Measuring Brand Equity

Measuring Brand EquityOUR PERSPECTIVEMarch, 2012

Who Are We? INTRODUCTIONS  Brand Amplitude is an insights-based brand strategy consulting firm.  Clients include CPG, Retail, B2B, Higher Education, Healthcare.  Relationships are led by experienced marketing practitioners and industry thought leaders, Carol Phillips and Judy Hopelain.  Supported by a virtual team of research, analytic and consulting associates. Client-Side Consulting Agency Business Faculty Illuminations Accenture JWT Patagonia BCG Leo Burnett Whirlpool Prophet Mullen Swander Pace & Co. Y&R A strong brand is one of a company’s most important assets. By growing brand equity, marketers help achieve the organization’s business objectives.2012 Brand Amplitude, LLC All Rights Reserved 1 May not be reproduced without permission

What Services Do We Offer? INTRODUCTIONS  We help clients solve strategic business and brand issues by leveraging a range of proven tools and frameworks. – Brand audit – Market segmentation – Target insights (motivations, culture and decision-making) – Brand identity and rallying cry – Brand positioning – Brand architecture – Brand activation – Brand measurement2012 Brand Amplitude, LLC All Rights Reserved 2 May not be reproduced without permission

Why Measure Brand Equity? BRAND EQUITY MEASUREMENT  Metrics are an integral part of the brand strategy process. Reasons to Measure Brand Equity Strategic Marketing Framework  Understand drivers of brand strength in I. Business Strategy order to support strategic decision – making. II. Brand Strategy – Architecture, Identity & Positioning  To evaluate performance of brand management in increasing equity over III. Go-to-Market Strategy time. Value Proposition  To evaluate efficacy of brand building programs -- ROMI. Messaging & Offer Design Customer Experience  To assess the value of the brand for purposes of licensing or sale. IV. Marketing Execution & Metrics2012 Brand Amplitude, LLC All Rights Reserved 3 May not be reproduced without permission

Brand Equity vs. Brand Value BRAND EQUITY MEASUREMENT  Brand value and brand equity are not the same. Brand value is a financial measure specific to a point in time that is especially useful in M&A or licensing. Brand equity represents the potential for your brand to impact your business. “(For most companies) the operative question is less what their brand is worth than what their brand could do for them in terms of revenue and profit. …gaining an understanding of the causal activities related to the changes would make brand equity measures more actionable.” -- Tom Reynolds & Carol Phillips “In Search of True Brand Equity Metrics: All Market Share Ain’t Created Equal” Journal of Advertising Research, 2005 2012 Brand Amplitude, LLC All Rights Reserved 4 May not be reproduced without permission

Brand Equity: What Do Experts Recommend? BRAND EQUITY MEASUREMENT  Little consensus among experts about the best way to measure brand equity. Key Issues: • Definition of equity – brand value vs. impact of customer knowledge • Measurement complexity – many components, unclear weights • Accountability – hard to relate to market share, profitability • Actionability – hard to link to marketing activities, spend, programs • Engagement – limited organizational uptake of results Leading Brand Equity Measures & Sources Source: Journal of Advertising Research, June 20052012 Brand Amplitude, LLC All Rights Reserved 5 May not be reproduced without permission

How Is Equity Usually Measured in Practice? BRAND EQUITY MEASUREMENT  Brand equity is usually measured through easy-to-obtain ‘proxies’ such as awareness or market share. “’There is no consistent definition of ROI.’ Marketing organizations are instead using "surrogate" metrics, ranging from input-related metrics such as awareness and brand image in financial services to market share and growth in consumer packaged goods companies.” -- ANA/Booz Allen survey October, 2004. Most commonly used metrics: Changes in brand awareness 81% Changes in market share 79% Changes in consumer attitude toward the brand 73% Changes in purchase intent 59% Return on objective 36% Lifetime customer value 23% Changes in the financial value of brand equity 20% Source: ANA, State of ROMI Measurement, 2007 2012 Brand Amplitude, LLC All Rights Reserved 6 May not be reproduced without permission

Little Standardization – Many Opinions BRAND EQUITY MEASUREMENT  Each industry and consulting firm defines equity in terms that are specific to its model or unique needs. Sample of Industry Brand Measures Leading Brand Measurement Firms  Soft Drink – Which brand of soft-drink do I consume most often? – Which is my first preference of soft drink brands – Top two boxes purchase intent or which brand do I expect to consume on my next consumption occasion?  Wireless – Brand owned/used – Intention to Switch in next 3, 6, 12 months? – What brands would I consider purchasing?  Packaged Food – Price and Quality perceptions – Number of purchases of last 10 allocated to each brand – Future intent to buy 2012 Brand Amplitude, LLC All Rights Reserved 7 May not be reproduced without permission

What Is the Best Proxy for Brand Equity? PERCEPTIONS IMPACT BEHAVIOR  Brand equity resides in the minds of customers. The best ‘proxy’ is one that best captures that intangible idea that impacts choice. “Customer-based brand equity is the differential effect that brand knowledge has on customer response to the marketing of that brand.” -- Kevin Keller, Strategic Brand Management, 2008, p. 48 $1.99 $4.18 $2.29 Which jar would you choose? The decision is not driven by price alone, but moderated by the sum of your experiences with the brand. This is what enables some brands to charge a premium, while others cannot. 2012 Brand Amplitude, LLC All Rights Reserved 8 May not be reproduced without permission

Brand Equity Defined BRAND EQUITY MEASUREMENT  Brand equity is observed through its impact on choice. Measures of brand equity should reflect both attitudinal and behavioral components. “The mechanism that underlies (equity) is agreed to be a latent value in the mind of customers that is exhibited through its impact on behavior.” Dr. Tom Reynolds & Carol Phillips, “In Search of True Brand Equity Metrics: All Market Share Ain’t Created Equal”, Journal of Advertising Research, 2005 Brand Equity Components Loyal Behavior Beliefs Intent • Share of wallet • Relative overall quality • Future purchase intent • Purchase frequency • Perceived cost • Self-perceived trend (more • Vendor consolidation • Preference or less of my business) • Willingness to recommend • Understands my needs 2012 Brand Amplitude, LLC All Rights Reserved 9 May not be reproduced without permission

Share Tiering Approach to Measurement BRAND EQUITY MEASUREMENT  Just as all calories are not equally nutritious, not all share points contribute equally to the health of the brand. Loyal customers are ‘nutrient rich’ and contribute more to brand health than the ‘empty calories’ of price sensitive customers. Loyalty Contribution by Brand Customers who devote 80% or more of requirements to the brand 37.4% 34.5% Sales contributed by loyal customers 28.0% Market Share Price Premium 76% Sales 56% Sales Brand? 40% Sales Brand? Brand A Brand B Brand C “Size and vitality of the core varies by brand. Every brand could benefit from having the core group represent a larger share of its total franchise.” 2012 Brand Amplitude, LLC All Rights Reserved 10 May not be reproduced without permission

Share Tiering Measures BRAND EQUITY MEASUREMENT  Goal is to determine how much of a brand’s share is being driven by people who are loyal in both attitude and behavior. Loyal Behavior Beliefs Intent Operationally define loyal Classify customers according to Classify customers regarding behavior in a way that is their brand beliefs. how typical their recent specific to the category (e.g., purchasing has been and Determine Total Volume and Loyalty 80% total category needs). whether they expect a shift Volume* within each classification. in the future. Determine what percentage of Total Volume is ‘Loyalty Superior Good Acceptable Volume’* by brand. Quality Quality Quality Price Not a Advocates Unconvinced Indifferents Barrier Price a Minor Aspirers Opportunists Ignorers Barrier Price a Significant Admirers Skeptics Rejectors Barrier *Loyalty volume = brand volume contributed by customers who are classified as ‘loyal’ 2012 Brand Amplitude, LLC All Rights Reserved 11 May not be reproduced without permission

Share Tiering Metrics BRAND EQUITY MEASUREMENT  From these measures, a range of metrics can be calculated. Market Share Share of total category volume Top Box Contribution % Brand volume sourced from Advocates Loyalty Contribution Brand’s loyalty volume as % of total brand volume Equity Share Share of loyal user volume (any brand) Leveragability Index Ratio of volume from Aspirers to combined sales of Aspirers and Unconvinced 2012 Brand Amplitude, LLC All Rights Reserved 12 May not be reproduced without permission

Example of Sharing Tiering BRAND EQUITY MEASUREMENT  Consumer beliefs regarding Ragu and Prego are similar – what explains their very different market shares? Market Share Spaghetti Sauce Category - Self Report Data* Other, 23% Ragu, 46% Store, 6% 52% rate quality ‘superior’; 42% say ‘cost is not a barrier’ Prego, 25% to purchase. 57% rate quality ‘superior’; 44% say ‘cost is not a barrier’ to purchase. n=417 male and female primary grocery shoppers who purchased spaghetti sauce in past 3 months, 2005 Volume expressed in units of jars, cans, tubs. 2012 Brand Amplitude, LLC All Rights Reserved 13 May not be reproduced without permission

Example of Share Tiering BRAND EQUITY MEASUREMENT  Self-report information on beliefs and behavior obtained through surveys can be used to measure brand equity components. Loyal Behavior Beliefs Intent • Share of wallet • Relative overall quality • Future purchase intent • Purchase frequency • Perceived cost • Self-perceived trend (more • Vendor consolidation • Preference or less of my business) • Willingness to recommend • Understands my needs 2012 Brand Amplitude, LLC All Rights Reserved 14 May not be reproduced without permission

Example of Share Tiering BRAND EQUITY MEASUREMENT  Share tiering reveals that Ragu derives more volume from its core customers – those who think it is superior and worth the price. This data reflects volume; profitability is most likely even more skewed. Share Tiers Based on Volume Share of Volume Share of Volume Q1 Q2 Q3 Q1 Q2 Q3 Ragu derives nearly 38% of its P1 37.9% 11.4% 1.6% P1 15.0% 14.3% 7.3% volume from Advocates while Prego P2 26.1% 13.0% 6.2% P2 32.3% 21.8% 0.4% derives just 15% from its Advocates. P3 0.5% 1.4% 1.8% P3 2.3% 2.7% 3.8% Loyalty Share Loyalty Share A higher proportion of Ragu volume is Q1 Q2 Q3 Q1 Q2 Q3 P1 80.0% 65.8% 76.9% P1 57.0% 31.0% 90.9% ‘Loyalty Volume’, even among those P2 84.8% 15.2% 0.0% P2 51.5% 10.7% 0.0% with high future intent. P3 0.0% 0.0% 0.0% P3 0.0% 0.0% 0.0% 2012 Brand Amplitude, LLC All Rights Reserved 15 May not be reproduced without permission

Example of Share Tiering BRAND EQUITY MEASUREMENT  Share tiering provides direction for improving Prego brand equity relative to Ragu.  Prego is vulnerable - its market share is a misleading indicator of its brand health, as much of the volume is driven by non-loyal customers.  Prego is strongly ‘leveragable’ – the brand should focus on driving volume among ‘Aspirers’ by convincing them Prego’s superior quality is ‘worth the price’. Advocate Leveragability Equity Share Loyalty Contribution Index Market Share (Share of Contribution (Contribution of top (Ratio of Aspirer volume (Share of category category loyal (Loyal user volume box respondents to to Total Aspirer + volume) user volume) as % total) volume) Unconvinced volume) Ragu 46% 51% 63% 30% 70% Prego 25% 20% 44% 9% 69% Store 6% 4% 33% 23% 0% Other 23% 26% 66% 16% 60% TOTAL 100% 100% 57% 21% 64% Loyal users = 4 of last 5 purchases devoted to one brand. Advocates = those who rate brand superior on quality, price is no barrier to purchase 2012 Brand Amplitude, LLC All Rights Reserved 16 May not be reproduced without permission

Advantages of Share Tiering BRAND EQUITY MEASUREMENT  Measures are understandable, not black box  Easily translated into financial strength and ROI  Yields universal metrics that can be applied across categories, brands, SBU’s  Questions are easy to administer, so equity can be assessed more frequently  Frequent measurement allows tracking of changes over time  Allows modeling relative to marketing activities and investments 2012 Brand Amplitude, LLC All Rights Reserved 17 May not be reproduced without permission

Other Directions in Brand Equity Measurement BRAND EQUITY MEASUREMENT  Academics are actively proposing improved ways to measure brand equity, but each tends to emphasize a different aspect – belief, behavior, intent. Metric Publication Author Definition Corporate Branding Leveraging the Reputation, communications & James R. Gregory Index Corporate Brand financial performance Difference between percentage Net Promoter Score The Loyalty Effect Fred Reichfeld of brand promoters and detractors Driving Customer Sum of the lifetime volues of Customer Equity Roland Rust Equity current and future customers Energized John Gerzema and Palpable and measurable energy The Brand Bubble Differentiation Ed Lebar that fosters irrational fidelity 2012 Brand Amplitude, LLC All Rights Reserved 18 May not be reproduced without permission

Recommended Approach BRAND EQUITY MEASUREMENT  The ‘right’ way to measure brand equity involves a mix of measures and the ability to relate them to business results. Comprehensive Brand Equity Measurement Approach Activity & Program Customer Perceptions & Market Metrics Behavior Performance Financial Impact/Performance2012 Brand Amplitude, LLC All Rights Reserved 19 May not be reproduced without permission

Key Takeaways BRAND EQUITY MEASUREMENT  Understand the difference between brand equity and brand value – which is more important to you to know?  Recognize there is no silver bullet – Requires a thoughtful approach based on a clear idea of how brand equity manifests itself in your business -- what behaviors and attitudes drive brand value for customers and investors? – Use a mix of measures – belief, behavior, intent, financial  Tie measures to strategy – If possible, model the relationship between brand equity measures and business performance to determine equity drivers  Be consistent – Movies work better than ‘snapshots’ – pick a method and stay with it to build knowledge over time  Prioritize measures – Don’t confuse data with insight – make it meaningful or it will be ignored – Most companies suffer more from too much data than from too little2012 Brand Amplitude, LLC All Rights Reserved 20 May not be reproduced without permission

CONTACT US How Can We Help You Grow? To Learn More, Contact Us: Carol Phillips Judy Hopelain carol@brandamplitude.com judy@brandamplitude.com 269-429-6526 415-810-82682012 Brand Amplitude, LLC All Rights Reserved 21 May not be reproduced without permission

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Measuring Brand Equity

by Carol Phillips on Nov 14, 2008

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Measuring Brand Equity — Presentation Transcript