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Measuring Brand Equity: The Marketing Surplus & Efficiency (MARKSURE !

ased Brand Equity

"ark# $% &han 'e!(rah )% Mac*nnis +a,ier 'r-.e )(nathan /ee0

)uly 12# 1334

*C. Whan Park is Joseph A. DeBell Professor of Marketing, and Deborah J. MacInnis is Charles and Ra ona I. !illiard Professor of Marketing, both at the Marshall "chool of B#siness, $ni%ersit& of "o#thern California, 'a%ier Dr()e is Assistant Professor at Wharton "chool of B#siness, $ni%ersit& of Penns&l%ania, and Jonathan *ee is Associate Professor of Marketing in College of B#siness Ad inistration, California "tate $ni%ersit&, *ong Beach.

A!stract ,his paper proposes an alternati%e eas#re of brand e-#it&, ter ed MAR."$R/ that o%erco es li itations of e0isting eas#res of brand e-#it&. We e0a ine #se of the etric to assess a fir 1s brand e-#it& and to e%al#ate arketing acti%ities of its brand. We disc#ss operational iss#es regarding this alternati%e eas#re, incl#ding the treat ent of arketing costs. 2inall&, 3e describe the li itations and bo#ndar& conditions of this alternati%e etric.

*ntr(ducti(n ,he e-#it& associated 3ith brands has been identified as one of the ost po3erf#l

intangible assets dri%ing corporate %al#e 5others incl#de in%est ents in R 6 D, patents, databases, h# an capital, soft3are de%elop ent 5*e% 477899. "o e s#ggest that brands represent large assets 3ith appro0i atel& fort& percent of the 2oster and .as)nik +::;9. In fact, the brand reso#rce follo3ing h# an reso#rces, goods, e-#it& has th#s been of interest to arket %al#e of fir s 5Barth, Cle ent, a<or b#siness

a& be regarded as the fifth

one&, and infor ation. ,he concept of brand

arketing acade ics and practitioners alike 55Park, Ja3orski

and MacInnis +:;=> 2ar-#har +:;:> .eller +::?> Aaker +::+> M"I +:::9. An iss#e of considerable rele%ance concerns ho3 brand e-#it& sho#ld be defined and critical in t3o 3a&s. 2irst, a %alid eas#re of brand e-#it& 3o#ld enable an assessment of a firms brand on eas#red. ,his iss#e is

its balance sheet, partic#larl& if it 3ere theoreticall& based and consistent 3ith acco#nting standards. In acco#nting, the de%elop ent of a eas#re s#itable for disclos#re on a balance sheet

is st& ied b& 3hat acco#nting acade ics regard as proble atic treat ent of intangible assets like brands in acco#nting practice 5Barth et al. +::;9. $nlike the practice of so e co#ntries 5e.g., Canada, Japan, A#stralia, 2rance and $.9, the $nited "tates 2inancial Acco#nting "tandards Board 52A"B9 has historicall& %ie3ed the esti ation of intangible assets like brands as #nreliable 5Barth et al. +::;9. As s#ch, generall& accepted acco#nting principles 5or @AAP9, dictate that onl& e0ternall& ac-#ired 5%s. internall& de%eloped9 brands are recogni)ed as assets and a orti)ed against net inco e o%er the brand1s esti ated #sef#l life 53hich cannot e0ceed fort& &ears9. ,he fail#re to incl#de the %al#e of internall& de%eloped brands in standard financial state ents renders acco#nting infor ation in financial reports isleading and res#lts in a se%ere

#nderesti ation in the asset %al#ation of fir s and e0cessi%e cost of capital, hindering b#siness in%est ent and gro3th 5*e% 47789. "econd, the brand1s eas#ring brand e-#it& is critical for p#rposes of assessing the perfor ance of

arketing acti%ities. Meas#ring brand e-#it& can pro%ide #sef#l infor ation arketing decisions. Brand e-#it& eas#res can also be #sed to arketingA

regarding the effecti%eness of

track the brand1s health co pared to that of co petitors and o%er ti e. Indeed, a rele%ant brand e-#it& highl& #sef#l for

eas#re that is not confo#nded 3ith nonA arketing factors 3o#ld be arketing strateg&

onitoring the brand1s health and the effecti%eness of the

that dri%es it. $nderstanding the factors that dri%e brand e-#it& co#ld also pro%ide insight into decisions that #st be altered or onitored so as to enhance e-#it&. eas#red in a n# ber of 3a&s. As

,he concept of Bbrand e-#it&C has been defined and

s#ch, it is helpf#l to e0plore se%eral concept#al iss#es concerning the constr#ct before addressing its eas#re ent. ,hese iss#es are described belo3. We then de%elop an alternati%e perspecti%e eas#re ent. ,his alternate perspecti%e, ter ed arketing s#rpl#s 6

on the constr#ct and its

efficienc& 5or MAR."$R/9

etric, takes a specific stance on each of these iss#es. We disc#ss

se%eral operational iss#es regarding this alternati%e %ie3. 2inall&, 3e describe the li itations and the bo#ndar& conditions for this alternati%e perspecti%e on brand e-#it& assess ent.

"erspecti,es (n Brand Equity ,able + re%ie3s a set of different perspecti%es on the e-#it&. ,he di%ersit& of eaning and eaning and eas#re ent of brand

eas#re ent perspecti%es itself ill#strates 3h& the brand

e-#it& constr#ct has been so nettleso e. $ntil there is agree ent on the constr#ct and its properties, clarit& on ho3 the constr#ct sho#ld be eas#red 3ill be diffic#lt.

As ,able + sho3s, se%eral

etrics e0a ine brand e-#it& fro

the standpoint of the the brand 5Park

c#sto er, foc#sing on the added %al#e or #tilit& that customers perceive fro

and "rini%asan +::D9E%al#e that cannot be e0plained b& ph&sical prod#ct feat#res 5.a ak#ra and R#ssell +::?> "3ait, /rde , *o#%iere, and D#belaar+::?9. Consistent 3ith this c#sto er foc#s, these etrics #tili)e cons# er data fro s#r%e&s, scanner panels, or discrete choices as associations linked to the brand

inp#ts. Brand e-#it& is t&picall& concept#ali)ed as deri%ing fro and its attrib#tes. Fther

etrics reflect a performance outcomeAbased perspective. Aila3adi, *eh ann, and that accr#es to a brand

Geslin1s 5477?9 concept#ali)ation of brand e-#it& as the re%en#e pre i#

co pared to a pri%ate label co#nterpart, is ill#strati%e of this perspecti%e. Financial Worlds Interbrand odel adopts a si ilar perspecti%e, operationali)ing brand e-#it& as the relati%e afterA #ltiplied b& an inde0 of brand

ta0 profit of the brand in co parison 3ith a generic brand strength 5based on the = s#b<ecti%e factors9.

"i on and "#lli%an 5+::?9 adopt a marketplace metric of brand e-#it&, designed to assess the %al#e of the brand as deter ined b& the financial arketplace. Consistent 3ith this

perspecti%e, brand e-#it& is based on stock prices and financial state ent data, specificall& Bthe incre ental cash flo3s 3hich accr#e to branded prod#cts o%er and abo%e the cash flo3s 3hich 3o#ld res#lt fro the sale of #nbranded prod#ctsC 5p. 4:9. *nsert Ta!le 2 5ere Interestingl&, one perspecti%e on brand e-#it& has not been el#cidatedEthe %al#e of the brand fro the brand holders perspective. ,his perspecti%e on brand e-#it& is rele%ant as it

links the three perspecti%es described abo%e. It does so b& considering the brand1s relationship 3ith its c#sto ers, the fir 1s effort at de%eloping this relationship, and hence the potential %al#e of the brand to the financial arketplace. /0isting eas#res of brand e-#it& are inco plete in 8

representing this brand holder1s perspecti%e. Go

atter ho3 great a brand1s relationship is 3ith 5or in%estors and arketing costs9 to

c#sto ers 5e.g., rep#tation and good3ill9 is, it is not %al#able to a fir prospecti%e corporate b#&ers9 if it re-#ires e0cessi%e fir de%elop and aintain this relationship. ,he arketplace efforts 5e.g.,

etric of brand e-#it& 5e.g., stock price9

eas#res the e-#it& of a brand at a corporate le%el, not at an indi%id#al prod#ct le%el. !ence it pro%ides little g#idance to the brand holder on e-#it& b#ilding possibilities for indi%id#al prod#cts prod#ced b& the fir . More specificall&, there are se%eral #ni-#el& differentiating characteristics of the brand e-#it& eas#re that represents the brand holders perspecti%e. ,he& are disc#ssed belo3.

$(sts t( the fir6 t( Secure $ust(6er Relati(nships (7ir6 Eff(rt ,o ser%e as a #sef#l constr#ct that describes a brand1s %al#e to the brand holder, brand e-#it& #st be disting#ished fro other ke& perfor ance indicators s#ch as brand re%en#e or

profit. B#ilding and

aintaining relationships 3ith c#sto ers clearl& in%ol%es real dollar costs to odel does not incorporate costs

the fir . !o3e%er, Aila3adi et al1s 5477?9 re%en#e pre i# 5tho#gh their alternati%e theoretical

odel incl#des total %ariable costs9. At iss#e here is not onl& eas#re of brand e-#it&, b#t also 3hich costs are

3hether costs sho#ld be incl#ded in the infor ati%e. We arg#e that a

eas#re of brand e-#it& fro

the brand holder1s perspecti%e sho#ld

incl#de those costs incurred in developing and maintaining a relationship between customers and the brand. $nlike Aila3adi1s et al alternati%e sho#ld be considered in s#ch a internal and hence hidden fro odel, 3e do not belie%e that all %ariable costs an#fact#ring or ad inistrati%e costs are

etric. Costs s#ch as

c#sto ers1 relationship 3ith a brand. While the& constit#te costs

borne b& the fir , the& do not directl& i pinge on c#sto ers1 perceptions of the brand1s benefits or their desires to sta& in a longAter brand relationship. Fn the other hand, the marketing costs H

that the fir creating, co

in%ests in a brand are pri aril& designed to de%elop c#sto er relationships 5e.g., #nicating, and deli%ering brand benefits for c#sto ers9. ,he& are the pri ar& 3hich c#sto ers infer brand benefits and de%elop a transactional arketing costs, not total costs in%ested in a brand sho#ld constit#te the eas#re 5see the forthco ing disc#ssion

so#rce of infor ation fro brand relationship. ,h#s,

rele%ant costs to be incorporated in the brand e-#it& abo#t 3hat constit#tes arketing costs.9. arketing fro

,he separation of

nonA arketing costs is an i portant depart#re fro eas#re of brand e-#it& based on arketing

pre%io#s approaches. As 3e de onstrate later, a

5%s. total costs9 need not correlate 3ith a brand1s profit as

arketing and nonA arketing costs an#fact#ring and %er& efficient arketing costs ser%es as a

a& differ in their operational efficienc& 5e.g., %er& inefficient arketing costs9. ,h#s, a brand e-#it& #ni-#e perfor ance good3ill. ,he t3o fir

eas#re that considers onl& profit, sales,

eas#re that is different fro

arket share, brand rep#tation or

eas#res are, ho3e%er, co ple entar&. !ence, it is highl& infor ati%e for a eas#res 5e.g., profit, sales, arket share, etc9 that assess brand

to e0a ine perfor ance

operations and to e0a ine brand e-#it& as an indicator of brand health. The 8Referent Brand9 Co on to a n# ber of brand e-#it& definitions 5see ,able +9 is the incl#sion of a

comparative entity or referent. ,&picall&, the referent is an B#nna edC BgenericC, or Bpri%ate label brand.C 2or e0a ple, Aila3adi et al 5477?9 defined brand e-#it& asI B,he arketing effects

or o#tco es that accr#e to the prod#ct 3ith its brand na e as co pared to the o#tco es that 3o#ld accr#e if the sa e prod#ct did not ha%e the brand na e.C Fther definitions 5Aaker +::+, 2ar-#ar +:;:, .eller +::?9 bench ark the e-#it& of a brand relati%e to a fictitio#s 5generic or pri%ate9 brand.

Altho#gh consideration of s#ch a referent

a& be #sef#l in the assess ent of brand

e-#it&, #se of an #nna ed, fictitio#s or generic brand has so e significant shortco ings. ,o ill#strate, consider the celebrit& brand Angelina Jolie. ,his brand na e 3o#ld be %al#ed highl& e%en if the fa ed actress had a fictitio#s na e> part of the %al#e of her na e lies 3ith her ph&sicall& attracti%e feat#res. ,herefore, the difference bet3een the real and an #nkno3n or fictito#s Angelina Jolie 3o#ld not reflect the tr#e %al#e of Angelina Jolie. Consider another e0a pleAA the iPod. ,he iPod1s distincti%e design is a f#nda ental contrib#tor to the %al#e cons# ers place on the brand and is essential to the brand1s %al#e 5the& #st ha%e contrib#ted to

the de%elop ent of their brand e-#ities in the first place.9. "ince this brand characteristic is salient and for s a basis for initial and contin#ing brand relationships, an #nna ed brand that also has these attrib#tes 3o#ld still be %al#ed J at least to so e e0tent. Conse-#entl& the difference bet3een the brand and an #nna ed co#nterpart 3o#ld be s aller than the real %al#e of iPod. !ence, the tr#e %al#e of a brand sho#ld incl#de not <#st the %al#e of its na e b#t also other prod#ct characteristics associated 3ith that na e. ,he present paper proposes that brand e-#it& #st be #nderstood in ter s of the %al#e of

a brand, not the %al#e of its na e 5if this 3ere the case, 3e 3o#ld also ha%e package design e-#it&, prod#ct design e-#it&, etc.9. !ence, 3e reco end a%oiding #se of an #nna ed,

generic, or pri%ate label brand as are referent. A%oiding #se of a referent brand also resol%es so e operational proble s that ake reliable assess ent of brand e-#it& diffic#lt. In so e #ltiple pri%ate

ind#stries, a pri%ate label or generic co#nterpart does not e0ist. Moreo%er, if

label andKor generic brands are a%ailable it is not clear on the basis of 3hich pri%ate label or generic brand e-#it& sho#ld be assessed. Co parisons to one than co parisons to another. 2inall&, it is diffic#lt to a& &ield -#ite different %al#es

eas#re brand e-#it& relati%e to an

#nna ed 5generic or pri%ate label9 brand 3hen the brand lacks ph&sical, s#bstanti%e, or e0plicit ;

transaction properties. 2or e0a ple, brands representing ser%ices, places, co#ntries, organi)ations or sports tea s 5e.g., A,6,, Ge3 Lork, Japan, "tanford $ni%ersit&, or the *.A. Dodgers9 do not specific referents that can be separated fro their na es. It is #nclear ho3 the eas#red against an

e-#it& of Ge3 Lork, "tanford $ni%ersit&, or the *A Dodgers co#ld be #nna ed or pri%ate label Ge3 Lork, "tanford, or *A Dodgers.

Rather than specif&ing ho3 %al#able a brand is relati%e to an #nna ed, generic, or pri%ate label referent brand, perhaps brand e-#it& assess ent is better assessed in ter s of its absol#te %al#e to the fir 5the brand holder9. Brand e-#it& eas#red in an absol#te sense allo3s fir s to

co pare the e-#it& of one brand to a pri%ate label or generic referent brand, other brands 3ithin the sa e co pan&, or 3ith other brands in the sa e or different ind#str&. !ence co parison 3ith an& referent is possible. "#ch co parisons are concept#ali)ed and ore diffic#lt 3hen brand e-#it& is

eas#red based on a co parison bet3een a target and a fictitio#s 5generic or eas#re ent perspecti%e allo3s

pri%ate9 brand. I portantl&, the proposed concept#ali)ation and

for the co parison of the %al#e of a brand to an& referent 5not <#st an #nna ed, generic, or pri%ate label brand9. !o3e%er, the referent brand is co pared after an assess ent of brand e-#it& has been ade. ,he referent is not part of the assess ent of the brand1s e-#it&.

Meas#ring brand e-#it& in ter s of c#rrent %al#e raises another related iss#e. It in%ol%es the distinction bet3een the flo3 and stock concept of brand e-#it&. ,he c#rrentA%al#eAbased brand e-#it& is ha%e different ore a flo3 5e.g., inco e9 concept than a stock 5e.g., 3ealth9 concept. ,he t3o eanings. Fne can ha%e lo3 inco e and still be 3ealth&, or ha%e high inco e b#t

not &et 3ealth&. In acco#nting, e-#it& like an asset is a stock concept, not a flo3 concept. ,h#s, the c#rrentA%al#eAbased e-#it& eas#re appears to be the perAperiod eas#re of brand e-#it&, not

the total %al#e of a brand at a point in ti e. It is in this sense that the c#rrentA%al#eAbased brand e-#it& a& be appropriate for the Inco e "tate ent b#t not part of the Balance "heet. In order :

for this

eas#re to be incl#ded in a fir 1s balance sheet, it

a& ha%e to be con%erted to the

eas#re that satisfies the stock concept of brand e-#it&. Addressing this iss#e, albeit criticall& i portant, is be&ond the scope of the present paper. Te6p(ral *ssues *n,(l,ing Brand Equity Another thorn& iss#e in eas#ring brand e-#it& concerns the te poral perspecti%e that eas#ring brand e-#it&. C#rrent perspecti%es disagree

sho#ld be adopted in concept#ali)ing and

on 3hether brand e-#it& sho#ld be based on the brand1s c#rrent %al#e, or its c#rrent %al#e and f#t#re e0pected %al#e. 2or e0a ple, the Interbrand odel incorporates a brand1s f#t#re gro3th

potential 3hile others 5Aila3adi et al 477?9 foc#s on the c#rrent %al#e of a brand. Concept#all&, a brand1s f#t#re gro3th potential is an i portant consideration for certain decision aking sit#ations 5e.g., ergers and ac-#isitions9. It does not, ho3e%er, <#stif& 3h& a eas#re ent of brand

f#t#re gro3th potential sho#ld be intrinsic to the concept#ali)ation and

e-#it& itself. As Aila3adi et al 5477?9 note, incl#ding f#t#re gro3th potential brings a high degree of #ncertaint& and <#dg ent into the eas#re, aking the eas#re s#b<ecti%e and eas#red in ter s of

spec#lati%e. We belie%e that brand e-#it& is best concept#ali)ed and c#rrent %al#e. While assess ents of f#t#re %al#e

a& be added s#bse-#entl&, de%eloping an ore reliable esti ate.

acc#rate and nonAs#b<ecti%e esti ate of c#rrent %al#e 3o#ld prod#ce a

Gotabl&, the calc#lation of c#rrent %al#e enables a co parison of the brand1s c#rrent %al#e relati%e to the %al#e attained in the past. "#ch co parisons internal brand strateg& decisions. Marketing Surplus & Efficiency (MARKSURE :!ased Brand Equity With these considerations in ind, 3e de%elop a ne3 perspecti%e on brand e-#it& and its eas#re. ,he etric a& be e0tre el& infor ati%e to

eas#re ent called the B arketing s#rpl#s 6 efficienc& 5MAR."$R/9 bears so e si ilarities to that of Aila3adi, et al 5477?9. ,heir

etric is based on brand #nit sales +7

and price in co parison 3ith a pri%ate label co#nterpart. $nit sales and price are deri%ed fro p#rchase beha%ior, assessed fro scanner data. ,heir re%en#e pre i# eas#re is as follo3sI

5Mol# eb9 0 5Priceb9 A 5Mol# e pl9 0 5Pricepl9 3here s#bscripts b and pl refer to the focal national brand and the e-#i%alent pri%ate label, respecti%el&. ,heir odel is interesting and #sef#l as a

reference to proposed MAR."$R/ beca#se it deals 3ith t3o of the three ke& %ariables that o#r ne3l& proposed odel relies on 5#nit price and the -#antit& sold9. odel differs conceptually and operationally fro that of and its

!o3e%er, o#r MAR."$R/

Aila3adi et al 5477?9. We redefine brand e-#it& b& incorporating both inp#ts of a fir c#sto ers. We also e0tend Aila3adi et al1s

odel operationally b& specif&ing different arketing costs

proced#res for brand e-#it& assess ent. ,he latter is achie%ed b& 5+9 incl#ding as a rele%ant inp#t for

eas#ring brand e-#it&, 549 re o%ing the pri%ate label referent brand 5or eas#re, and 5?9 incl#ding the efficienc& ratio of a fir 1s ore

#nidentified brand na e9 as part of the

arketing costs. We belie%e that these e0tensions are f#nda ental and significant to a #sef#l etric. "pecificall&, the proposed

eas#re entails se%eral desirable feat#res that address toI 5+9 assign a financial %al#e to the

so e of the iss#es described earlier. It also allo3s the fir

brand in financial transactions and 549 to track brand health %isANA%is co petitors and o%er ti e. ,he ne0t section disc#sses ho3 the proposed Re,ised 'efiniti(n (f Brand Equity In light of the iss#es described earlier, 3e propose a ne3 definition of brand e-#it&, defining it as the c#rrent financial %al#e of the brand to its holder 5the fir 9 at a specific point in ti e. Concept#all&, this %al#e assess ent is based on the difference between customers willingness to bear the costs to obtain the brands benefits and the firms costs expended to create these benefits in the minds of customers. In other 3ords, brand e-#it& is the difference between customers endowment to a brand and the investment the brand holder has had to bear ++ eas#re perfor s these t3o different f#nctions.

to secure this endowment from customers. ,his concept#al perspecti%e is operationali)ed b& considering ho3 the follo3ing three ke& %ariables dri%e brand %al#eI 5+9 #nit price 5P9, 549 #nit arketing cost 5MC9, and 5?9 the -#antit& sold 5O9. Unit Price. Ab#ndant e pirical e%idence s#pports the strong positi%e relationship bet3een the strength of c#sto ers1 relationship 3ith a brand and the #nit price le%el the& are 3illing to bear 5Aaker +::H, Do&le 477+, .eller +::?, Park and "rini%asan +::D, "3ait et al +::?, /rde , "3ait and *o#%iere 4774,2irth +::?, Loo, Donth#, and *ee 4777, Randall, $lrich, and Reibstein +::;, *assar, Mittal, and "har a +::89. Accordingl&, e%idence for an increase in brand e-#it& 3o#ld be re%ealed 3hen a fir increases its #nit price 5P9 fro ti e tA+ to t b#t

does so 3ith no negati%e i pact on de and 5O9 and no additional the sa e ti e period 5i.e., QtA+ P Qt> MCtA+ P MCt9.

arketing costs 5MC9 d#ring

Quantity Sold. Research si ilarl& s#pports the relationship bet3een the %al#e c#sto ers place on their relationship 3ith a brand and -#antit& sold 5Aaker +::4, +::H, CobbAWalgren, R#ble, and Donth# +::8, .eller +::?, /rde and "3ait 477D, Park and "rini%asan +::D, " ith ore 3illing to forgi%e

and Park +::49. C#sto ers 3ho %al#e their relationship 3ith a brand are brand

ishaps and to be lo&al 3ith it 5Ahl#3alia, B#rnkrant and $nna%a 547779. Accordingl&, tA+ to t 3itho#t 5+9 an

brand e-#it& sho#ld be re%ealed 3hen de and for a brand increases fro associated #nit price red#ction 5P9,or 549 an increase in #nit ti e period.

arketing cost 5MC9 d#ring the sa e

Marketing Costs. 2inall&, research s#pports the relationship bet3een the %al#e cons# ers place on their relationship 3ith the brand and arketing costs 5Aaker +::4, .eller

+::?, " ith and Park +::49. A brand 3ith strong e-#it& infl#ences c#sto ers1 tr#st in the brand, their 3illingness to pro ote positi%e 3ordAofA o#th, and their relati%e insensiti%it& to reciprocit& in co #nications b& the fir 5e.g., neither e0pecting nor re-#iring e0tensi%e +4

arketing effort to re ain lo&al9. Accordingl&, brand e-#it& sho#ld increase 3hen a fir red#ce arketing costs 5MC9 at ti e t fro

can 5+9

t ! 3itho#t an associated red#ction in re%en#e, or 549 arketing costs 5MC9.

reali)e a re%en#e increase 3itho#t an associated increase in T;( Key $(6p(nents (f the MARKSURE Metric ,he abo%e three %ariables pro%ide the basis for proposed brand e-#it&

eas#ring t3o ke& co ponents of the arketing

etricAA the magnitude of %al#e generated b& the brand 5or

s#rpl#s9 and the efficiency at 3hich s#ch %al#e is achie%ed. ,hese t3o co ponents are e0a ined belo3. Marketing "#rpl#sI 5 p "t mc "t 9 # "t

mc "t # "t + Marketing /fficienc&I p "t # "t


WhereI p"tI Price of the brand " at ti e t

mc"tI Marketing cost of the brand " at ti e t #"tI O#antit& sold for the brand " at ti e t mc"t#"tI ,otal arketing cost

p"t#"tI ,otal re%en#e +. Total Marketing Surplus: (Pt MCt) * Qt. $%t & MCt' represents the difference bet3een the c#sto er1s costs at ti e t and the brand holder1s costs at ti e t 5hereafter, 3e drop the brand s#bscript "9. ,he difference bet3een c#sto ers1 3illingness to pa& a certain cost 5#nit price, %t9 to obtain the benefits of a brand and the fir 1s #nit co #nicate and deli%er s#ch benefits is called B#nit arketing cost to create,

arketing s#rpl#s.C M#ltipl&ing #nit arketing s#rpl#s. "ince arketing costs represent the +?

arketing s#rpl#s b& the n# ber of #nits sold 5Qt9 &ields total 3illingness to pa& represents the c#sto er1s side and the #nit

fir 1s side, both c#sto er and fir that a fir can create, co

perspecti%es are reflected in marketing surplus. ,o the e0tent

#nicate, and deli%er brand benefits at a lo3er cost than the price

c#sto ers are 3illing to pa&, the brand en<o&s a marketing surplus. ,he greater the total arketing s#rpl#s is, the greater the brand1s %al#e beco es. ,h#s, total reflects the magnitude of brand %al#e. $nit price in the abo%e for #la reflects the 3holesale price. Wholesale price is deter ined b& total re%en#e di%ided b& the n# ber of #nits sold at the 3holesale le%el. ,otal arketing costs 5ai ed at both iddle en and end #sers9 represent the e0pendit#res the fir has arketing s#rpl#s

borne to generate this re%en#e d#ring ti e t. While a ti e lag is so eti es obser%ed bet3een arketing costs and res#ltant re%en#e, 3e do not for all& incl#de ti e lag effects in the gi%en the &riad iss#es associated 3ith esti ating lag lenth and odel

agnit#de 5disc#ssed later9. eas#re allo3s

2ail#re to incorporate lag effects a s#fficient ti e period to

a& also be less proble atic if the brand e-#it&

ake the incl#sion of a lag #nnecessar&. arketing costs to total

Marketing Efficiency: (2: [TM$t < ("t 0 =t ] % ,he ratio of total

re%en#e reflects the proportion of the re%en#es that are allocated to creating c#sto er %al#e. Fne in#s this ratio represents marketing efficiency. . ,he lo3er the the re%en#es, the greater the fir 1s arking costs in relationship to arketing

arketing efficienc&. Brand e-#it& increases as spends on brand

efficienc& increases. ,h#s, the less a fir

arketing to generate a specific odel, this etric

re%en#e le%el, the greater is the brand1s e-#it&. $nlike Aila3adi et al1s e0plicitl& considers the brand1s ret#rn on

arketing in%est ents. Marketing efficiency therefore arketing s#rpl#s. ,his %ariable

reflects the efficienc& 3ith 3hich the brand achie%es its

ass# es that the brand1s re%en#e is greater than 7. As 3ith total marketing surplus, marketing efficiency in%ol%es both c#sto ers1 inp#t 5c#sto ers1 responses in the for a fir 1s inp#t 5total arketing costs9. +D of total re%en#e9 and

I portantl&( marketing efficiency and marketing surplus are independent entities> each ser%es as an independent di ension on 3hich the le%ers of brand %al#e can be <#dged. Co bined, these %ariables also offer an o%erall assess ent of brand e-#it&. In this case, marketing efficiency ser%es as a 3eight for marketing surplus. It ad<#sts total marketing surplus beca#se the sa e a o#nt of arketing s#rpl#s can be obtained at different le%els of efficienc&. arketing s#rpl#s 55%t J MCt9 * Qt9, the& arketing in%est ents o%er

"pecificall&, e%en if t3o brands ha%e the sa e total

a& not reflect the sa e brand %al#e 3hen the& differ in the ratio of total re%en#e.

,o ill#strate, consider the t3o brands sho3n in ,able 4. Brand A has Q+77 in total re%en#e 5Q+7 in #nit price and +7 #nits sold9 and Q+7 in arketing in%est ent 5Q+ in #nit

arketing in%est ent9. Brand B has Q477 in total re%en#e 5Q47 in #nit price and +7 #nits sold9 and Q++7 in total sa e total arketing in%est ent 5Q++ in #nit arketing in%est ent9. Both brands ha%e the arketing efficienc&. arketing

arketing s#rpl#s 5Q:79. !o3e%er, the& differ greatl& in their

,he for er sho#ld be higher in %al#e since the latter spent

ore to achie%e the sa e

s#rpl#s. Ass# ing that all other costs for the t3o brands are e-#i%alent, the difference bet3een the t3o brands s#ggests that Brand B spent ele%en ti es ore in arketing dollars to generate

the sa e #nit profit 5P J MC A all other costs9. ,his ad<#st ent &ields %al#e of Q;+ for brand A and %al#e of QD7.8 for brand B. ,his ad<#st ent 5+A 5total arketing costsKtotal re%en#e99 is arketing

based on the logic that the brand1s %al#e is positi%el& related to the proportion of

spending gi%en its total re%en#e. "i pl& stated, a brand en<o&s the highest 5lo3est9 %al#e 3hen it generates s#bstantial 5li ited9 re%en#e 3ith no 5e0tensi%e9 rand E!uity Measure. Marketing s#rpl#s and proposed brand e-#it& defined asI +8 arketing costs.

arketing efficienc& co bined reflect the eas#re is th#s operationall&

etric. ,he co posite MAR."$R/A

mct#t )*t = 5 pt mct 9 #t + pt#t

,hat is, brand e-#it& reflects the difference bet3een the brand1s #nit price at ti e t and its #nit arketing cost at ti e t, ratio of total #ltiplied b& the total n# ber of #nits sold at ti e t( ad<#sted b& the

arketing in%est ents o%er total re%en#e 5the lo3er this ratio is, the less the ore one& for arketing than its total

ad<#st ent beco es9. Gote that 3hen a brand spends

re%en#e 5 c R p9, brand e-#it& beco es negati%e. + Ill#strati%e e0a ples of brand e-#it& eas#re are fo#nd in Appendi0. ,he& clearl& sho3 the %al#e of the MAR."$R/ According to the MAR."$R/ eas#re.

eas#re, brand e-#it& at an& gi%en point in ti e can not

e0ceed total re%en#e. ,his ass# ption is reasonable beca#se brand re%en#e at a partic#lar point in ti e represents the total possible %al#e of that brand <#dged b& c#sto ers at that ti e. Gote also that the co posite MAR."$R/ brand1s %al#e 5total eas#re is a <oint prod#ct of 5+9 the agnit#de of a agnit#de 3as

arketing s#rpl#s9 and 549 the efficienc& at 3hich s#ch

obtained. /0tending fro

an indi%id#al prod#ct le%el to a corporate le%el, 3e propose that arketing s#rpl#s and efficienc&

corporate brand e-#it& is assessed based on the sa e co ponents. In this case brand le%el re%en#e and re%en#e and arketing costs 5for

arketing costs are replaced b& corporate

ore abo#t this iss#e, see the Disc#ssion section9.

>perati(nal $haracteristics (f the M S&E:!ased Brand Equity Measure "e%eral additional factors, described belo3, disting#ish the operational characteristics of the MAR."$R/ eas#re.

>perati(nal 'efiniti(n (f Marketing $(sts


+

Brand e-#it& 3o#ld be negati%e 3hen c is greater than p. C#rrent acco#nting practice does not recogni)e negati%e brand e-#it&. ,h#s, the eas#re a& not be #sed for p#rposes of disclos#re on balance sheets 3hen brand e-#it& is negati%e. !o3e%er, obser%ing and tracking e-#it& 3hen it is negati%e 5or positi%e9 likel& has an i portant role for internal anage ent control p#rposes.

+H

2ro

an operational standpoint, 3e foc#s on costs inc#rred to create, co

#nicate, and

deli%er brand %al#e to c#sto ers o%er ti e. An& costs associated 3ith value creating and communicating acti%ities 5e.g., D PArelated acti%ities s#ch as ad%ertising, trade sho3, p#blicit&, package design, prod#ct design, etc.9 and other acti%ities 5e.g., engaged in to i pro%e their effecti%eness belong to arketing research e0penses9

arketing costs. Costs associated 3ith D PA arketing

related acti%ities designed to remove transaction barriers sho#ld also be a part of costs. ,h#s, costs associated 3ith acti%ities that re o%e ti e 5a brand right ti e9, place 5a brand

#st be a%ailable at the #st be

#st be a%ailable in the right place9, o3nership 5a brand

designed and priced to facilitate its o3nership9, and inti ac& barriers 5aesthetic aspects of a brand and ser%ices associated 3ith b#&ing, #sing and disposing a brand9 sho#ld be considered as part of arketing costs. Costs associated 3ith %ario#s acti%ities that re o%e these transaction

barriers s#ch as logistics, personal selling, sales pro otion, and 3areho#sing, belong to arketing costs. In general, %ariable costs inc#rred to facilitate the transaction bet3een the c#sto er and the brand 5%ariable costs associated 3ith acti%ities at the beforeAp#rchase, d#ringA p#rchase, d#ringA#se, andKor the disposal stages9 sho#ld be incl#ded in #nit arketing costs.4

"ince DPArelated acti%ities are designed to address the needs of c#sto ers and directl& affect c#sto ers1 perceptions of a brand %al#e and their p#rchase and repeat p#rchase decisions, their costs and the identif&ing arketing costs defined abo%e are consistent 3ith each other. !o3e%er,

arketing costs in accordance 3ith this perspecti%e is not as straightfor3ard as it the fact that %ario#s acti%ities for brand anage ent

initiall& appears. ,his diffic#lt& arises fro

and their associated costs need to be reclassified beca#se

an& costs related to these acti%ities arketing cost categor&.

ha%e traditionall& been assigned to other cost categories, b#t not to the

When a fir has #ltiple prod#ct lines or share the sa e prod#ction or distrib#tion reso#rces together, acti%it&Abased cost acco#nting is needed to acc#ratel& reflect each brand1s arketing costs.

+=

In addition, there is concept#al conf#sion abo#t the definition of the ter DPs. ,hese t3o iss#es are disc#ssed belo3.

prod#ct as one of the

,o ill#strate the need to reclassif& e0isting costs, consider for e0a ple the follo3ing costsI order handling and processing costs 5rele%ant at the d#ringAp#rchase stage9, call center operating costs 5rele%ant at the beforeAp#rchase stage9, and c#sto er ser%ice center operating costs 5rele%ant at the postAp#rchase stage9. ,hese costs are not traditionall& considered to belong to arketing costs. ,o ill#strate another cost that is not traditionall& assigned to a& arketing costs,

consider a patientsAn#rse ratio in the hospital brand. ,his ratio

atter a great deal to patients

beca#se it affects the -#alit& of the ser%ice 5rele%ant to the d#ringA#se stage9. Gotabl&, c#rrent acco#nting practices do not assign s#ch costs to ,he reclassification of theoretical notion that arketing. ended in this paper is based on the

arketing costs that are reco

arketing acti%ities occ#r across fo#r transaction stagesI beforeAp#rchase,

d#ringAp#rchase, d#ringA#se, and disposal. ,herefore, an& costs that inc#r at an& one of these fo#r transaction stages sho#ld be considered to be arketing costs arketing costs. While this approach to

aps 3ell to the traditional classification of the DPs, there is one thorn& iss#e

that needs to be resol%ed. It pertains to the definition of prod#ct as one of the DPs. While acti%ities related to price, pro otion, and place are relati%el& clear, the sa e for prod#ct. It is i portant to define the ter specif& arketing costs rele%ant to prod#ct. In the present paper 3e propose that the ter #nderstood in ter s of its ra3 According to this %ie3, ra3 prod#ct as one of the DPs sho#ld be design and specification. a& not be arg#ed

prod#ct and acti%ities associated 3ith it in order to

aterials, f#nctions, and its for

aterials costs, costs inc#rred to de%elop prod#ct f#nctions 5a

portion of R6D costs9, and prod#ct design de%elop ent costs 5a portion of R6D9 sho#ld be reflected in arketing costs. Acti%ities associated 3ith these prod#ctArelated costs are highl& +;

rele%ant to c#sto ers1 decision to choose a brand. 2or e0a ple, ra3 plastic, organic %ers#s nonAorganic, silk %ers#s s&nthetic fiber, etc.9

aterials 5steel %ers#s atter a great deal to

c#sto ers. According to this %ie3, an& other part of R6D costs, prod#ction costs, labor costs, ad inistrati%e costs, and financial costs 5depreciation, interest charges, etc.9 sho#ld not be incl#ded in arketing costs. ,hese costs are internal to a fir and do not bear an& rele%ance to

c#sto ers1 brand preference and lo&alt&. Fne a& arg#e that there a& be other internal costs that sho#ld be considered to be a& be %al#eA

arketing costs 3hen follo3ing the abo%e classification logic. 2or e0a ple, there added prod#ction costs 5e.g., handA ade %ers#s

achineA ade9 that are internal to the fir , &et

rele%ant to the c#sto ers1 brand preference and lo&alt&. ,he& are not, ho3e%er, incl#ded in arketing costs since it is diffic#lt to <#dge a priori 3hat constit#tes %al#eAadded prod#ction acti%ities. While ackno3ledging the possibilit& that the in this paper follo3 the co a& not f#ll& represent true on deno inator approach. arketing costs proposed in this paper is an eas#ring brand %al#e. ore arketing costs classification proposed

arketing costs defined in this paper, 3e ne%ertheless

Gote that the definition and specification of

i pro%e ent o%er traditional perspecti%es that incl#de total costs 3hen Moreo%er, the incorporation of the co prehensi%e %ie3 of Incorporating co

arketing costs identified here pro%ides a

arketing1s contrib#tion to the brand %al#e creation and fortification.

#nication costs and those that re o%e transaction barriers better reflect

arketing1s role in creating and s#staining brand %al#e. Using MAKRSURE T> Assess Marketing Acti,ities ,he %al#e of the brand, deri%ed fro arketing effort 5i.e., c#sto ers1 response 5i.e., re%en#e9 to the fir 1s

arketing costs9 not onl& represents the %al#e of a brand to the fir . It also etric for arketing e0pendit#res. "pecificall&, the etric can also +:

ser%es as an acco#ntabilit&

be #sed to track the brand1s health %isANA%is co petitors and o%er ti e. Infor ation abo#t arketing s#rpl#s and arketing efficienc& offers diagnostic benefits to a fir . ,his infor ation

a& be e0a ined in t3o 3a&sI one is based on the absol#te le%el and the other one is based on the relati%e changes o%er ti e. We s#ggest that the effecti%e 3a& to e0a ine the contrib#tion of arketing and the brand1s health o%er ti e is to e0a ine changes in brand e-#it& fro in ti e to the ne0t. ,hese changes 3o#ld reflect arketing acco#ntabilit&, 3hich one point

a& be #sed in

t#rn to diagnose brand health, and e%al#ate and re3ard e plo&ees responsible for brand anage ent. ,he relati%e changes of arketing s#rpl#s and efficienc&, as opposed to their absol#te

le%el, 3o#ld resol%e the thorn& iss#e in%ol%ed in assessing c#sto ers1 response to a fir 1s arketing effort for its brand. Fne not f#ll& incl#de the contrib#tions a& arg#e that the 3a& arketing costs are eas#red does arket

ade b& other depart ents of a fir

for the brand1s

perfor ance. 2or e0a ple, a reliable prod#ction process 3ith fe3 defects, and their effect of arket sensing and responding capabilities arketing costs on the

oti%ated e plo&ees

a& also directl& or indirectl& infl#ence the

arket perfor ance of a brand. We recogni)e this potential, and

s#ggest that relati%e change is a 3a& to resol%e this proble . "ince these other contrib#tions are relati%el& stable o%er ti e, relati%e changes of contrib#tion b& arketing arketing s#rpl#s and efficienc& 3o#ld reflect the eas#re. ,he positi%e, anage ent control.

ore acc#ratel& than the absol#te le%el

negati%e, or no change 3o#ld be #sef#l infor ation for the brand *ncluding /ag Effects ,he MAR."$R/

eas#re does not incorporate a ti e lag bet3een so e

arketing

in%est ents 5costs9 and their re%en#e ret#rn. While considerable research 5Pa#3els, !anssens, "iddarth 4774> Deki pe and !anssens +::8> Mela, @#pta, *eh ann +::=9 s#ggests that o#tp#ts of arketing efforts are obser%ed onl& after a ti e lag, 3e e0cl#de a lag for se%eral reasons. 47

2irst, the ti e lag %aries, depending on the t&pes of in%est ent 5e.g., ad%ertising, package design, sales pro otions, etc.9. "ince different t&pes of ret#rn hori)ons, a different ti e lag /sti ating the arketing in%est ents ha%e different arketing in%est ent.

#st be specified for each t&pe of

agnit#de of the lag effect o%er ti e is e-#all& challenging as it is not onl& arketing in%est ents 5the good3ill or de andAsti #lating arketing in%est ent 5e.g., ho3 good the arket and co petiti%e

affected b& the nat#re of

ad%ertising9 b#t also b& the effecti%eness of the ad%ertising ca paign is9. *ag effects factors 3hich

a& also be highl& dependent on

a& change o%er ti e. We a%oid #se of

#ltiple ti e lags for different

in%est ents b& s#ggesting that brand e-#it& be

eas#red on a one &ear ti e hori)on. ,his oderateAter ti e hori)on. B& eas#ring

hori)on is s#fficientl& long to incorporate short and

brand e-#it& o%er a relati%el& longer ti e inter%al 5longer than one &ear9, lag effects sho#ld also be ter ini i)ed to the e0tent that the longer ti e hori)on sho#ld reflect short, lag effects. edi# and longA

"ractiti(ner Appeal ,he Marketing "cience Instit#te 5M"I, +:::9 identified operational iss#es rele%ant to practitioners in the assess ent of brand e-#it&. "#ch appeal to the e0tent that the& pro%ide> 5+9 ease of and 5D9 int#iti%e appeal. /0isting brand e-#it& etrics 3o#ld ha%e ore 3ideAspread

eas#re, 549 ease of #se, 5?9 diagnostic %al#e,

etrics %ar& considerabl& on these operational etrics on these criteria. etric does not re-#ire

criteria. ,he MAR."$R/ has distincti%e ad%antages o%er other With respect to ease of

eas#re ent and #se, the MAR"$R/

ne3 data. ,he three %ariables that it incl#des are based on a%ailable brand infor ation. Moreo%er, the %ariables are ob<ecti%el& identifiable, reliable and tractable. ,he in%ol%es ease of #se b& %irt#e of its co p#tational si plicit&. ,he %al#e as the etric also

eas#re pro%ides diagnostic

arketing s#rpl#s and efficienc& co ponents pro%ide independent infor ation 4+

regarding the brand1s health. 2inall&, the el#cidated in the disc#ssion of the ,he MAR."$R/ fro

eas#re1s int#iti%e appeal has hopef#ll& been arketing efficienc& co ponents.

arketing s#rpl#s and

etric is also eas& to operationali)e and #se as it does not re-#ire data

a referent brand. Concept#all&, brand e-#it& is dri%en b& the brand1s abilit& to create strong specific co petitors. akes the inp#t re-#ired to

marketing surplus and efficiency, not b& its abilit& to o#tAperfor

Fperationall&, the o ission of infor ation abo#t co peting brands co p#te the brand e-#it&

etric less onero#s, facilitating its #se for internal and acco#nting ade bet3een brands in ter s of their relati%e e-#it&, eas#re of brand e-#it& itself and are ade for

based p#rposes. While co parisons can be these co parisons are not ende ic to the

diagnostic 5not %al#e assess ent9 p#rposes.. Gotabl&, the proposed referent brand. ,he etric can be #sed to diagnose brand health independent of a arketing s#rpl#s and the le%el of arketing efficienc&

agnit#de of

indi%id#all& offer critical infor ation abo#t the relationship a ong the price le%el, de and, and arketing costs 55%t J MCt9 * Qt9. /ach entit& carries critical infor ation abo#t the stat#s of a brand1s %al#e. B& plotting a brand1s %al#e on t3o a0es 5one a0is representing and the other a0is representing 5see 2ig#re +9. ,his assess ent arketing s#rpl#s

arketing efficienc&9 one can locate the stat#s of a brand1s %al#e a& then be co pared 3ith %al#e attained at a pre%io#s period or

3ith the %al#es of the co peting brands. ,he for er s#ggests the infor ation abo#t ho3 the arketing in%est ent in a brand perfor s o%er ti e. ,he latter offers infor ation abo#t the relati%e co petiti%e ad%antages in the brand1s ,he MAR."$R/ etric arketing effort.

a& also be #sed 3ith other perfor ance indicators to a#g ent etric a& be co pared 3ith brand

a fir 1s diagnosis i pro%e ent potential. "pecificall&, the profit so as to e0a ine changes fro

the pre%io#s period 5see 2ig#re 49. ,his co parison 3o#ld

offer infor ation abo#t the so#rce of potential discrepancies bet3een brand %al#e and profit. 2or 44

e0a ple, if brand %al#e i pro%es fro concl#de that the decrease in profit fro operations s#ch as inefficienc& 3ith the

the baseline period 3hile profit decreases, one can the baseline period is d#e to proble s in internal an#fact#ring andKor other ad inistrati%e costs. Fn the e0ists 3ith the brand1s arketing effecti%eness.

other hand, if the re%erse occ#rs, the proble ,he proposed

etric also enables the additional diagnostic assess ents. "pecificall&, arketing in%est ent is reflected in the brand1s re%en#e arketing effecti%eness. !ighl& effecti%e arketing 3ill

infor ation on the speed at 3hich the offers i portant infor ation abo#t the reali)e ret#rns on a& aid a fir

arketing in%est ents sooner as opposed to later. Moreo%er, s#ch infor ation arketing in%est ents for f#rther re%en#e gro3th.

in its decision to increase its

'iscussi(n While the proposed eas#re is a o%e to3ard an acco#nting and arketing rele%ant a&

etric, it sho#ld be e%al#ated in the conte0t of the bo#ndar& conditions described belo3 that li it its #sef#lness. T"e oundary of Marketing 7uncti(ns. As noted earlier, proposed eas#re are defined and eas#red in a arketing costs in the traditional

anner that differs fro

concept#ali)ations. Marketing f#nctions are described as those acti%ities 5perfor ed b& %ario#s depart ents9 designed to facilitate c#sto er ac-#isition and retention. ,he& incl#de costs associated 3ith deri%ing and co bet3een the fir #nicating brand %al#e and re o%ing transaction barriers arketing 5and hence arketing

and its c#sto ers. ,his e0panded %ie3 of

costs9 is <#stified b& the fact that 3hen c#sto ers assess the %al#e of a brand for p#rchase or rep#rchase, the& do not consider the perfor ance of different depart ents of the organi)ation. ,he& si pl& consider the brand1s perfor ance, s& bolic, aesthetic, and ac-#isition benefits and costs of the brand relati%e to co peting brands. ,heir endo3 ent to a brand is hea%il&

4?

infl#enced b& all the acti%ities re-#ired for c#sto er ac-#isition and retention. Marketing f#nctions and costs sho#ld th#s be #nderstood and eas#red, accordingl&. eas#re, incl#ding the MAR."$R/ eas#re b& brand

Potential #nflation of Measured rand E!uity. Go etric, is i #ne to the is#se or the #ndesirable

anip#lation of the

holders. With the MAR."$R/

etric, for e0a ple, brand holders

a& be te pted to red#ce

arketing costs so as to increase brand e-#it&. Brand holders ter sales pro otions, creating shortAter

a& engage in aggressi%e shortA

re%en#e spikes. Gotabl& tho#gh, these tactics co e at a& also be ini i)ed if

the e0pense of longAter

brand e-#it&. ,hese te ptations and effects effects

brand e-#it& is assessed on a &earl& basisE3hen short ter Co parisons across &ears sho#ld also

a& ha%e settled o#t. eas#re so as to look ight also

ini i)e te ptations to ga e the

opti all& strong in the long r#n. ,o disco#rage a shortAter reco end a relati%el& longAter

orientation, one

basis 5e.g., ? &ears9 on 3hich a brand

anager1s perfor ance

can be <#dged. #ncorporating E$pected %uture Earnings. $nlike other eas#res 5e.g., Interbrand9, etric.

MAR."$R/ does not incorporate e0pected f#t#re earnings as part of the brand e-#it& ,heir incl#sion 3o#ld %iolate criteria of ob<ecti%it& and reliabilit& 3hich are critical to an acco#nting based

etric. /sti ates of f#t#re earnings potential in%ol%e both s#b<ecti%e <#dg ent

and #ncertaint& 5Aila3adi et al. 477?9 3hich negati%el& i pact agree ent on assess ent. Ge%ertheless, those 3ho are interested in the f#t#re earnings potential of a brand 5e.g., financial anal&sts9 co#ld incorporate f#t#re %al#es after the MAR."$R/ etric has been deri%ed. As is a& be considered as an

tr#e 3ith #se of an #nna ed or referent brand, f#t#re earnings potential operational ad<#st ent to the proposed brand e-#it& concept#ali)ation or operationali)ation.

eas#re, not ende ic to its

4D

rand E!uity of &ot'%or'Profit rands. The proposed MAR."$R/

eas#re considers

onl& the e-#it& of profitAoriented fir s. Clearl&, ho3e%er there are n# ero#s respected and tr#sted brands in the nonAprofit sector, incl#ding A nest& International, World Wildlife 2#nd, @reenpeace, International Red Cross, !# an Rights Watch, F0fa , and CAR/ 5O#elch and *aidlerA.&lander 47789. De%elop ent of a brand e-#it& clearl& 3arranted. T"e Unit of (nalysis for rand E!uity. ,he #nit of anal&sis for the proposed a branded prod#ct. We reco eas#re is eas#re for notAforAprofit brands is

end that %ariations 5e.g., line e0tensions9 of the initial brand

sho#ld be treated as part of the initial brand. !o3e%er, a ne3 prod#ct 5e.g., brand e0tensions9 that e0tends fro this e0isting brand 3o#ld therefore ha%e its o3n e-#it&. !ence 3e disting#ish that of its e0tension. ,h#s, for e0a ple, the e-#it& of !ein)

the e-#it& of the original brand fro

pickles and !ein) ketch#p is esti ated separatel&. Assessing e-#ities separatel& is <#stified since the& differ in 3a&s that affect brand e-#it& 5differences in e phasis on reso#rce in%est ent, etc.9. It is also possible to brand e-#it& a& also be eas#re brand e-#it& at the higher le%el of aggregation. "pecificall&, eas#red at the prod#ct line le%el, "B$ le%el, or the corporate le%el. arkets and the fir 1s relati%e

"pecificall&, there are t3o different 3a&s in 3hich one can esti ate brand e-#it& at the higher le%el of aggregation. Fne 3a& is to based on total sales re%en#e and total brand e-#it& is not the s# eas#re the e-#it& of the corporate brand, for e0a ple, @ap, arketing costs #sing the MAR."$R/ for #la. !ere,

of the e-#it& of its indi%id#al prod#ct brands b#t rather e-#it& of the arketing s#rpl#s co ponent of the MAR."$R/A a single brand to a co plete line of of the arketing s#rpl#ses of

o%erall co pan&. ,his is beca#se 3hile the based brand e-#it& prod#cts 5i.e., the each prod#ct9, the

eas#re can be aggregated #p fro

arketing s#rpl#s of a prod#ct line is the s# arketing efficienc&

#ltiplier cannot be aggregated so readil&. Another 3a& 48

is to

#ltipl& the s#

the

arketing s#rpl#s of each prod#ct brand of a corporation b& a arketing efficienc& of each prod#ct. ,he arketing efficienc& of a

3eighted a%erage of the

corporate brand 5or a 3hole prod#ct line9 is a 3eighted a%erage of all the indi%id#al prod#ct le%el arketing efficiencies 3here the 3eight associated to each prod#ct is its dollar share of the 3hole corporation 5or a 3hole prod#ct line9. ,o ill#strate, let #s co pare the arketing efficienc& of a 3hole prod#ct line to the arketing efficienc& of a prod#ct

arketing efficienc& of each of its indi%id#al prod#cts. ,he

line is M*,ine

,otal Marketing Costs + = + = + i =+ ,otal Re%en#es

mci #i . ,he arketing efficienc& of prod#ct i in


i i

p#
i =+

the prod#ct line is M*i = +

mci #i . We can th#s e0press the pi #i

arketing efficienc& of the prod#ct

line as a 3eighted a%erage of the efficienc& of each of its prod#ct as follo3sI


+ mc # + mc # = wi M*i = wi + i i = wi wi i i =+ pi #i i =+ pi #i i =+ i =+ i =+ + +

M*,ine

mc #
i =+ +

i i

p#
i =+

i i

,he last e-#alit& is tr#e onl& if 3e set the 3eights to be e-#al to the share of each prod#ct in the

prod#ct line 5i.e.,

wi =

pi #i

p#
i =+

9. In short, the

arketing efficienc& of a prod#ct line is e-#al to

i i

the sales 3eighted a%erage of the

arketing efficienc& of each of its prod#cts.

4H

2inall&,

eas#ring brand e-#it& at the indi%id#al fir

le%el

a& offer i portant

i plications for assessing ro&alt& fees to be charged b& a conglo erate to its s#bsidiaries for #se of its brand na e. 2or e0a ple, an& conglo erates s#ch as @/, "on&, "a s#ng, Gestle,

!itachi, etc. ha%e their o3n s#bsidiar& fir s 3hich #se their na es. "ince each s#bsidiar& fir 1s e-#it& directl& and indirectl& infl#ence the conglo erate1s brand e-#it&, it is i portant for the conglo erate to ens#re that each s#bsidiar& stri%es for i pro%ing its o3n brand e-#it&. ,herefore, conglo erates a& ha%e to en%ision co pensation s&ste s 5e.g., ro&alt& fee

assess ent9 that re3ard C/Fs of indi%id#al s#bsidiar& fir s based on their perfor ance on their brand e-#it&. 2or e0a ple, those 3ho perfor ed 3ell in the pre%io#s &ear ro&alt& fee than those 3ho did not. a& be charged less

4=

A""E?'*+

,3o ill#strati%e e0a ples #sing the MAR."$R/

etric are sho3n belo3. ,he

infor ation in ,able ? 5A and B9 sho3s the internal financial data for an indi%id#al brand 5readil& a%ailable to a fir 9. In these e0a ples brandAe-#it&Arelated the total %al#e of a brand as 3ell as ho3 a fir perfor s its etrics are #sed to assess

arketing operations 5,able ?AC9.

Referring to ,able ?AA, consider the internal financial data abo#t the brand Cr#ise. 2or this infor ation, it is -#ite diffic#lt to readil& identif& 3hether or not there is a proble 5opport#nit&9 3ith respect to the brand1s operations and %al#e. "e%eral ke& statistics dra3 o#r attention. 2irst, the contin#o#s re%en#e increase o%er the fi%e &ears is a good sign. "o is the contin#o#s increase in and argin before arketing d#ring the sa e period. ,he brand1s profit, RFI,

arketingKsales ha%e been stead& o%er the fi%eA&ear period. Fn the other hand, the a& certainl&

contin#o#s decrease in RF" 5ret#rn on sales9 is so e3hat tro#bleso e. Fne

identif& the decreasing RF" fig#res as a possible ca#se for concern. B#t ho3 sho#ld one interpret these fig#res in ter s of the decreasing fig#res necessaril& arketing perfor ance of a brand and its %al#eS Do these arketing perfor ance and its %al#eS

ean the decreasing

,he anal&ses beco e e%en

ore co plicated 3hen Cr#ise is co pared 3ith another

brand, Boo . Boo 1s financial state ents are sho3n in ,able ?AB. Boo 1s re%en#e gro3th is -#ite s#bstantial 3hile profit re ains both stead& and identical to that of Cr#ise. !o3e%er, its RF" and RFI ha%e declined o%er ti e. @i%en this infor ation, it is diffic#lt to assess 3hich brand is better in their e-#it& anage ent and arketing perfor ance. B& appl&ing ake s#ch assess ents. arketing efficienc& and brand arketing

s#rpl#s and efficienc& indicators, one

a& be readil& able to

,able ?AC contains infor ation abo#t

arketing s#rpl#s,

e-#it& 5%al#e9 for Cr#ise and Boo . Considering the conflicting infor ation bet3een the t3o brands, the %erdict is -#ite clear 3hen one co pares the t3o in ter s of arketing s#rpl#s, 4;

arketing efficienc& and the brand e-#it&. While the t3o are rather si ilar in efficienc&, Boo is #ch stronger in

arketing

arketing s#rpl#s and th#s brand e-#it& 5 ore than t3ice brand anager is doing a #ch better

in brand e-#it& at the end of &ear 89. Moreo%er, the Boo

<ob than his co#nterpart at Cr#ise as re%ealed b& changes in brand e-#it& o%er ti e. ,he agnit#de of increase in brand e-#it& o%er the 8A&ear period clearl& sho3s far greater potential for Boo than for Cr#ise.

4:

Table 1: Review of Existing Measures of Brand Equity Perspective s #ut$ors Park and Srinivasan (1994) Added value endowed by a brand as perceived by a consumer $iew % &# Customer Based Kamakura and Russell (1993) Component of the brand's value that cannot be directly attributed to its physical features Swait et al. (1993) Equalization price (EP) which equates the utility of a brand with the utility of a brand in a market with no brand differentiation erforman!e "ut!ome Based Ailawadi et al (2003) evenue premium of the brand compared to a private label brand Interbrand E!cess of the brand's estimated after"ta! profits over the #eneric after"ta! profits multiplied by brand stren#th Financial Marketplace Based Sim n and Sullivan (1993) $ntan#ible asset which is the fraction of firm's replacement value A Brand Holders Perspective !ARKS"R# ! del %alue of a brand is determined by considerin# both customers& input (i'e'( sales revenue) and the firm&s input (i'e'( marketin# costs) A firm&s internal accountin# data 1arketin# surplus (4 t " 41Ct ) and marketin# efficiency (56"( 41Ct / 4 t )5)

S ur'es % (ata used t ' m)ute t*e &# !easure

E!pert survey and consumer survey *ifference between consumer's overall preference and ob,ective multi" attribute preference 3on" attribute" based and attribute" based

)in#le" source scanner panel -rand intan#ible value created by brand name associations and perceptual distortions emainder of brand value after accountin# for price and advertisin#

*iscrete choice e!periment

)tore"level scanner data

+inancial statement and brand stren#th multiplier 3et brand" related profits and brand stren#th

)tock price and Compustat financial statement Current and past advertisin#0 advertisin# share0 brand a#e0 order of entry

(eterminants % &#

-rand name( product attributes( brand ima#e( consumer hetero#eneity( and usa#e

+ature % in)ut data

Price of a brand( total utility of a brand( and price coefficient

.wn marketin# mi!/price0 competitor 1i!/price0 cate#ory characteristics0 firm stren#th (e'#'( ima#e( 2* capabilities) %olume of brand0 price of brand0 volume of private label0 price of private label

.peratin# income of a brand and #eneric brand( a brand stren#th multiplier 7eneric brand

*emand enhancin# components0 cost reducin# components

Re%erent

1ean equity scaled to zero -E 9 non" attribute" based : attribute" based component

1ean equity scaled to zero -rand value 9 intan#ible value (-E) : tan#ible value

BE Estimation

-rand in a market with no product differentiation EP 9 price " (total brand utility of consumer ; price coefficient)

Private label brand

8nbranded product

Price and the quantity sold at the intermediary level (wholesale or retail) and all the itemized marketin# costs 3o referent

-E 9 revenue (brand) " revenue (private label)

-E 9 (brand profit " #eneric profit) < brand stren#th

-E 9 adv(t) : adv (t"6) : a#e : brand" based share

-E 9 (4 t " 41Ct) ! (56" (41Ct /4 t)5)

?7

Ta!le1: An E@a6ple f(r AdAusting Marketing Surplus ;ith Marketing Efficiency Brand A Price O Marketing Costs Marketing "#rpl#s Marketing /fficienc& Brand /-#it& Q+7.77 +7 Q+.77 Q:7.77 7.: Q;+.77 Brand B Q47.77 +7 Q++.77 Q:7.77 7.D8 QD7.87

Where Marketing "#rpl#s 55Pt A MCt9 * Ot is Q:0+7PQ:7 for Brand A and Q:0+7PQ:7 for Brand B, respecti%el&, and Marketing /fficienc& 5+A =,MCtKPt*Ot>9 is +A7+P7.: for Brand A and +A 7.88P7.D8 for Brand B, respecti%el&.

,able ?I Ill#strati%e /0a ples for Assessing Brand /-#it& and Marketing Perfor ance ?+

,able ?AA All Q in 5,ho#sands9 Re%en#e Margin Before Marketing Marketing Profit Margin 5T9 RF" Lear on Lear Re%en#e @ro3th In%ested Capital RFI ,able ?AB Boo All Q in 5,ho#sands9 Lear + Lear 4 Lear ? Lear D Re%en#e Q+;? Q+,+H= Q+,=77 Q4,88? Margin Before Marketing Q+48 Q+=8 Q488 Q?;? Marketing Q+77 Q+87 Q4?7 Q?8; Profit Q48 Q48 Q48 Q48 Margin 5T9 +8T +8T +8T +8T RF" ?.7T 4.+T +.8T +.7T Lear on Lear Re%en#e @ro3th J D7T DHT 87T In%ested Capital Q877 Q847 Q884 QH7? RFI 8.7T D.;T D.;T D.+T GoteI ,he abo%e infor ation abo#t Cr#ise and Boo 3as fro a book b& +arris( -endle( Pfeifer( (?@@A9. ,able ?AC Lear + +,?47 +=? +,+D= ;H.:T ::= Lear 4 +,?;8 +;? +,474 ;H.;T +,7D? Cr#ise Lear ? +,DH? +:D +,4H: ;H.=T +,+7+ Lear D +,88= 47: +,?D; ;H.HT +,+H= Lear 8 +,H=7 44H +,DDD ;H.8T +,4D: Lear + +;? +77 ;? DH.7T ?;.+; Lear 4 +,+H= +87 +,7+= ;=.+T ;;H Boo Lear ? +,=77 4?7 +,D=7 ;H.8T +,4=+ Lear D 4,88? ?8; 4,+:8 ;H.7T +,;;= Lear 8 ?,:+: 8H? ?,?8H ;8.HT 4,;=D Lear 8 Q?,:+: Q8;; Q8H? Q48 +8T 7.HT 8?T QH;8 ?.HT eibstein Lear + Q+,?47 Q+:; Q+=? Q48 +8T +.:T J Q877 8.7T Lear 4 Q+,?;8 Q47; Q+;? Q48 +8T +.;T 8T Q87+ 8.7T Cr#ise Lear ? Q+,DH? Q4+: Q+:D Q48 +8T +.=T HT Q87? 8.7T Lear D Q+,88= Q4?D Q47: Q48 +8T +.HT HT Q878 8.7T Lear 8 Q+,H=7 Q48+ Q44H Q48 +8T +.8T =T Q87= D.:T

,otal Re%en#e ,otal Marketing Cost Marketing "#rpl#s Marketing /fficienc& Brand /-#it&

?4

7igure 2: *llustrati(n (f the Use (f T;( 'i6ensi(ns (f Brand Equity

Mar%eting &ur'lus

Period C Period B Period ?

Period 6

Mar%eting Effi!ien!y

??

7igure 1: Brand equity as an independent key perf(r6ance indicat(r

rofit
better same worse

better .perational efficiency problem same

Brand Equity

worse

-rand mana#ement problem

?D

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?8

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?H