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33 Brands Management - Copy

33 Brands Management - Copy

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Brands and brand equity: definition and management
Lisa Wood
Sheffield Hallam University, Sheffield, UK
Brand management
In consumer marketing, brands often providethe primary points of differentiation betweencompetitive offerings, and as such they canbe critical to the success of companies.Hence, it is important that the managementof brands is approached strategically.However, the lack of an effective dialoguebetween functions that are disparate inphilosophy and do not have a common andcompatible use of terminology may be abarrier to strategic management withinorganisations. No more is this evident thanbetween the functions of marketing andaccounting. This article seeks to establish therelationships between the constructs andconcepts of branding, and to provide aframework and vocabulary that aids effectivecommunication between the functions of accounting and marketing. The assumptionin the article is that good communicationbetween functions within organisations aidsstrategic management. A model for themanagement of brand equity is also offered.The following discussion focuses on theconcepts of brand equity and added value asthey relate to the brand construct itself.
Brand equity
An attempt to define the relationshipbetween customers and brands produced theterm ``brand equity'' in the marketingliterature. The concept of brand equity hasbeen debated both in the accounting andmarketing literatures, and has highlightedthe importance of having a long-term focuswithin brand management. Although therehave been significant moves by companies tobe strategic in the way that brands aremanaged, a lack of common terminology andphilosophy within and between disciplinespersists and may hinder communication.Brand equity, like the concepts of brand andadded value (discussed in the section headed``The brand construct'') has proliferated intomultiple meanings. Accountants tend to definebrand equity differently from marketers, withthe concept being defined both in terms of therelationship between customer and brand(consumer-oriented definitions), or assomething that accrues to the brand owner(company-oriented definitions). Feldwick(1996) simplifies the variety of approaches, byproviding a classification of the differentmeanings of brand equity as:
.
the total value of a brand as a separableasset ± when it is sold, or included on abalance sheet;
.
a measure of the strength of consumers'attachment to a brand;
.
a description of the associations andbeliefs the consumer has about the brand.The first of these is often called brandvaluation or brand value, and is the meaninggenerally adopted by financial accountants.The concept of measuring the consumers'level of attachment to a brand can be calledbrand strength (synonymous with brandloyalty). The third could be called brandimage, though Feldwick (1996) used the termbrand description. When marketers use theterm ``brand equity'' they tend to mean branddescription or brand strength. Brandstrength and brand description aresometimes referred to as ``consumer brandequity'' to distinguish them from the assetvaluation meaning.Brand description is distinct because itwould not be expected to be quantified,whereas brand strength and brand value areconsidered quantifiable (though the methodsof quantification are not covered by thisarticle). Brand value may be thought to bedistinct as it refers to an actual, or notionalbusiness transaction, while the other twofocus on the consumer.There is an assumed relationship betweenthe interpretations of brand equity. Thisrelationship implies the causal chain shownin Figure 1.
The current issue and full text archive of this journal is available
at
http://www.emerald-library.com
[662]
Management Decision38/9 [
2000
] 662±669
#
MCB University Press[
ISSN 0025-1747
]
Keywords
Brands, Brand equity,Brand loyalty, Brand valuation,Value analysis
Abstract
This article assumes that brandsshould be managed as valuable,long-term corporate assets. It isproposed that for a true brandasset mindset to be achieved, therelationship between brand loyaltyand brand value needs to berecognised within themanagement accounting system.It is also suggested that strategicbrand management is achieved byhaving a multi-disciplinary focus,which is facilitated by a commonvocabulary. This article seeks toestablish the relationshipsbetween the constructs andconcepts of branding, and toprovide a framework andvocabulary that aids effectivecommunication between thefunctions of accounting andmarketing. Performance measuresfor brand management are alsoconsidered, and a model for themanagement of brand equity isprovided.
 
Very simply, brand description (or identityor image) is tailored to the needs and wantsof a target market using the marketing mix of product, price, place, and promotion. Thesuccess or otherwise of this processdetermines brand strength or the degree of brand loyalty. A brand's value is determinedby the degree of brand loyalty, as this impliesa guarantee of future cash flows.Feldwick considered that using the termbrand equity creates the illusion that anoperational relationship exists between branddescription, brand strength and brand valuethat cannot be demonstrated to operate inpractice. This is not surprising, given thatbrand description and brand strength are,broadly speaking, within the remit of marketers and brand value has beenconsidered largely an accounting issue.However, for brands to be managedstrategically as long-term assets, therelationship outlined in Figure 1 needs to beoperational within the managementaccounting system. The efforts of managers of brands could be reviewed and assessed by themeasurement of brand strength and brandvalue, and brand strategy modifiedaccordingly. Whilst not a simple process, themeasurement of outcomes is useful as part of arange of diagnostic tools for management. Thisis further explored in the summary discussion.Whilst there remains a diversity of opinionon the definition and basis of brand equity,most approaches consider brand equity to bea strategic issue, albeit often implicitly. Thefollowing discussion explores the range of interpretations of brand equity, showing howthey relate to Feldwick's (1996) classification.Ambler and Styles (1996) suggest thatmanagers of brands choose between takingprofits today or storing them for the future,with brand equity being the ``
F F F
store of profits to be realised at a later date.'' Theirdefinition follows Srivastava and Shocker(1991) with brand equity suggested as;
F F F
the aggregation of all accumulated attitudesand behavior patterns in the extended mindsof consumers, distribution channels andinfluence agents, which will enhance futureprofits and long term cash flow.
This definition of brand equity distinguishesthe brand asset from its valuation, and fallsinto Feldwick's (1996) brand strength categoryof brand equity. This approach is intrinsicallystrategic in nature, with the emphasis awayfrom short-term profits. Davis (1995) alsoemphasises the strategic importance of brandequity when he defines brand value (one formof brand equity) as ``
F F F
the potential strategiccontributions and benefits that a brand canmake to a company.'' In this definition, brandvalue is the resultant form of brand equity inFigure 1, or the outcome of consumer-basedbrand equity.Keller (1993) also takes the consumer-basedbrand strength approach to brand equity,suggesting that brand equity represents acondition in which the consumer is familiarwith the brand and recalls some favourable,strong and unique brand associations. Hence,there is a differential effect of brand knowledgeon consumer response to the marketing of abrand. This approach is aligned to therelationshipdescribedinFigure1,wherebrandstrength is a function of brand description.Winters (1991) relates brand equity toadded value by suggesting that brand equityinvolves the value added to a product byconsumers' associations and perceptions of aparticular brand name. It is unclear in whatway added value is being used, but brandequity fits the categories of brand descriptionand brand strength as outlined above.Leuthesser (1988) offers a broad definitionof brand equity as:
the set of associations and behaviour on thepart of a brand's customers, channelmembers and parent corporation that permitsthe brand to earn greater volume or greatermargins than it could without the brandname.
This definition covers Feldwick'sclassifications of brand description and brandstrength implying a similar relationship tothatoutlinedin Figure 1.Thekey differencetoFigure 1 is that the outcome of brand strengthis not specified as brand value, but impliesmarket share, and profit as outcomes.Marketers tend to describe, rather thanascribe a figure to, the outcomes of brandstrength. Pitta and Katsanis (1995) suggestthat brand equity increases the probability of brand choice, leads to brand loyalty and``insulates the brand from a measure of competitive threats.'' Aaker (1991) suggeststhat strong brands will usually providehigher profit margins and better access todistribution channels, as well as providing abroad platform for product line extensions.Brand extension[1] is a commonly citedadvantage of high brand equity, with Dacinand Smith (1994) and Keller and Aaker (1992)suggesting that successful brand extensionscan also build brand equity. Loken and John(1993) and Aaker (1993) advise caution in thatpoor brand extensions can erode brandequity.
Figure 1
The brand equity chain
[663]
Lisa Wood
Brands and brand equity: definition and management 
Management Decision38/9 [2000] 662±669
 
Farquhar (1989) suggests a relationshipbetween high brand equity and market powerasserting that:
The competitive advantage of firms that havebrands with high equity includes theopportunity for successful extensions,resilience against competitors' promotionalpressures, and creation of barriers tocompetitive entry.
This relationship is summarised in Figure 2.Figure 2 indicates that there can be morethan one outcome determined by brandstrength apart from brand value. It should benoted that it is argued by Wood (1999) thatbrand value measurements could be used asan indicator of market power.Achieving a high degree of brand strengthmay be considered an important objective formanagers of brands. If we accept that therelationships highlighted in Figures 1 and 2are something that we should be aiming for,then it is logical to focus our attention onoptimising brand description. This requiresa rich understanding of the brand constructitself. Yet, despite an abundance of literature,the definitive brand construct has yet to beproduced. Subsequent discussion exploresthe brand construct itself, and highlights thespecific relationship between brands andadded value. This relationship is consideredto be key to the variety of approaches tobrand definition within marketing, and iscurrently an area of incompatibility betweenmarketing and accounting.
The brand construct
The different approaches to defining thebrand construct partly stem from differingphilosophies (such as product-plus andholistic branding outlined below) andstakeholder perspective, i.e. a brand may bedefined from the consumers' perspectiveand/or from the brand owner's perspective.In addition, brands are sometimes defined interms of their purpose, and sometimesdescribed by their characteristics. Thefollowing examines the diverse approaches tobrand definition. From this diversity anintegrated definition is drawn.The American Marketing Association(1960) proposed the following company-oriented definition of a brand as:
A name, term, sign, symbol, or design, or acombination of them, intended to identify thegoods or services of one seller or group of sellers and to differentiate them from those of competitors.
This definition has been criticised for beingtoo product-oriented, with emphasis on visualfeatures as differentiating mechanisms(Arnold, 1992; Crainer, 1995). Despite thesecriticisms, the definition has endured tocontemporary literature, albeit in modifiedform. Watkins (1986), Aaker (1991), Stanton
et al 
. (1991), Doyle (1994) and Kotler
et al.
(1996)adopt this definition. Dibb
et al.
(1997) use theBennett (1988) variant of the definition whichis:
A brand is a name, term, design, symbol orany other feature that identifies one seller'sgood or service as distinct from those of othersellers.
The key change to the original definition arethe words ``any other feature'' as this allowsfor intangibles, such as image, to be the pointof differentiation. The particular value of thisdefinition is that it focuses on a fundamentalbrand purpose, which is differentiation. Itshould not be forgotten that brands operate ina market environment where differentiationis crucially important. Even wheremonopolies exist, companies may choose toposition their brand(s) with a view to futurecompetition. The other key feature of thisdefinition is that it takes the corporateperspective rather than emphasisingconsumer benefits.Ambler (1992) takes a consumer-orientedapproach in defining a brand as:
the promise of the bundles of attributes thatsomeone buys and provide satisfaction
F F F
Theattributes that make up a brand may be realor illusory, rational or emotional, tangible orinvisible.
These attributes emanate from all elementsof the marketing mix and all the brand'sproduct lines. The attributes of a brand arecreated using the marketing mix, and aresubject to interpretation by the consumer.They are highly subjective. Brand attributesare essentially what is created through branddescription (one interpretation of brandequity) mentioned previously.Many other brand definitions anddescriptions focus on the methods used toachieve differentiation and/or emphasise thebenefits the consumer derives frompurchasing brands. These include (
inter alia
)definitions and descriptions that emphasisebrands as an image in the consumers' minds(Boulding, 1956; Martineau, 1959, Keller, 1993)brand personality (Alt and Griggs, 1988;Goodyear, 1993; Aaker, 1996), brands as valuesystems (Sheth
et al 
., 1991), and brands asadded value (Levitt, 1962, de Chernatony and
Figure 2
The relationship between brand equity andmarket power
[664]
Lisa Wood
Brands and brand equity: definition and management 
Management Decision38/9 [2000] 662±669

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