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Chapter 6:

Measuring Brand
Equity
Contents
• Need for measuring brand equity
• Methods of measuring brand equity
• Financial measures
• Customer based measures
Need for measuring brand equity
Measuring brand equity helps us in the following ways:
• If we know the value of the brand, it is easier to accurately set royalty rates
and transfer prices.
• The value of a brand can help in boosting the share price by generating
positive public relations for the company.
• It helps the management effectively measure the return on investment (ROI).
• The brand valuation process helps throw light on a number of factors such as
the performance of the brand relative to the competition; it also helps
identify the strengths and weaknesses of the brand, and the various
opportunities in the market, and the opinion of the customers. This objective
opinion gives a useful insight into the performance of the brand.
Measuring Brand Equity
• Brand equity consists of two components—brand strength
and brand value—and to understand how customers
evaluate band equity, we need to have an understanding
of both these components
• Brand value or the financial performance
• Brand strength or customer based measures
Brand value
Brand value

• Cost-based valuation
• Market-based valuation
• Royalty relief method
• Economic use method
Cost based valuation
• The value of a brand is calculated on ‘the basis of what it actually
cost to create or what it might theoretically cost to recreate’ the
brand.
• Thus, ‘historical advertising and promotion expenditures, campaign
creation cost, trademark registration cost, etc.’, are taken into
account.
• This, however, does not correctly reflect the current value of the
brand, as the cost of generating a brand does not truly reflect the
income-generating potential of the brand.
Market-based valuation

• If information regarding ‘market transactions involving comparable


brands is available, it is possible to estimate one brand’s value by
comparing it with another brand.’
• This method is rarely used, as such data is scarce and due to the fact
that each brand is unique and it will be difficult to compare brands.
Royalty relief method
• This method is based on the assumption that if the company did not
actually own the brand, but had to license it from a third party, then
what royalty it would pay for using the brand name.
• This is estimated by calculating the sales likely to occur in the future
and ‘then applying an appropriate rate to arrive at the income
attributable to the brand royalties in the future years. The notional
brand loyalty is then discounted back to a net present value that is
the brand value.’
• This method is widely used in India, as it is favored by the fiscal and
tax authorities and the courts, because the calculation is based on
publicly available marketing and financial information.
Economic use method
• This method ‘takes into account the economic value of the brand
to the current owner in its current use.’
• This is the most widely used method and just like the valuation of
shares, it is a ‘cash-flow valuation’.
• This is measured by calculating the increase in gross profit due to
selling a branded product versus selling an unbranded product.
Brand strength
Brand strength
• Customer-based brand equity measures help in overcoming the
limitations of the financial measures as they help managers
evaluate marketing strategies.
• For example, promotional and positioning strategies can be
evaluated by customer-based measures and this evaluation can
help managers build sound long-term health of their brand.
• The two models that have been widely used to measure brand
equity are:
– Brand asset valuator model
– Aaker model
Brand asset valuator model
Quadrant 2: Quadrant 3:
High
Niche / Unrealized Leadership

Declin
(Future performance)

ing
Brand Strength

D R E K D R E K D=differentiation
Quadrant 1: Quadrant 4:
R=relevance
Unfocused / New Eroding E=esteem
K=knowledge

Low
DR E K D R E K
High
Low
Brand Stature (Current performance)
In-class exercise
Brand asset valuator - Examples
Quadrant 2: Quadrant 3:
High
Niche / Unrealized Leadership

Declining
(Future performance)
Brand Strength

Quadrant 1: Quadrant 4:
Unfocused / New Eroding

Low

High
Low
Brand Stature (Current performance)
Aaker Model

Market Behaviour Measures Loyalty Measures


Market share Price premium
Price and Distribution indices Satisfaction /loyalty

Measuring
Brand Perceived Quality/
Leadership Measures
Associations/ Equity Perceived Quality
Differentiation Measures
Leadership
Perceived Value
Brand Personality
Organizational Associations

Awareness Measures
Brand Awareness
Quick Recapitulation
• Need for measuring brand equity
• Methods of measuring brand equity
• Financial measures
• Customer based measures
Questions?