10.1CHAPTER 10:CHAPTER 10:MEASURING OUTCOMES OF BRAND EQUITY:MEASURING OUTCOMES OF BRAND EQUITY:CAPURING MARKET PERFORMANCECAPURING MARKET PERFORMANCEKevin Lane KellerKevin Lane KellerTuck School of BusinessTuck School of BusinessDartmouth CollegeDartmouth College
10.2Measuring Brand EquityMeasuring Brand Equity Multi-dimensional conceptMulti-dimensional concept Many different measures requiredMany different measures required The ultimate value of a brand depends on theThe ultimate value of a brand depends on theunderlying components of brand knowledge andunderlying components of brand knowledge andsources of brand equitysources of brand equity
10.4Brand-Based ApproachesBrand-Based Approaches The marketing element under consideration isThe marketing element under consideration isfixed.fixed. Consumer response is examined based on changesConsumer response is examined based on changesin brand identification.in brand identification. Application example:Application example: Blind testingBlind testing Advantage:Advantage: Isolates the value of the brandIsolates the value of the brand Disadvantage:Disadvantage: The totality of what is learned dependsThe totality of what is learned dependson how many applications are examined.on how many applications are examined.
10.5Marketing-Based ApproachesMarketing-Based Approaches The brand is held fixed and consumer response isThe brand is held fixed and consumer response isexamined based on changes in marketing programs.examined based on changes in marketing programs. Applications:Applications: Explore price premiums’ effect onExplore price premiums’ effect onswitching, consumer evaluations of marketingswitching, consumer evaluations of marketingactivities, brand extensions, etc.activities, brand extensions, etc. Advantage:Advantage: Ease of implementationEase of implementation Disadvantage:Disadvantage: Difficult to determine whetherDifficult to determine whetherconsumer responses are caused by brandconsumer responses are caused by brandknowledge or generic product knowledgeknowledge or generic product knowledge
10.6Conjoint AnalysisConjoint Analysis A survey-based multivariate technique that enablesA survey-based multivariate technique that enablesmarketers to profile the consumer decision process withmarketers to profile the consumer decision process withrespect to products and brandsrespect to products and brands Helps researchers determine the trade-offs consumersHelps researchers determine the trade-offs consumersmake between brand attributesmake between brand attributes Applications:Applications: Assess advertising effectiveness and brandAssess advertising effectiveness and brandvalue; analyze brand/price trade-offvalue; analyze brand/price trade-off Advantage:Advantage: Allows for different brands or different aspectsAllows for different brands or different aspectsof the product to be analyzed simultaneouslyof the product to be analyzed simultaneously Disadvantage:Disadvantage: May violate consumers’ expectations based onMay violate consumers’ expectations based onwhat they already know about brandswhat they already know about brands
10.7Holistic MethodsHolistic Methods Attempt to place an overall value on the brandAttempt to place an overall value on the brandin either abstract utility terms or concrete financialin either abstract utility terms or concrete financialtermsterms Net out various considerations to determine theNet out various considerations to determine theunique contribution of the brandunique contribution of the brand Holistic methods:Holistic methods: Residual approachesResidual approaches Valuation approachesValuation approaches
10.8Residual ApproachesResidual Approaches Examine the value of the brand by subtractingExamine the value of the brand by subtractingconsumers’ preferences based on physical productconsumers’ preferences based on physical productattributes alone from their overall brandattributes alone from their overall brandpreferencespreferences Advantage:Advantage: Useful benchmark for interpretingUseful benchmark for interpretingbrand equity, especially from a financially orientedbrand equity, especially from a financially orientedperspectiveperspective Disadvantage:Disadvantage: Static view. Limited diagnostic valueStatic view. Limited diagnostic valuefor strategic decision makingfor strategic decision making
10.9Valuation ApproachesValuation Approaches Attempt to place a financial value on brand equityAttempt to place a financial value on brand equityfor accounting purposesfor accounting purposes Useful in cases of mergers and acquisitions, brandUseful in cases of mergers and acquisitions, brandlicensing, fund raising, and brand managementlicensing, fund raising, and brand managementdecisionsdecisions Valuation approaches:Valuation approaches: Accounting backgroundAccounting background Historical perspectivesHistorical perspectives General approachesGeneral approaches Interbrand’s brand valuation methodologyInterbrand’s brand valuation methodology
10.10Accounting BackgroundAccounting Background Intangible assetsIntangible assets are typically lumped under theare typically lumped under theheading ofheading of goodwillgoodwill and include things such asand include things such aspatents, trademarks, and licensing agreements,patents, trademarks, and licensing agreements,as well as “softer” considerations such as theas well as “softer” considerations such as theskill of the management and customer relations.skill of the management and customer relations. In an acquisition, the goodwill item oftenIn an acquisition, the goodwill item oftenincludes a premium paid to gain control, which,includes a premium paid to gain control, which,in certain instances, may even exceed the valuein certain instances, may even exceed the valueof tangible and intangible assets.of tangible and intangible assets.
10.11Historical PerspectivesHistorical Perspectives In Australia Rupert Murdoch’s News CorporationIn Australia Rupert Murdoch’s News Corporationincluded a valuation of some of its magazines on itsincluded a valuation of some of its magazines on itsbalance sheets in 1984.balance sheets in 1984. British firms used brand values primarily to boost theirBritish firms used brand values primarily to boost theirbalance sheets.balance sheets. In the United States, generally accepted accountingIn the United States, generally accepted accountingprinciples (blanket amortization principles) mean thatprinciples (blanket amortization principles) mean thatplacing a brand on the balance sheet would requireplacing a brand on the balance sheet would requireamortization of that asset for up to 40 years. Such aamortization of that asset for up to 40 years. Such acharge would severely hamper firm profitability; as acharge would severely hamper firm profitability; as aresult, firms avoid such accounting maneuvers.result, firms avoid such accounting maneuvers.
10.12General ApproachesGeneral Approaches In determining the value of a brand in an acquisition orIn determining the value of a brand in an acquisition ormerger, firms can choose from three main approaches:merger, firms can choose from three main approaches: Cost approach:Cost approach: Brand equity is the amount of money thatBrand equity is the amount of money thatwould be required to reproduce or replace the brandwould be required to reproduce or replace the brand Market approach:Market approach: The present value of the future economicThe present value of the future economicbenefits to be derived by the owner of the assetbenefits to be derived by the owner of the asset Income approach:Income approach: The discounted future cash flow from theThe discounted future cash flow from thefuture earnings stream for the brandfuture earnings stream for the brand
10.13Interbrand’s Brand ValuationInterbrand’s Brand Valuation Assumes that brand value is the present worth of theAssumes that brand value is the present worth of thebenefits of future ownershipbenefits of future ownership Follows five valuation steps:Follows five valuation steps: Market segmentationMarket segmentation Financial (role of branding) analysisFinancial (role of branding) analysis Demand (brand strength) analysisDemand (brand strength) analysis Competitive benchmarkingCompetitive benchmarking Brand value calculationBrand value calculation Brand value calculation : Calculate the brand value as theBrand value calculation : Calculate the brand value as thenet present value (NPV) of the forecast brand earnings,net present value (NPV) of the forecast brand earnings,discounted by the brand discount ratediscounted by the brand discount rate
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