BRAND EQUITY MEASUREMENT _E Notes

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BRAND EQUITY MEASUREMENT
Venkat.P | AITS,R
Brand Audits – Designing Brand Tracking Studies – Brand Equity Management System – Financial
Brand Equity – Brand Valuation Methods
Brand Audit:
Brand Audit is a meticulous and careful study and an examination of the brand’s current
position in the market, customer’s mind, and the industry as a whole as compared to its
competitors. It is the review of the brand’s effectiveness and helps to determine its
strengths, weaknesses, opportunities for further development and evolvement and
come up with the corrective measures if there are any inconsistencies that can harm the
brand in future.
The main aim of Brand Audit is to understand and get the fundamental insights of
where the brand currently stands in the market. It is one of the significant parts of the
overall brand management and is a valuable exercise with an agenda of a long-
term strategy. It is like to take a step back and look at the overall picture and the scenario
from the third party perspective as many a time the brand promoters and cynosures tend
to get biased towards the brand strategies and operations that may or may not be good
for the brand and the overall company.
It is conducted when the brand is facing any issues on the front of positioning, sales,
profits, and the way the customers and the market perceive the brand and corrective
measures need to be taken to iron out the flaws if any. It is also conducted when
the company wishes to rebrand itself with the new offerings of the products and
services or due to the changing market dynamics or the evolving tastes and preferences
of the customers.

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The Brand Audit allows:
1) To establish the performance of the brand in the market as compared to its arch
competitors.
2) Ascertain the strengths, weaknesses, opportunities, and the strengths of the brand.
3) Develop and align the business strategies more closely to match the expectations of the
customers.
4) Determine the place of the brand in the market and from the customer’s point of view.
Marketing Factors that come under the fulcrum of Brand
Audit:
Intrinsic Factors of the Brand:
1) Values
2) Objectives
3) Fundamentals
4) Tone of voice
5) Logo and mascot
6) Creative artworks
7) Copy
Extrinsic Factors of the Brand:
1) Marketing and sales collaterals
2) Customer Relationship Management
3) Employee welfare and motivation
4) Sales figures
5) Marketing plan and budgets
6) Nature of products and services offered
The importance of Company and Brand Audit
Brand Audit helps the brand and the company to focus on the existing as well the
prospective customers to meet their demands and expectations. It helps defining that
why the customer is loyal to the brand or not, what are the factors that acts as a pull
factor and makes the new customers reach out to the brand, and what steps need to be
taken to devise a strategy or a plan to keep the customers loyal to the brand amidst the
tough competition in the market.

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It helps the brand promoters and the cynosures to figure out the potential attributes and
differences of the brand that makes it stand apart and carve a distinctive identity in the
market and command a premium for its products and services offered.
As we all know that there are quite many brands in the market that offer similar lines
of products and services but there are a few crucial elements of some brands that set
them apart from the competition giving a potential edge and the process of Brand
Audit helps the company to define that edge that works as a competitive difference.
It helps the company to rebrand itself with the refined and revalued set of values, ethos,
and objectives along with the renewed corporate identity with the catchy logo,
tagline, vision, mission, and creative’s that are aligned with the nature, values, and
objectives of the brand.
Steps in Brand Audit:
1. Create a brand summary and framework
The first step of the Brand Audit is to create a brand summary and the framework that
encompasses the intrinsic factors such as values, objectives, the tone of voice, logo,
tagline, and mascot amongst other along with the extrinsic factors such as marketing
collaterals, sales figures, marketing plans, and others. The entire history of the brand
architecture and its important elements needs to be studied in depth and figure out if it
is working for the benefit of the brand or not.
2. Determine the survey methods
For the Brand Audit results to be effective and of the optimum level, it is very important
to determine and select the survey methods that will bring the measurable results. The
methods vary from the email surveys, telephonic surveys, one-to-one meetings, and
social media surveys with the existing and prospective customers along with the crucial
members of the industry related to the brand. There are many agencies that help to
conduct the brand audit and survey in a successful manner.
The questions asked in the survey should always be related to the brand and the
offerings along with the open-ended questions such as what do the customers expect
from the brand, does it need any improvisations, and are they happy with its offerings
and way the brand conducts itself in the market.

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3. Competition check
Having a closer look at the competition by figuring out that what are they offering,
their target audience, the quantum of customers, marketing and sales strategies, brand
values, fundamentals, and objectives is an imperative step of the Brand Audit.
4. Review sales data
There has to be a thorough review of the sales data and figures over a period of time
determining the profit ratios and proper filtration of the customer data with the
parameters such as age, gender, location, income levels, and the nature of the purchase.
The fluctuation of sale prices also needs to be considered with the perspective of market
cycles.
5. Review web and social analytics
Web analytics also needs to be reviewed by getting the number of hits and visits that
has been on the company website from the domestic and international markets as it
results in the level of brand value and awareness in the target markets. The same applies
to the social media handles of the brand.
6. Analyze the results
Once the brand audit is successfully completed with the measurable results in hand, it
is important to analyze the results without being biased towards the brand and work on
Brand Tracking
Brand tracking is a longitudinal study to examine the attitudes toward and awareness of
a brand over a set period. It includes what customers think about a brand, and how they
act towards a brand, the brand’s position in the market, and the growth potential for a
brand.
According to Tom Ewing, brand trackers “look to give a big-picture view of a brand’s
fortunes and market position. At the same time, they have looked to provide tactical
advice based on movements in the market. In an ideal world, the big-picture metrics
would let marketers make strategic decisions.”
Brand tracking “uses multiple sources of data to help understand the impact of
marketing on short and long-term brand equity and sales.”

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Brand tracking is way of continuously measuring the health of a brand, both in terms
of consumers’ usage of it (see Brand Funnel) and what they think about it. Opinion on
a brand is usually divided into overall brand warmth/love, brand momentum and
attributes associated with that brand.
What are the aims of Brand Tracking?
A strong brand tracking programme will supply an authoritative read of a brand’s
progress at a macro level and diagnose the changes that will deliver improvement.
How is Brand Tracking undertaken?
Brand tracking research is typically undertaken via usage and attitude studies, either
amongst a nationally representative or target market sample. Deciding which brands to
track is an important first step. Typically, between 4 and 8 brands are followed as this
allows robust samples to be achieved for each whilst staying within a sensible budget.
It is best to set up the questions on the survey in a way that allows the brand list to
change without unduly influencing back data.
The Benefits of Brand Tracking
a) Gives marketers a big-picture view of a brand’s position in the market
b) Provides insights into the competition
c) Segmentation insights for receptive audiences that were previously overlooked
d) Reputation building among customers and potential employees
e) Identify pain points for customers
Methods
a) Surveys and interviews (although many researchers prefer to rely on an
integrated program focused on newer methods of data collecting)
b) Ad Testing
c) Predictive Analytics
d) Text Analytics
e) Social Listening/ Conversation Mining/ Social Intelligence
f) Recall Measurement
g) Segmentation

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h) Brand Interpretation
i) Trade-Off or Choice Modeling
j) Interactive Voice Response (IVR) surveys
k) Predictive analytics mapping
l) Experience Ethnographies
m) Digital Clickstream Patterns
Types of Software Used
1) Domestic and Global Brand Tracking software
2) Voxco Survey Tools
3) real-time market simulators
4) AI
5) NLP
6) Insight News Service (The Hub)
The Key Metrics that are tracked in brand tracking studies
a) Impact of advertising, marketing, promotions, and product development
b) Competitive intelligence
c) Conversion funnel performance
d) Consumer Insights
e) Net Promoter Score (NPS)

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Brand Equity Management System
A brand equity measurement system is a set of research procedures that is designed to
provide timely, accurate, and actionable information to marketers so that they can make
the best possible tactical decisions in the short run and strategic decisions in the long-
run.
Brand Equity Measurement System
• Implementing this system involves:
1.Conducting brand audits.
• Brand Inventory
• Brand Exploratory
2.Developing tracking procedures.
3.Designing a brand equity management system
• Brand Equity Charters
• Brand Equity Reports
• Brand Equity Overseers
Conducting the Brand Audit:
• A brand audit is a comprehensive examination of a brand involving activities to
assess the health of the brand, uncover its sources of equity and suggest ways to
improve and leverage that equity.

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• A brand audit requires understanding sources of brand equity from the
perspective of both the firm and the consumer.
• Specifically, the brand audit consists of two activities:
Brand Inventory
Brand Exploratory
Brand Inventory:
• The purpose of the brand inventory is to provide a complete, up-to-date profile
of how all the products and services sold by a company are marketed and
branded.
• For each product, the relevant brand elements must be identified, as well as the
supporting marketing program. This information should be summarized both
visually and verbally.
• Although primarily a descriptive exercise, some useful analysis can be
conducted.
Consistency
Brand Exploratory:
• The brand exploratory is research activity designed to identify potential sources
of brand equity.
• The brand exploratory provides detailed information as to what consumers think
of and feel about the brand.
• Although reviewing past studies and interviewing relevant personnel provides
some insights, additional research is often required.
• To allow a broad range of issues to be covered and also permit those issues to be
pursued in-depth, qualitative research techniques are often employed first.
• To provide a more specific assessment of the sources of brand equity, a follow-
up quantitative phase is often necessary.
Brand Equity Management System: Three Steps
1. Formalize company position and philosophy into a Brand Equity Charter to
provide relevant guidelines to marketing managers.
- Importance of brands and brand equity

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- History of brand
- Brand positioning
Core brand values
Core brand promise (“brand mantra”)
POP/POD
- Brand guidelines
Strategic Tactical
2.Assemble results of tracking survey and other relevant outcome measures into a
Brand Equity Report distributed to managers on regular basis
– Provides descriptive information as to what is happening with a brand as
well as diagnostic information as to why
3. Establish position of VP or Director of Equity Management to oversee
implementation of Brand Equity Charter and Reports
– Ensure that, as much as possible, marketing of the brand is done in way
that reflects the spirit of the Charter and the substance of the Report
A Brand Value System Map/Financial Brand
A brand value system map can be useful in creating an ongoing brand evaluation and
valuation process (see Figure 1). Using this approach, brand value should be considered
in terms of specific steps in the value creation-value capture process. There are three
main steps. The first two are internal and are about running the business. The third is
external.

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Brand value for consumers is created, and marketers assess the health of the brand using
metrics and key performance indicators (KPIs) such as awareness, favorability,
purchasing intentions, engagement, etc.
Brand intangible asset value is where the consumer brand value needs to be translated
into a financial value for the company. This step shouldn’t be confused with brand
valuation. As called for by ISO 20671, brand evaluation methods are required for this
step. There is growing recognition of its importance.
Brand valuation is about establishing the worth of the brand for external purposes such
as selling or licensing trademarks and IP. Traditional brand valuation methods are most
relevant to this step.
To move forward with systematically organizing a brand evaluation process, discussion
of the specific steps in the map could improve understanding and avoid confusion.

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Brand Valuation:
The concept of Brand Valuation emerged in late 1970’s when commercial
establishments were looking at low profile but sound, business houses for acquisition.
At the time of negotiation, the balance sheet of such target companies needed to be
spruced up by the intangible but yet very much real worth of the brands marketed by
these businesses.
Brands are seen as strategic assets whose value is strongly correlated to companies’
value. The relevance of brand valuation goes from marketing portfolio optimization and
strategic positioning, M&A pricing, to the day-to-day business for royalty rates
definition. The difficulty in brand valuation starts from the definition of brand.
Brand Valuation Approaches
Brand valuation are three main approaches for brand evaluation and brand evaluation
models are the same as the models for measuring Tangible assets. They are:
1. Cost Approach
2. Market Approach
3. Income Approach
These are the models/methods by which the brand is valued and in today’s market a
brand value carries great importance and there should be proper experienced people
doing the brand valuation as that would talk about the Total Asset Value of the
company.
1. Cost Based Approach: The brand is valued according to the cost of developing it.
This is an analysis of the past and relies on hard facts. Overall, the cost approach is
more appropriate to value those assets that can be easily replaceable, such as software
or customer databases. The Cost-based approach includes the following different
methods:
A. Accumulated Cost or Historical Cost Method: Historical cost method value the brand
as the sum of all costs incurred in bringing the brand to its current state. The biggest
drawback in the method is difficulty in identifying the cost involved and separating
them from marketing expenditure which was responsible for brand building.
** Value of Brand = Brand Development Cost + Brand Marketing & Distribution Cost
+ Other Related Costs.

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B. Cost to Recreate Method:
 The Cost to Recreate Method uses current prices in order to estimate the cost of
recreating the brand today.
 As the Historical Cost of Creation Method, the Cost to Recreate Method is
optimal to obtain a minimum value and when dealing with a newly created brand.
 This method tries to overcome the difficulties arising from the historical cost by
focusing on the present instead of on the past.
 However, the main issue is that some brands cannot be realistically recreated
because they might have been created in a period when advertising expenditure
was negligible and when brands were nurtured over time by word-of-mouth,
which is not possible today anymore.
 It could also be difficult to define the cost of recreation of the brand because it is
not easy to delineate the performance of brand leaders.
 The value obtained with this method will include the same pitfalls and
obsolescence as the company's intangible assets.
 The final issue is that the cost to recreate method is still not a good indicator for
the future.
C. Replacement Cost Method: This approach values a brand using an estimated cost of
creating a similar but new brand. Here the biggest difficulty is in estimating costs.
Assumptions required for estimation are often questionable and arbitrary.
D. Capitalization of Brand: Attributable Expenses Method: The Capitalization of
Brand-Attributable Expenses Method defines the brand value as the business value
attributable to the brand, which depends on the proportion of accumulated advertising
expense over the total marketing expenses incurred, including other selling and
distribution costs.
E. Residual Method: The Residual Value Method states that the value of the brand is
the discounted residual value obtained subtracting the cumulative brand costs from the
cumulative revenues attributable to the brand.

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2. Market Based Approach:
 Market based approach, basically deals with the amount at which a brand is sold
and is related to highest value that a “willing buyer & seller” are prepared to pay
for an asset.
 This approach is most commonly used when one wishes to sell the brand and
consists of methods herein stated:
A. Comparable Approach or the Brand Sale Comparison Method:
 This method involves valuation of the brand by looking at recent transactions
involving similar brands in the same industry and referring to comparable
multiples.
 In other words, this method takes the premium (or some other measure) that has
been paid for similar brands and applies this to brands that the company owns.
 The advantage of this approach is that it looks at a third party perspective that is,
what the third party is willing to pay and is easy to calculate but the flaw in this
method is that the data for comparable brands is rare and the price paid for a
similar brand includes the synergies and the specific objectives of the buyer and
it may not be applicable to the value of the brand at issue.
B. Brand Equity based on Equity Evaluation method: Simon and Sullivan (1993)
believe that brand equity can be divided into two parts:
a. The "demand-enhancing" component, which includes advertising and
results in price premium profits,
b. The cost advantage component, which is obtained due to the brand during
new product introductions and through economies of scale in distribution.
Hence, they basically estimated the value of brand equity using the financial market
value and the advantage of this approach is that it is based on empirical evidence but
shortfalls of this approach is that it assumes a very strong state of efficient market
hypothesis and that all information is included in the share price.
C. Residual Method:
 Keller has proposed the valuation of the brand by means of residual value which
would be when the market capitalization is subtracted from the net asset value.

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 It would be the value of the "intangibles" one of which is the brand.
3. Income Based Approach: The Income-based Approach is the most popular among
financial analysts and it comprehends many different methods.
A. Royalty Relief Method:
 The Royalty Relief method is the most popular in practice. It is premised on the
royalty that a company would have to pay for the use of the trademark if they
had to license it.
 The methodology that needs to be followed here is that the valuer must firstly
determine the underlining base for the calculation (percentage of turnover, net
sales or another base, or number of units), determine the appropriate royalty rate
and determine a growth rate, expected life and discount rate for the brand.
 Valuers usually rely on databases that publish international royalty rates for the
specific industry and the product.
 This investigation results in a variety and range of appropriate royalty rates and
the final royalty rate is decided after looking at the qualitative aspects around the
brand, like strength of the brand team and management.
 This method has an edge of being industry specific and accepted by tax
authorities but this method loses out as there are really few brands that are truly
comparable and usually the royalty rate encompasses more than just the brand.
B. Price Premium Method:
 The premise of the price premium approach is that a branded product should sell
for a premium over a generic product.
 The Price Premium Method calculates the brand value by multiplying the price
differential of the branded product with respect to a generic product by the total
volume of branded sales.
 It assumes that the brand generates an additional benefit for consumers, for which
they are willing to pay a little extra. The fault in this method is that where a
branded product does not command a price premium, the benefit arises on the
cost and market share dimensions.
C. Brand Equity based on discounted cash flow:
 The problem faced by this method is the same as when trying to determine the
cash flows (profit) attributable to the brand.

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 From a pure finance perspective, it is better to use Free Cash Flows as this is not
affected by accounting anomalies; cash flow is ultimately the key variable in
determining the value of any asset (Reilly and Schweihs, 1999).
 Furthermore, Discounted Cash Flow do not adequately consider assets that do
not produce cash flows currently (an option pricing approach will need to be
followed) (Damodaran, 1996).
 The advantage of this model is that it takes increased working capital and fixed
asset investments into account.
D. Brand Equity based on differences in return on investment, return on assets
and economic value added:
 These models are based on the premise that branded products deliver superior
returns, therefore if we value the "excess" returns into the future we would derive
a value for the brand (Aaker, 1991).
 This method is easy to apply and the information is readily available, but there
is no separation between brand and other intangible assets and does not adjust,
by their volatility, the earnings of the two companies compared, including
discount rate.
Importance of Brand Valuation
Brand valuation has been by far used for many purposes by companies.
1. Mergers and Acquisitions: Usually, a company or an organization does not pay the
book value while acquiring another business entity. Now the difference between the
paid acquisition price and book value is known as Goodwill. Goodwill can be defined
as the value of a business entity which is not directly attributable to its tangible assets
and liabilities. Estimating the financial value using brand valuation of a brand helps us
to determine the premium over book value that a buyer should be paying.
2. Licensing: One of the approaches to take advantage of the value of a solid brand is
by broadening or permitting the brand. It is feasible for both the licensor and the licensee
to profit financially from an authorizing course of action. The licensor profits by another
wellspring of income that requires minimal capital speculation. The licensee benefits
by having a lower channel, publicizing and client obtaining costs.
3. Financing: While companies don't convey marks on their monetary records as long-
term resources, money related markets perceive the commitment brands have on
investor esteem. Organizations with solid brands consistently acquire preferable

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budgetary terms over organizations with poor brands. The higher the estimation of the
brand through brand valuation, the better the terms.
4. Brand Reviews: Usually, brand investment reviews entail the comparison, across
brands and against competitors of hard measures, such as sales and market share, and
soft measures, such as reputation and awareness. For some brands, it is also important
to determine financial value. Brand valuations allow companies to gauge their return
on brand investment and to develop appropriate investment strategies across a portfolio
of brands.
5. Budget Allocations: The marketing mix is utilized by advertisers who must settle
on choices about the assignment of spending plan and assets. Organizations can now
more precisely gauge the blend of promoting vehicles required to expand both spending
proficiency and advertising viability. For a few organizations, brand valuations are a
basic component of the marketing mix.
Advantages of Brand Valuation
Certain benefits of Brand Valuation for companies are:
1. Brand valuation changes the outlook of the firm and makes the executive's
frameworks that initially recognize and afterward measure the key drivers of brand an
incentive in the firm, from both the advertising and the money (investor esteem)
perspective.
2. It builds up the frameworks that catch a past filled with these brand esteem drivers
and hence loans validity to the valuation procedure sometime in the future while
decreasing the cost.
3. It empowers the brand to be overseen against indistinguishable criteria from different
interests in the firm.
Disadvantages of Brand Valuation
The drawbacks of brand Valuation are:
1. Nearly all models don't meet prerequisites, for example, dependability, undeniable
nature and objectivity.
2. All buyer situated models don't think about money related qualities and accordingly
are not appropriate for merger and securing, outside announcing, spending arranging,
brand authorizing and encroachment of brand rights. Conversely, all monetary arranged
models don't consider brand planning and brand the executives.

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3. Only the brand valuation models consolidating both buyers arranged and budgetary
situated perspectives think about money related angles just as non-fiscal viewpoints.
Subsequently, the brand assessment is very abstract concerning the change of non-fiscal
qualities into money-related qualities by utilizing, for example, none experimentally
tried scoring-models. Moreover, they are not straightforward because of their business
foundation
4. An unlimited, acknowledged model does not exist.
5. An extra and frequently ignored point is the comprehensive thought of the
organization and its few corporate assessment approaches.
********** End**********

BRAND EQUITY MEASUREMENT _E Notes

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BRAND EQUITY MEASUREMENT _E Notes