Measuring Outcomes of Brand Equity Capturing Market Performance

Measuring Brand Equity

Brand Equity is a multi-dimensional concept Many different measures required for comprehensive evaluation The ultimate value of a brand depends on the underlying components of brand knowledge and sources of brand equity

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Measuring Outcomes of Brand Equity Capturing Market Performance

Different measures used to measure brand equity

Comparative method Brand based comparative approaches Marketing based comparative approaches Conjoint analysis (combines both) Holistic methods Residual approaches Valuation approaches

Accounting background Historical perspective General approaches

Cost approach: BE is cost of reproducing or replace the brand Market approach: present value of the future economic benefits Income approach: discounted future cash flow from the future earnings stream

Measuring Outcomes of Brand Equity Capturing Market Performance

Measurement procedures used to assess impact of BKS on outcomes

Comparative Methods experiments examine

Consumer attitudes, behavior towards brand Estimate benefits arising from

awareness levels brand image

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods
Two types of comparative approaches 1. Brand-based comparative approach

Holds marketing program as fixed, and Examines consumer response to changes in brand identification Holds the brand as fixed and examines consumer response based on changes in the marketing program

2.

Marketing-based comparative approach

Conjoint analysis is used to combine the 2 approaches

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods 1. Brand-based comparative approaches Holds marketing element fixed and examines response based on changes in brand identification

Experiments - to find out how consumers react to an ad campaign, new promotion offer, new product

One group of customers respond to questions about the product / aspect of the marketing program when it is attributed to the brand One or more groups respond to the same product / aspect of the marketing program attributed to other brands (real or fictitious) Response of the 2 groups are compared to get insight about BE

Competitive brands become useful benchmarks in this approach Consumers may a have particular brand, product category or an exemplar (category leader / or a brand considered to be representative of the category

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods 1. Brand-based comparative approaches
Application Used for Brands existing products, extensions, pricing margins, premiums, etc.

Blind test research product is used / examined without a brand name Checking Mar. Com. is sometimes a challenge

Rational advtg. is easier to check Brand knowledge than Transformational type of ads (where production values are critical to achieve the communication goal) are difficult to check for brand knowledge

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods Critique Brand-based comparative approaches
Advantages of comparative approach

Isolates the brand value in a real sense by holding the marketing program fixed important for developing strategies Variety of marketing strategies can be studied and different applications can be examined Useful to study new marketing programs (but not for ongoing programs associated with the Brand) Detailed concept statement required for respondents to examine / experience elements of the marketing program / respond to new initiatives. But this may also make the new attributes more salient and distort results

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods 2. Market-based comparative approaches

Holds brand as fixed and examines consumer response based on changes in marketing program Application used for a long time

For demand curves and price sensitivity and thresholds of many brands Intel Different advertising strategy executions, or media plans in multiple test markets Potential brand extensions explored by evaluating a range of concept statements of brand extension candidates

Contrasting those approved, with those not approved, gives an indication of the nature of CBBE

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods Critique - Comparative approaches

Main advantage is ease of implementation

Virtually any set of marketing actions can be compared

Main drawbacks difficult to discern if consumer response is caused by brand knowledge or more generic product knowledge

Hence findings may be applicable to any brand

One way to determine whether it is specific to the brand is to conduct similar tests for competitive brands using Conjoint analysis

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods 3. Conjoint analysis A multivariate, survey based technique that profiles consumer decision process with respect to products and brands

Asks consumers to make choices among different product profiles Research determine the tradeoffs consumers are making between brand attributes and the importance attributed to those attributes

Each profile shown to the consumers is made up of a set of attribute levels Particular attribute levels are chosen on the basis of experimental design principles to satisfy certain mathematical properties Value that consumers attach to each attribute level (as derived by the conjoint formula) called the part worth, is used to evaluate how consumers will value a new combination of attribute levels

Brand name must be an attribute to reflect its value (part worth)

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods 3. Conjoint analysis Application Brand /price tradeoff methodology a means of assessing advertising effectiveness and brand value

Series of simulated purchase choices between different combination of brands and prices Each choice triggers increase in the price and of the selected brand compelling a trade off between choosing a preferred brand and paying less Thus revealing how much their brand loyalty is worth Which brands would be abandoned for a lower price

Other variations used to assess brand image and equity

How brand names interact with product features to affect extendibility to other categories Corporate image programs to determine the company attributes that are Relevant to customers Rank the importance of those attributes Estimate the cost of making improvements Prioritizing image goals for maximum customer value for resource spent

Measuring Outcomes of Brand Equity Capturing Market Performance

Comparative Methods Conjoint analysis Critique

Main advantage allows simultaneous study of different brands, different aspects of product, or of marketing program

Information can be recovered for both competition and own brand

Disadvantages marketing profiles that violate expectations based on what is known about the brand may be presented

Unrealistic product profiles / scenarios should not be presented

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods attempts to place an overall value on the brand in concrete financial terms

Residual approaches uncovers BE by what remains of consumer preferences and choices after subtracting physical product effects

the incremental preference over and above that which would result for the product without brand identification

Valuation approaches attempts to place a financial value on BE for accounting purposes, A&Ms, etc.

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Residual approaches Kamakura and Russell

Consumer purchase histories from scanner data used

To study choices made by the panel of consumers as a function of shelf price, promotions, displays, physical characteristics of brands and residual term BE By controlling other aspects of the marketing mix, an attempt is made to estimate that aspect of the brand preference that is unique to the brand The output of this approach are

Estimates of benefit segments Cross-price elasticities for segments and the entire market And equity measures for each brand

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Residual approaches Swait and Louvier

Designs choice experiments that account for brand names, product attributes, brand image, and usage, differences in consumer sociodemographic characteristics The equalization price is defined (price that equates the utility of the brand to utilities that could be attributed to the brand, where no differentiation occurs) proxy for BE

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Residual approaches Park and Srinivasan

Based on multi-attribute attitude model BE is divided into components attribute based and non-attribute based to reveal sizes of different BE bases

Attribute based component of BE - difference between subjectively perceived attribute values and objectively measured attribute values Non-attribute based component difference between subjectively perceived attribute values and overall preference and reflects the consumers configural brand appraisal Survey procedure is used to collect information to estimate these different perception and preference measures

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Residual approaches Critique
Provides a useful benchmark for interpreting BE particularly when approximations of BE are needed for a financially oriented perspective Disadvantage Appropriate for brands with product related attribute associations (unable to distinguish between different types of non-product related attributes thus diagnostic value is limited) Takes a static view of BE in attempting to identify sources of consumer preferences to uncover the contribution by the brand (unlike brand and marketing based competitive approaches that are process based that attempt to assess how consumers will react to new marketing activities)

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches ability to put a price tag on a brands value. Application

Mergers and acquisitions (for purchase / disposal) Brand licensing (to third parties and for tax purposes) Fund raising (collateral for loans and leaseback arrangements Brand management decisions to allocate resources, develop brand strategy, prepare financial resources

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches to put a price tag on brands value.

Balance sheets are adjusted to reflect true value of the brand purchase premium to book value No conventional method for estimating capital required by brands, and the expected afteracquisition ROI of a company Accounting background is an approach that is used

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches Historical Perspectives

A way to strengthen presentation of a companys accounts, record hidden assets, enhance company shareholders funds, improve its earning ratio, etc. and increase the assets value of the firm Actual practices vary across countries
Rupert Murdochs New Corporation was one of the first to put magazines valuation on balance sheet

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches Accounting Background Assets are classified as either

Tangible property, plant, equipment, current assets, investments in stocks and bonds

Accounting book values, estimates of replacement costs, considered

or Intangible factors of production, or specialized resources that allow the company to earn cash flows in excess of the return on tangible assets Goodwill items - Patents, trademarks, licensing agreements, skills of management and customer relations, premium paid which exceeds the value of tangible and intangible assets in an acquisition

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches General Methodology

In A&Ms 3 main approaches are possible

1. 2. 3.

The cost approach The market approach The income approach

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches

General Methodology 1. The cost approach (replacement cost approach) BE is the amount of money that would be needed to replace the brand (R&D, marketing etc)

The disadvantage of the approach are

Considers past performance - may have little or no bearing on the future profitability With old brands - to find out the true investment in the brand may be impossible, and irrelevant as well Easier to estimate costs of tangible assets than intangible assets that is at the heart of BE Problems exist with replacement cost approach - depends on how quickly the process would take, and the what legal, logistical and other obstacles may be encountered

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches General Methodology
2. Market approach BE is thought of as the present value of future economic benefits Disadvantage

Lack of open transactions for brand name assets Uniqueness of the brand makes extrapolating from one transaction to another problematic

Measuring Outcomes of Brand Equity Capturing Market Performance

Holistic Methods Valuation approaches
General Methodology 3. Income approach BE is the discounted future cash flow from the future earnings stream for the brand Three income approaches are
1. 2.

3.

Capitalizing royalty earnings from a brand name Capitalizing premium profits earned by branded products (by comparing it with unbranded products) Capitalizing the actual profitability of a brand after allowing for costs of maintaining it and the effects of transactions

Interbrands Brand valuation Methodology based on income approach

Interbrands Brand Valuation

Interbrands Brand valuation Methodology based on Income Approach To estimate brand value, Interbrand determines:

Projected future earnings for the brand

-- AND --

The discount rate to adjust earnings for inflation & risk.

Brand earnings are based on a 3-year weighted average of historical profits that exclude a number of considerations that do not relate to the brand identity.

Interbrand
LEADERSHIP (25%) Market Share Awareness Positioning Competitor Profile STABILITY (15%) Longevity Coherence Consistency Brand Identity Risks SUPPORT (10%) Consistency of message Consistency of spend Above vs. below line Branch franchise

To adjust these earnings, an in-depth assessment of brand strength based on seven factors is conducted:
MARKET (10%) What is the market? Nature of the market (e.g., volatility) Size of market Market dynamics Barriers to entry TREND (10%) Long term market share performance Projected brand performance Sensibility of brand plans Competitive actions INTERNATIONALITY (25%) Geographical spread International positioning Relative market share Prestige Ambition

PROTECTION (5%) Trademark registration & registrability Common law Litigation/disputes

Measuring Brand Equity

By David Aaker

Brand Equity Ten by David Aaker

Loyalty measures
1. 2. Price premium Satisfaction / loyalty Perceived quality Leadership / popularity - esteem

Perceived quality / leadership measures

3. 4.

Association / differentiation measures

5. 6. 7. Perceived value Brand personality Organizational associations Brand awareness
Market share Market price & distribution coverage

Awareness measures
8.
9. 10.

Quanity and Qualy research used to measure equity

Market behavior measures

Y&Rs Brand Asset Valuator

Brand Strength = differentiation x relevance
Differentiation (how distinctive is the brand) Relevance (how meaningful is the brand)

Brand Stature = esteem x knowledge

Esteem (high regard, perceived quality) Knowledge (understanding what the brand stands for)

Equitrend by Total Research

Three BE assets are combined into a BE score

Salience (brand awareness plus knowledge) Perceived quality (liking, trust, pride, willingness to recommend)

User satisfaction (based on use experience)