Understanding & Evaluating Brand Equity

A Useful Definition of Brand Equity

There are many different definitions of Brand Equity, but they do have several factors in
common:
Monetary Value. The amount of additional income expected from a branded product
over and above what might be expected from an identical, but unbranded product (e.g., a
generic brand or store brand label like Kroger's). Generic or store brands sell for
significantly less than their name brand counterparts, even when the contents are
identical. This price differential is the monetary value of the brand name.
Intangible. The intangible value associated with a product that can not be accounted for
by price or features. Nike has created many intangible benefits for their athletic products
by associating them with star athletes. Children and adults want to wear Nike's products
to feel some association with these star athletes (like Michael Jordan). It is not the
physical features that drive demand for their products, but the marketing image that has
been created. Buyers are willing to pay extremely high price premiums over lesser known
brands which may offer the same, or better, product quality and features.
Perceived Quality. The overall perceptions of quality and image attributed to a product,
independent of its physical features. For example, Mercedes and BMW are associated
with high-quality, luxurious automobiles. Years of image building, brand nurturing and
quality manufacturing has lead consumers to assume a high level of quality in everything
they produce relative to other brand name automobiles, even when such a perception is
unwarranted.
The idea of Brand Equity incorporates the ability to provide added value to your
company's products and services, which can be used to your company's advantage to
charge price premiums, lower marketing costs and offer greater opportunities for
customer purchase. A badly mismanaged brand can actually have negative Brand Equity,
meaning that potential customers have such low perceptions of the brand that they
prescribe less value to the product than they would if they objectively assessed all its
attributes/features.
One of the best examples of Brand Equity is in the soft drink industry. Without a brand
name and all of the marketing dollars that have gone into, Coca-Cola would be nothing
more than flavored water. Due to the company's long-term marketing efforts and
protection, enhancement and nurturing of their brand name, Coke is one of the most
recognizable brands in the world. However, even this marketing giant has trouble
capitalizing on its own Brand Equity when handled improperly (e.g. New Coke). If
someone suddenly took their brand name and Brand Equity away from them, Coke would
lose hundreds of millions , if not billions, of dollars. This includes lost sales, lost
marketing dollars and lost promotions, additional marketing costs to promote a new
brand, and significantly lower awareness and trial rates for their new brand.
The Benefits of Brand Equity
Brand Equity improvement increases business value and provides many strategic
advantages to your company:
Positive brand equity allows you to charge a price premium relative to competitors with
less brand equity.
Strong brand names simplify the decision process for low-cost and non-essential
products.
Brand names can give comfort to buyers unsure of their decision by reducing their
perceived risk.
Brand names are used to maintain higher awareness of your products, and they provide
for continuity when company’s are acquired or reorganized.
Company’s use brand equity to gain leverage when introducing new products.
The brand name is often interpreted as an indicator of quality.
Strong brand equity insures that your products are considered by most buyers..
Your brand can be linked to a quality image that buyers want to be associated with.
Higher brand name equity leads to greater loyalty from customers.
Strong brand equity is the best defense against new products and new competitors.
Improvements in brand equity lead to higher rates of product trial and repeat purchasing
due to buyers' awareness of your brand, approval of its image/reputation and trust in its
quality.
Brand names represent real assets that must be invested in, protected and nurtured to
maximize their long-term value to your company. Brands have many of the same
implications as capital assets (like equipment and plant purchases) on a company's
bottom line. Brand names increase business value, including the ability to be bought and
sold and the ability to provide strategic advantages.
How to Measure Brand Equity
Most evaluations of Brand Equity involve utility estimation. In essence, the value (utility)
of a brand name product's features/benefits and price level versus unbranded measures.
The difference between total branded utility and total unbranded utility of the product
features/benefits is the value of brand equity. Another approach is to measure the price
premium for the branded product over the unbranded product. In other situations, the
utility of the brand is measured directly and added to the feature utilities to produce an
overall utility for the product.
Besides utilities, there are other important determinants of brand equity. These
contributing factors include: awareness (aided, unaided), associations with various
attributes, as well as overall perceptions. Generally, recognized brands should be
measured. It is also useful to obtain estimates of marketing, advertising and promotional
expenses for the major brands in the market. Armed with utility estimates, key
performance measures (awareness, association scores, preference) and expenditure levels,
we can develop a complete picture of the relative value of each brand. This information
allows you to understand the major forces driving brand equity and purchase decisions
that lead to superior brand equity strategies.
How to Estimate Utilities (Value)
We use trade off analysis (e.g., conjoint analysis, discrete choice modeling) to estimate
utilities. These are very powerful and proven techniques for measuring the value people
place on product features, prices and brand names. The most effective research designs
for measuring Brand Equity use a two-stage conjoint model:
First, we measure the utilities of all key features of the product, including price and
brand name, and in total. Respondents are also asked how they make tradeoffs, and what
criteria drives their decision making. From this data we are able to derive utilities for
each product feature (often combining and re-defining terms to arrive at the real
underlying buying factors) and calculate an estimate of brand equity. This demands
careful analysis because experience has shown that price utility is usually understated
when it is included with many other product features. And without an accurate estimate
of price utility, we can not measure the true monetary value of Brand Equity.
Second. Additionally information is collected to correct the understated price utility. This
step uses choice-based conjoint task or discrete choice modeling to evaluate just two
attributes: price and brand name. Several Brands are shown at different price levels and
respondents are asked to choose which one they would purchase. By isolating price with
Brand name, we are able to accurately measure price utility. Brand equity (stage 2) is
linked back to the first stage conjoint model. Together these approaches yield brand
equity, price sensitivity and feature utilities.
How to Use Brand Equity Information
Market simulations and scenarios can be performed. Using estimated utilities, we can
simulate market preferences for our products and those of the competition. Various
scenarios can be created which involve the introduction of new products or modifications
to existing products to determine the effects of these changes on preferences. This
information can be used to:
Evaluate product line extensions with and without the use of an existing brand name.
Introduce new products with and without brand name affiliation.
Estimate the premium your brand carries relative to competition for the same
features/benefits.
Determine the effects of improving Brand Equity or reducing your investment in a high-
equity Brand.
Estimate the impact of moving into new geographic areas where your brand name is
unknown or has negative perceptions.
Understand the effects of co-branding with a company who has more or less Brand
Equity than does your brand.
Monitor Brand Equity over time for your company and your competitors in order to make
timely decisions to counteract changes in competitors' Brand Equity.
Measure the effectiveness of your advertising and marketing campaigns in building your
brand image.
Clearly, brand equity varies across individuals, but we can measure these differences and
segment the market into various groups based on perceived benefits. Using the utility
estimates from the conjoint models, we can identify benefit segments in your market.
These segments can then be compared to each other to highlight differences in Brand
Equity between various types of product users, different levels of price-sensitivity,
different levels of feature importance. Demographic and psychographic profiles of these
benefit segments can ultimately be used to target groups with specific messages