Brand Equity & Its Measurement


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Brand Equity & Its Measurement

  1. 1. Brand Management<br />Assignment<br />Brand Equity and Its measurement<br />Submitted by-:<br />Saurabh Singh<br />Enrollment No: 08BS003021<br />Brand equity is defined as the incremental contribution ($) per year obtained by the brand in comparison to the underlying product (or service) with no brand-building efforts. The incremental contribution is driven by the individual customer’s incremental choice probability for the brand in comparison to his choice probability for the underlying product with no brand-building efforts. The approach takes into account three sources of brand equity—brand awareness, attributes perception biases, and non-attribute preference—and reveals how much each of the three sources contributes to brand equity. This is done by taking into account not only the direct effects of these three sources on choice probabilities, but also the indirect effects through enhancing the brand’s availability. The method provides what-if analysis capabilities to predict the likely impacts of alternative strategies to enhance a brand’s equity. The survey-based results from applying the method to the digital cellular phone market in Korea show that the proposed approach has good face validity and convergent validity, with brand awareness playing the largest role, followed by non-attribute preference.<br />Brand equity studies should measure the following for your brand and each of its competitors, with responses reported separately for different user segments:<br />• Awareness • Convenience/accessibility• Perceived value (including quality and price sensitivity)• Rank in consideration set• Preference• Usage• Relevance• Differentiation• Vitality• Emotional connection• Loyalty• Multiple personality attributes• Other brand associations<br />Brand equity (BE) has become an important issue from a variety of perspectives: mergers and acquisitions, evaluation of strategies (e.g., advertising, promotion, quality improvement) and management (in terms of its impact on value creation, brand extensions, enhancement and exploitation of brand strengths), to mention a few. While there is general consensus that brands are assets and as such need to be managed with a long-term perspective, the meaning of the term brand equity varies. This paper provides a review of extant literature as well as presentations at two MSI brand equity conferences. It also provides a summary list of insights and questions which should provide both managers and researchers with food for thought and directions for future research.<br />The concept of BE subsumes two multi-dimensional concepts-brand strength and brand value. Brand strength is based upon perceptions and behaviors of consumers and distributors that allow the brand to enjoy sustainable and differentiated competitive advantages. Brand value depends on management's ability to leverage brand strength via tactical and strategic actions to provide superior current and future profits and lowered risks. Thus much of BE may be latent unless exploited. <br />Management of brand equity requires a focus on both consumers and distributors. While brand managers have traditionally focused their efforts on consumers in the pursuit of market share and profits, the role of distributors in the marketing system is becoming increasingly important. Distributors control product availability and also play a key role in delivering value to the consumer-especially in product categories such as durables for which attendant services may be critical. <br />Because brand managers are often under pressure to deliver short-term profits, they are prone to focus on marketing tactics that exploit brand strengths to produce operating profits rather than on strategic investments that enhance BE. In order to get managers to focus on the latter, it may be necessary to treat some brand expenditures (such as image-building advertising) as capital expenses and to evaluate their effects over a longer time frame. If marketing managers are expected to create value, then managerial control systems should be based on measures of value. It is therefore important to link measures of brand strength to financial performance. Marketing models can provide the building blocks for developing cash flow projections, the basic ingredient for financial valuation. <br />“Brand equity” represents a relevant research line in marketing. This concept has undergone an important evolution in its understanding and in the variables that comprise it. Brand equity was born a simple construct in the late 1980’s, with a single variable meaning changed according to each author: the additional price a consumer is willing to pay for a brand; the extension capacity of a brand; the financial value of a brand as an intangible asset; or its capacity for generating loyalty among consumers . Nowadays, brand equity has to be understood as “brand equity based on the consumer” (consumer brand equity), a multidimensional construct composed of various components:<br />(1) Willingness to pay an overprice for the brand<br />(2) Satisfaction with the experience towards the brand<br />(3) Manifest loyalty towards the brand<br />(4) Perceived quality of the brand<br />(5) Perceived leadership (innovation capacity) of the brand<br />(6) Perceived functional benefit , capacity of the brand<br />(7) Self expression (identification) the brand provides for the consumer<br />Taking into account that distinct brands can yield different values for each of these components we have the basis to talk about not only brand equity, but to begin talking about a “brand equity profile” instead. This means each brand can have a specific combination of component values, hereto called “brand equity profile ”.<br />The Benefits of “brand equity”<br />Consumers have different reactions before the commercial activity, in the presence ofknown brands and before unknown ones. A real brand equity for a consumer is brought forward from the relevant knowledge of the brand with a set of favorable associations in a given purchase decision context. The brand generates real value for the consumer when the brand is perceived in a differentiable, special and attractive manner from other rival brands. When brand value is generated for the consumer, benefits can be expected for the company that owns the brand. Briefly, this creation of value has benefits such a 4 s: allowing generating greater loyalty from the costumers by increasing the value offered to them; Allows for a reduced vulnerability to strategic marketing moves by competitors and market crises; reduces the elasticity of demand facing a price increase as a result of the overprice a consumer is willing to pay for a brand that offers a greater value: helps generate trust and support from the distribution channels already stimulated to work with higher value brands.<br />Sponsoring products with higher value brands allows for increased effectiveness of the communication efforts directed towards the consumer, because a recognizable and valuable element is attached to them.<br />Higher value brands usually possess broader umbrella effects that allow for more successful brand extensions by transferring the perceived brand value towards the new business entities. With the brand overpricing, companies can manage ampler profit margins than other competitors with lesser value brands. This last argument concentrates all the relevance related to the strategic management of brands and justifies the marketing management based on “brand equity”. This relevance stems from the increased margins of profit that companies with greater relative market share tend to generate, and at the same time it is these market leaders who generally own the greater value brands in their industrial sectors. David Arnold demonstrates this argument when he talks about three principles of brand performance:<br />First, there is evidence to assert that the market leaders tend to receive such advantage as a result of generating brands with grater “perceived quality” , and not solely due to the inherent quality of their products, thus making this “perceived quality” one of the key aspects to maintain market leadership. Having achieved this leadership, additional benefits can be attained, such as greater negotiation power with customers and clients.<br />Second, although leading companies in the market tend to be businesses with greater efficiency production systems based in economies of scale, when approached on a casetocase basis, it seems that it was the greater perceived quality brands which allowed their companies to overtake their competitors and then be at ease to implement these more efficient production systems. Thus, the leading companies’ superior profit comes from a more efficient cost structure and from a greater competitive power that allows them to implement superior pricing. This advantage of being able to handle higher process derives directly from the superior value of their brands.<br />Last, greater perceived quality brands provide a long term competitive advantage for the companies, because, if maintained adequately, they are not subject to a product life cycle.<br />Brands can outlast heir products if renewed and modified in their associated perceptions to maintain their validity in loyal consumer groups.<br />Well managed brands must be understood as tools to establish long term relationships with clients .The composition of brand equity is complex. It is known that a buyer is willing to pay an<br />overprice for a product bearing a high perceived value brand, although the value of this same brand is influenced to a great degree by the quality of the product it sponsors.<br />Thus, it is difficult to separate perceived brand quality and inherent product quality.<br />Osselear and Alba 9 analyze the effects that learning the perceived brand characteristics has on the learning of the product’s characteristics. They conclude that highly recognized brands wield a blockage in the learning of the product’s characteristics, caused by a previous learning of the characteristics associated with the brand.<br />The concept of “learning blockage” that the characteristics attributed to the brand exert over the product’s characteristics is complemented with the “umbrella brand effect.”<br />This suggests that, given the low degree of knowledge the consumers have about the products they are about to purchase, the brand works as a protective halo for the product, indicating to the consumer probable characteristics in the product, hence reducing considerably the perceived risk in acquiring the product. In this cited study, an empirical model which permits to understand the process through which the quality perception of a brand in a particular product category affects the perceived quality of another product category under the same brand, establishing the capacity of the brand to be used in a possible extension.<br />Other effects of the brand over the consumer and the purchase process include: cueing<br />search, use, quality attributes, and encouraging loyalty .<br />These effects allow for the brand to perform as a mediating element between the consumer and its product, as a barrier protecting both. On one side, it protects the consumer from perceived risk and the intensity of the information search process for the acquisition of the product, providing additionally a sense of belonging. On the other side, brands protect the product by matching the favorable characteristics of the brand to it.<br />This last point is only valid in those cases where the perceived quality and the brand image are indeed favorable. If this is not the case, and the brand is associated with low quality or simply with some very different categories from that of the product, this intermediation barrier begins to work in detriment of both parts.<br />David Aaker establishes four factor categories that determine brand equity: brand name<br />recognition, brand loyalty, perceived quality, and brand associations . These groups of variables are relevant to the relation of the consumer with its brands.<br />Paul Feldwick 15 brings to notice that terms which become popular such as “brand equity”, can actually assume a great variety of meanings, and rather than trying to reach agreements about the true meaning they must have, it is better to be conscious that if can mean different things, and so trying to avoid unnecessary confusion. <br />Feldwick states that the term brand equity is used in three distinct senses: financial value of the brand, market strength and brand image. Of these three meanings, the first one varies amply from the other two; it can be seen as a notion regarding the commercial exchange of assets among businesses. On the other hand the second and third meanings refer directly to the consumer, which makes them more relevant in marketing research. These two senses can be encompassed in the term “consumer brand equity”, according to Feldwick, or “consumer based brand equity”, according to Kevin Keller. These last two terms constitute what is meant in the present article as “brand equity”.<br />Towards an operational definition of brand equity<br />Aaker talks about ten dimensions or components to measure brand equity<br />Building Brand Equity through Advertising:<br />Learning from Brand Equity Research to Build Ads That Build Brands:<br />Years of research have shown that consumer perceptions and attitudes - measured collectively, and commonly described as consumer Brand Equity - have a direct relationship to a brand's market position and business results. Marketers rely on advertising as one primary tool to develop and nurture Brand Equity. This paper will share some findings that look at advertising, as a contributor to Brand Equity - specifically, how Brand Equity measures can contribute to the development and evaluation of advertising at the pretest stage, in a copy test.<br />Measuring Brand Equity:<br />Our measure of Brand Equity comes from a model that uses a handful of standardized attitude measures that are generalizable across brands, business sectors, and markets. In a study representing 200 different brands from 40 different product and service categories, comprising over 12,000 consumer interviews for over 200,000 individual brand assessments, these measures have been validated in relation to market variables and business outcomes - what we like to call " Brand Health." <br />Advertising and Brand Equity:<br />This begs the question: " If Equity drives the Brand, what drives Equity?" We went looking for answers in a follow up study that we reported at last year's Week of Workshops3. This study was more focused than the first one, concentrating on 79 brands from 20 different categories of FMCGs with a relatively high penetration - in all; over 2,700 consumers gave more than 10,000 brand assessments. Each brand was rated on our five Equity dimensions, and also on several factors that we thought should contribute to Brand Equity - including perceptions of the advertising. Specifically, we asked whether they recalled advertising for the brand and if so, whether they felt the advertising had a favorable impact on their opinion of the brand.<br />Conclusion<br />Clients increasingly demand business-building ideas that extend beyond advertising and communications. Ad agency brand planners, branding consultants, and other marketing services providers are being pushed to become wider and deeper thinkers than they were in the past. Quantitative brand measurement techniques such as those discussed here can be used effectively to help marketers manage brands, and can also drive insights that lead to the big ideas that clients seek.<br />