation Different is good. Burger King told consumers that a few years back, and its true. Differentiation, the perceived distinctiveness of a brand, is a critical aspect of a brands success. Its also the first aspect of a brands success. It defines the brand and distinguishes it from all others. BrandAsset Valuator shows clearly that Differentiation is how brands are born. Leading new brands of the 1990s, for example, have consistently shown high rankings for Differentiation. Expanded nationally for the first time in 1992, Snapple ranked in the 99th percentile for Differentiation by 1993. Starbucks ranked above 80% in Differentiation early on, and Yahoo! ranked above 80% in 1999.

Snapple

Yahoo!

Starbucks

Base: 1993 USA Adults

Base: 1999 USA Adults

Base: 1995 USA Adults

Differentiation is the catalyst for action in brand development. It s the first step to the other Pillars. As in human relationships, the first step is an attraction to something different, something intriguing a look, an attitude, a behavior something that makes a person want to know more. Differentiation doesnt lose its importance. It remains crucial, even as a brands rankings on the other Pillars grow and remain strong, and even as a brand achieves market leadership. Yet, as brands mature, BrandAsset Valuator finds that Differentiation often declines. A low or declining level of Differentiation is a clear warning often the first warning that a brand is fading. Frequently, this warning will appear in BrandAsset Valuator Differentiation measures well before weakness appears in a brands business results or other, more traditional research. It s a sure sign that weakness is coming. But this doesnt have to happen to brands that achieve longevity. Even after reaching maturity, a brand can perpetuate its Differentiation. Relevance The second step in brand development is Relevance. If a brand isnt relevant, or personally appropriate to consumers, it isnt going to attract and keep them. Again, the progression mirrors human relationships. Differentiation can lead to a fling, but without a belief that another person has a relevant connection to ones own life, a person wont engage in a serious relationship. Successful new brands tend to show higher Differentiation than Relevance. This indicates that consumers perceive the brands as distinctive, and there is room for the brands to become even more relevant to the ways they live.

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Brand Relevance and Penetration

Base: USA Adults

Intuitively, Relevance would seem to come first in a brands progression. If it s not relevant, why would consumers bother with it in the first place? But BrandAsset Valuator shows that Differentiation is what catches the eye if a brand doesnt stand out, you cant judge its Relevance. Without Differentiation, a brand just gets lost in the crowd. But once Differentiation has been achieved, Relevance is the source of a brands staying power. The lack of Relevance is the reason so many fads come and go. The relationship between Relevance and Differentiation varies to significant degrees by country. Generally speaking, the more advanced a country s level of economic development, the greater its excess productive capacity or its excess supply of goods and services, then the more crucial a brands Differentiation becomes. Excess capacity is related to a higher number of brands within categories. There are more than 1,200 hair-care brands in the United States, for example. With so many brands to choose from, consumers have to rely on Differentiation in the first stages of forming a brand relationship. In such an environment, too, Relevance is not a natural outgrowth of Differentiation. In the United States, there is essentially zero correlation between the two pillars. For a marketer, the second Pillar does not come automatically upon having achieved the first. Together, Relevance and Differentiation are the key elements of Brand Strength. Differentiation gives birth to the brand and is critical for its continued reason for being, while Relevance drives franchise size. BrandAsset Valuator shows that Relevance is the key to household penetration. It also can differ substantially among various consumer groups, even when those groups agree on the brands Differentiation. Niche brands that achieve high Differentiation and modest total Relevance, but high Relevance among a specific audience, tend to be among the highest-margin brands in the marketplace. This relationship between the first two Pillars can create a compelling business opportunity. Many of the premium cosmetics, fragrance and fashion brands fall into this type. Creating Relevant Differentiation is critical and the central challenge for all brands. Generally, brands that have managed to achieve high levels on both measures lead or even define their category or subcategory.
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Esteem The third key measure identified by BrandAsset Valuator is Esteem the extent to which consumers like a brand and hold it in high regard. Esteem relates to how well a brand fulfills its implied or overtly stated consumer promise. It doesnt occur without Differentiation and Relevance having preceded it, but it can outlive those Pillars by many years. Brands that show high Esteem even after losing ground on Differentiation and Relevance tend to be older brands that have grown static in their development. Esteem is influenced by two factors: perceptions of Quality and Popularity. As expected, Quality has a strong relationship with Esteem. But, when Popularity is added in, the relationship becomes even stronger. In a sense, Quality can be thought of as representing ones own experience with the brand, and Popularity as representing how you think others experience the brand. Much can be learned about a brands consumers by studying which of these factors is dominant for a particular brand or category. Quality-driven Esteem indicates a consumer tendency toward inward, self-directed brand choice, whereas Esteem driven by popularity indicates a tendency toward following others lead.

Esteem Influencers

Esteem

Correlation = 0.80 Correlation = 0.91

Quality

Esteem Quality & Popularity

Base: USA Adults

Knowledge If a brand has established its Relevant Differentiation and consumers come to hold it in high Esteem, brand Knowledge is the outcome. High Knowledge means consumers understand and have internalized what the brand stands for. High Knowledge cannot be attained only by higher levels of spending. It has to be achieved, and it generally takes time. Knowledge is the end result of all of the marketing and communications efforts and experiences consumers have had with a brand. The relationship between Knowledge and Esteem is an important diagnostic indicator of brand health. For example, Esteem tends to be higher than Knowledge for a growing brand. If percentile rankings show the opposite relationship, a problem has been identified. BrandAsset Valuator has shown that brands with higher levels of Knowledge than Esteem are in a situation where too much Knowledge is a dangerous thing. Marketing efforts must break down these high levels of Knowledge before repairing the other Pillars, such as Esteem.

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These brands are often losing their customer bases. These brands are finding themselves selling more and more to the same consumer. Some marketers will perceive this apparent increase in loyalty as a sign of Brand Strength, when in fact it s masking brand weakness. Typically, these brands are selling more to the same consumer, at lower and lower prices. Knowledge or understanding of the brand combined with lower prices may be enough to continue stimulating purchase, but if Esteem continues to drop, profitability will erode. Brand Strength and Brand Stature As you may have noticed, we look at Differentiation and Relevance together, and Esteem and Knowledge together. These two pairs of Pillars have very important meanings for understanding different aspects of brand growth and decline. Differentiation and Relevance together form Brand Strength a brands ability to exist as a viable entry, defend itself from competition and its potential source for margin and earnings. As weve seen in the Pillar Patterns for Snapple, Home Depot and Starbucks, Brand Strength is a leading indicator since brands develop this aspect first. And when brands start to fade, Brand Strength is what they lose first. Esteem and Knowledge together form Brand Stature, which captures a brands familiarity, and the extent to which a brand has been successful in building a base of Knowledge along with respect. These are lagging indicators, since brands tend to develop these after Differentiation and Relevance, and keep them even after they ve started losing their Brand Strength.

Leading

BrandAsset Valuator
Brand Stature

Lagging

Brand Strength

Differentiation

Relevance

Esteem

Knowledge

Brands such as TWA or Greyhound are examples of brands that have lost much of their Brand Strength, but still retain some of their Brand Stature.

TWA

Greyhound

Base: 1999 USA Adults

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Brands that have achieved high levels on both Brand Strength and Brand Stature we call Leadership Brands. Hallmark is an example of this type.

Hallmark

Base: 1999 USA Adults

Profits Follow Healthy Brands The real power of BrandAsset Valuator to inform marketing decisions lies in its linkage of brand profitability to the Pillars. With more than 60 brands from many categories, BrandAsset Valuator has plotted Pillar data against revenue growth and profitability measures and discovered consistent patterns of results. The patterns show that generally Differentiation is the margin driver the higher a brands Differentiation, the higher its margin potential. Brands that grow their Differentiation on average have about a 50 percent higher operating margin than those that allow their Differentiation to decay.

Growth in Differentiation Heightens Margin

Differentiation Grew over a 2 Year Period

Operating Margin

10.5%
Operating Margin

7.0%
Source:Stern Stewart Base: USA Adults

Differentiation Declined over a 2 Year Period Relevance is the key to market penetrationbrands with high Relevance and Differentiation tend to be market leaders or headed in that direction. Most brands work on growing their Relevance. Those brands that have the foresight to grow both their Relevance and their Differentiation show increases on operating earnings and dead net earnings. Those letting their Differentiation decline, show decreases on both of these key financial measures. Besides measuring Brand Strength and Brand Stature on the basis of financial results, there are several characteristics of BrandAsset Valuator that make it an exceptionally useful tool for enhancing brand value. These characteristics, too, are grounded in the realities of the marketplace.

Grew

Differentiation

Growth in Relevance Offers No Assurance of Success

! Operating earnings = 195% ! Operating earnings = -105%

! Dead Net Earnings = 129% ! Dead Net Earnings = -201%

Source:Stern Stewart Base: USA Adults

Declined

Brands Whose Relevance Grew Over a 4 Year Period

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BrandAsset Valuator Is Essential in a World of Convergence Traditional forms of marketing research evaluated brands by category: soft drinks or fast-food restaurants or toothpaste. Today, driven by technological change, social change (the way goods are consumed) and economic change (mergers and consolidations), category perspectives are not only limiting, they re often useless. What s happening? Brands are being leveraged across multiple product categories. Categories are converging. Take, for example, the Sony Corporation. Sony makes movies and records, which places them in entertainment. But Sony also manufactures cell phones, which puts them in the communications category. And alarm clocks, which are categorized as small appliances. Category definitions cannot possibly keep up with the dynamics of brands today. Distribution channels are diffuse. Where consumers buy is continually changing and, with it, the competitive framework. Consumers can buy computers, tires and fresh shrimp in a single store. They can shop on the phone, by catalog and, increasingly, on the Internet. Brand extensions spill over traditional category definitions. And, further, categories have lost their boundaries in the context of multitasking products. For instance, consumers use their computers to play CDs. All of which means that it is no longer wholly meaningful to evaluate brands by category. But perhaps the most compelling reason that brands should be studied across the entire brandscape is that consumers dont live, act or make purchase decisions in categories. They live in, and consume, a world of brands. They hold opinions about brands that leap across the category boundaries imposed by marketers. And every day, they make choices between brands in different categories. For all these reasons, BrandAsset Valuator ranks brands against all other brands studied in a country. This makes BrandAsset Valuator enormously revealing in a number of contexts. For starters, there are brands that look quite strong when measured simply against their own categories. On the brandscape, though, it can be quite clear that the category is ripe for revolution. For example, if you look at the rental car category, you will find some brands that appear to be strong and some that appear to be weak. But set against the entire brandscape it is apparent that a brand could relevantly differentiate itself in a way that would redefine the whole category.

Rental Car Category: Traditional View

Hertz Brand Strength Brand Strength

Rental Car Category: BrandAsset Valuator Perspective

Alamo Dollar

Budget Avis National

Hertz Alamo Budget Avis Dollar National Brand Stature

Base: USA Adults

Brand Stature

BrandAsset Valuator is also a particularly useful tool for assessing brand elasticity the ability of a brand to help a company enter new product/service categories successfully. Because it looks at 200 categories, BrandAsset Valuator can help determine if a brand has the necessary hand to win. BrandAsset Valuator can assess consumers willingness to accept a brands participation in a new category. Also, BrandAsset Valuator can find those places where brands have the potential to deliver what is both Relevant and Differentiated in a category, even when consumers would never have made that leap. For example, RCA has re-invented itself and become a major player in satellite dishes. They could do it because the brand attributes were right.
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BrandAsset Valuator Constructs Work Globally With measurements in 32 countries, BrandAsset Valuator uniquely gauges the nature of international marketing opportunities. There has been much discussion and interest in the last decade in global branding the idea that a brand can develop with nearly equal strength around the world by marketing in one voice everywhere. BrandAsset Valuator shows that brand development across cultures is more complicated than that. The research indicates that there are two dimensions to global brands: 1) Brand Strength and Stature together, as measured by a brands consistency on the Four Pillars from country to country; and 2) consistency of brand meaning, which BrandAsset Valuator measures by clustering brands on dozens of imagery dimensions, across all countries. Preliminary analysis teaches that brands that are strong around the world and have consistent meaning globally perform better financially than strong brands with inconsistent meaning. Not surprisingly, Disney is the brand with the most consistent meaning from country to country. In each country, Disney s Imagery Profile falls into the same Global Brand Paradigm cluster of Fun. Coca-Cola, another powerful global brand, is the brand with the most consistent brand strength around the world. This is seen on the Power Grid for Coca-Cola, which represents the Brand Strength and Brand Stature summary measures for the four Pillars.

Disney
Classic Status Fun
Argentina Australia Brazil Canada Colombia Czech Rep. France Germany Holland Hungary Italy Japan Mexico PRC Russia South Africa Spain Sweden Switzerland Thailand UK USA Venezuela

Basic Friendly Standbys Responsives Unfocused

Value Driven

Current Style

Little Knowns

Leader Innovators

Base: Adults

Coca Cola: Worldwide Power Grid

Brand Strenth

Base: Adults

Brand Stature

BrandAsset Valuator analysis of brands Pillar patterns in different countries, and of other brands in the countries being considered for expansion, can greatly enhance strategic decision-making with regard to global brand development. In addition, BrandAsset Valuators assessment of common meanings is also important for global development.
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BrandAsset Valuator Is Forward Looking Most of the time, consumer perceptions are way ahead of typical tracking data. The enhanced ability of BrandAsset Valuator to guide marketing decisions and investments comes from its early signals. Traditional consumer survey techniques have focused on lagging indicators: Esteem and Knowledge. These techniques can mask the very real problem a brand has with low or declining Differentiation. By the time traditional measurement techniques pick up this problem, it may be too late to deter its impact on sales and profitability. Older brands that dont keep refreshing their Differentiation are often confronted with higher Knowledge than Esteem. That means people know them better than they like them. They are cases of too much knowledge becoming a dangerous thing. Once a brand reaches this point, the pressure becomes mighty on the people in product development. They must come forward with product attributes so different that consumers can be made to say, Hey, maybe I dont know this brand as well as I thought I did. Of course, for this to happen, marketing communications must also succeed in being unique or arresting, or the consumers will never have a reason to discover the new product attributes. Consider Kmart, a retail brand under attack on all sides in the past decade. The brand maintained strong ratings for Relevance, Esteem and Knowledge in the 1990s. But as early as 1993 (and probably much earlier) Kmart s Differentiation had dipped dramatically. (But, fortunately, Kmart has rebuilt some of its Differentiation.) The competition would still have been just as tough, but earlier detection of this drop in Differentiation could have made a difference in Kmart s ability to withstand competitive pressures.

Kmart Begins to Rebound After Dropping the Ball

1993

1997

1999

Base: USA Adults

The stock market values companies stocks for their potential to deliver profits in the future that s why future estimates play such a prominent role on Wall Street. Brand assets should be valued in the same way not for their past results. The sensitivity of BrandAsset Valuator gives us a more forward-looking way of valuing brands, and a useful tool for the creation of profitable growth through the building, leveraging, protecting and managing of those brands. Part of the valuation of a brand is its potential and BrandAsset Valuator helps a brand determine what new categories it can compete in, for example.

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BrandAsset Valuator Informs Today s Marketing Issues In addition to projecting a brands prospects for margin growth, earnings growth and global development, BrandAsset Valuator can be used for a variety of other assessments and analytical pursuits. It has been useful in the study of price elasticity, and also for sales modeling. It offers insights that have proved immensely valuable in analyzing all sorts of growth and investment options: from identifying the best alliance partners to co-branding initiatives to investing in sub-brands or line extensions. Y&R also has been successful in integrating BrandAsset Valuator data and methods into clients own databases, thereby combining useful tools with more focused or proprietary sources of data. BrandAsset Valuator also has its own line extension: Media BrandAsset Valuator, which applies BrandAsset Valuator data and techniques to brand media planning, thereby offering better rationales for selectivity, both in media type and media content. BrandAsset Valuator show it s not enough to be a .com brand. Internet brands such as Yahoo! and Amazon.com have become powerful, established brands almost overnight. A BrandAssetValuator analysis of e-commerce brands has shown that almost all have yet to become more than what the whole category is currently known for being innovative and daring. This wont be enough going forward.

BrandAsset Valuator Is Becoming Even More Powerful And more initiatives are in development. Y&R is committed to investing in BrandAsset Valuator on an ongoing basis with the same vigor that leading brand companies invest in product R&D, for the benefits of better data and analytical tools can match or exceed those provided by better products, colors or flavors.

BrandAsset Valuator Tool Kit General Positioning Work Alliances and Co-Branding Master and Sub-Brand Relationships Media Planning BrandAsset Valuator Brand Elasticity Global Branding Internet Branding

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