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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.
protected and nurtured to maximize their long-term value to your company.. Strong brand equity is the best defense against new products and new competitors. These contributing factors include: awareness (aided. Strong brand equity insures that your products are considered by most buyers. as well as overall perceptions. In essence. we measure the utilities of all key features of the product. associations with various attributes. These are very powerful and proven techniques for measuring the value people place on product features. Besides utilities. Improvements in brand equity lead to higher rates of product trial and repeat purchasing due to buyers' awareness of your brand. unaided). Another approach is to measure the price premium for the branded product over the unbranded product. In other situations. The brand name is often interpreted as an indicator of quality. Generally. Higher brand name equity leads to greater loyalty from customers.. the value (utility) of a brand name product's features/benefits and price level versus unbranded measures. we can develop a complete picture of the relative value of each brand. and they provide for continuity when company’s are acquired or reorganized. Company’s use brand equity to gain leverage when introducing new products.g. Brand names increase business value. advertising and promotional expenses for the major brands in the market. preference) and expenditure levels. Brand names represent real assets that must be invested in. The most effective research designs for measuring Brand Equity use a two-stage conjoint model: First. prices and brand names. there are other important determinants of brand equity. How to Measure Brand Equity Most evaluations of Brand Equity involve utility estimation. recognized brands should be measured. 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. association scores. including price and brand name. the utility of the brand is measured directly and added to the feature utilities to produce an overall utility for the product. key performance measures (awareness. It is also useful to obtain estimates of marketing. Brand names are used to maintain higher awareness of your products. This information allows you to understand the major forces driving brand equity and purchase decisions that lead to superior brand equity strategies. discrete choice modeling) to estimate utilities. Respondents are also asked how they make tradeoffs.Brand names can give comfort to buyers unsure of their decision by reducing their perceived risk. Brands have many of the same implications as capital assets (like equipment and plant purchases) on a company's bottom line. and in total. How to Estimate Utilities (Value) We use trade off analysis (e. This demands careful analysis because experience has shown that price utility is usually understated . Armed with utility estimates. approval of its image/reputation and trust in its quality. including the ability to be bought and sold and the ability to provide strategic advantages. The difference between total branded utility and total unbranded utility of the product features/benefits is the value of brand equity. Your brand can be linked to a quality image that buyers want to be associated with. conjoint analysis.
we are able to accurately measure price utility. Introduce new products with and without brand name affiliation. Measure the effectiveness of your advertising and marketing campaigns in building your brand image. but we can measure these differences and segment the market into various groups based on perceived benefits. Brand equity (stage 2) is linked back to the first stage conjoint model. This information can be used to: Evaluate product line extensions with and without the use of an existing brand name. Several Brands are shown at different price levels and respondents are asked to choose which one they would purchase.when it is included with many other product features. price sensitivity and feature utilities. Monitor Brand Equity over time for your company and your competitors in order to make timely decisions to counteract changes in competitors' Brand Equity. By isolating price with Brand name. brand equity varies across individuals. Estimate the impact of moving into new geographic areas where your brand name is unknown or has negative perceptions. Using estimated utilities. we can not measure the true monetary value of Brand Equity. Understand the effects of co-branding with a company who has more or less Brand Equity than does your brand. 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. different levels of feature importance. Determine the effects of improving Brand Equity or reducing your investment in a highequity Brand. This step uses choice-based conjoint task or discrete choice modeling to evaluate just two attributes: price and brand name. we can identify benefit segments in your market. Demographic and psychographic profiles of these benefit segments can ultimately be used to target groups with specific messages . And without an accurate estimate of price utility. Using the utility estimates from the conjoint models. Second. Estimate the premium your brand carries relative to competition for the same features/benefits. Clearly. How to Use Brand Equity Information Market simulations and scenarios can be performed. These segments can then be compared to each other to highlight differences in Brand Equity between various types of product users. Additionally information is collected to correct the understated price utility. Together these approaches yield brand equity. we can simulate market preferences for our products and those of the competition. different levels of price-sensitivity.
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