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ABSTRACT A practical approach is proposed to building brand equity via product quality. It
identifies the relevant marketing activities and determines the extent to which these activities
contribute to brand equity. Specifically, the proposed brand equity model relates marketing
activities to brand equity. This indicates a practical way to assess the importance and adequacy
of a company’s daily operation in contributing to its brand equity. The importance-efficiency mix
further provides management with feasible suggestions on adjusting their marketing activities.
Then, based on an importance-efficiency matrix, company resources can be adjusted to enhance
brand equity. An empirical study with an insurance company was conducted to illustrate the
proposed approach. Using this approach, the insurance company has successfully enhanced their
brand equity. This clearly attests to the managerial value of the proposed approach. Research
implications and future research avenues were discussed.
KEY WORDS : Brand equity, product quality, marketing mix, marketing activities
Correspondence Address: Andreas Herrmann, Universität St. Gallen, ZBM Institut, Guisanstrasse 1a, CH-9010
St. Gallen, Switzerland. Email: Andreas.Herrmann@unisg.ch
With the aim of using resources as effectively as possible, this study proposes a practical
approach to enhancing the brand equity. It assesses the importance of salient marketing
activities in strengthening the brand. This is necessary as evidenced in claims by Yoo
et al. (2000) and Shocker et al. (1994):
Yoo et al. (2000) have made great advancing efforts in this regard by exploring
the relationships between selected marketing efforts and brand equity. They found that
the brand assets expressed as the dimensions of brand equity are related to customer’s hol-
istic perception of brand equity. Further, their results showed that certain marketing mix
elements such as the frequent use of price promotions would harm the brand equity, while
other elements such as high advertising spending, high price, distribution through retailers
with good store images, and high distribution intensity would help build brand equity. The
current study is similar to the one by Yoo et al. (2000) in that both investigate the relation-
ships between selected marketing mix variables and the creation of brand equity.
However, the current study also differs from theirs in several ways.
First, while Yoo et al. (2000) used various brands to assess the normative relationships
between marketing mix and brand equity, the current study advocates that such relation-
ships might vary from company to company. Accordingly, companies should adjust their
resources disbursement among marketing mix elements to improve their brand equity. We
propose a theoretical approach for such adjustment. Second, in Yoo et al. (2000), reflective
indicators were used to measure marketing mix. In the current study, formative indicators
were used to measure marketing mix. Several recent studies showed that the latter
measurement offers unique perspectives compared to the former measurement
(e.g. Diamantopoulos & Winklhofer, 2001). Third, the study by Yoo et al. was conducted
in the product context (i.e. shoes, film, and TV), while the current study was in the service
context (i.e. insurance company). In summary, Yoo et al. opened an intriguing research
avenue by exploring the relationships between selected marketing efforts and brand
equity. The current study further advances their work by proposing a managerially appli-
cable method to assess and build brand equity via designated marketing mix elements.
In the following sections, we first present a theoretical approach to building brand equity.
Then, an empirical study with an insurance company is analyzed to illustrate the approach.
Finally, implications of the approach and directions for further research are discussed.
Conceptual Framework
Brand Equity Model
The elements of the marketing mix can greatly affect a company’s brand equity. The price
of a brand often indicates something about the quality or benefits of a product. It usually
Building Brand Equity via Product Quality 533
(1) Elements in the model are not exhaustive. The number and the content of the elements
may vary from one company to the other. Figure 1 uses an insurance provider as an
example. A manufacturing company such as an automobile manufacturer could
have very different features from what is in the figure.
(2) Brand equity is expressed in the willingness of individuals to form an emotional, cog-
nitive and conative bond with the product. The stronger the bond, the more likely con-
sumers are to purchase the brand (Rossiter & Percy, 1987; Solomon, 1983).
(3) Across the industry, the relevance of the respective marketing element to brand equity
varies considerably according to the sector and company. In some sectors, the type and
content of the advertising message may contribute significantly to the brand equity,
whereas in other sectors the technical sophistication of the products might be the
most important (Dawar & Parker, 1994). There is no generally valid information on
the importance of individual activities or drivers for strengthening the brand
534 A. Herrmann et al.
(Smith, 1992). Therefore, it is crucial for each company to determine the importance
of elements individually.
(4) Within a specific company, various marketing elements may have very different
effects on brand equity. Some particularly strengthen the brand whereas others do
not have any effect and some are in fact detrimental to the brand (Smith, 1992).
Thus, companies should try to discern elements that are functioning from those that
are dysfunctional or even destructive so that they can adjust accordingly.
Since the contribution of marketing elements to brand equity can vary greatly by
company, the important question becomes how can a company decide whether their mar-
keting elements are functioning properly? If they are not, how can they adjust them so that
brand equity can be enhanced?
yet high efficiency. After verification, the brand manager may be better off by relocating
resources spent on these activities. The resources that may be freed up should be used to
speed up those activities that have high importance yet low efficiency in strengthening the
brand. In addition to this, the brand equity change over time should be determined to track
whether and to what extent the adjusted marketing activities have actually contributed to
strengthening the brand (Srivastava & Shocker, 1991). If needed, the brand equity model
should be evaluated again and resources be further adjusted until the brand equity develops
to the desired level.
Empirical Illustration
Method
Subjects. A study was conducted with existing customers of a leading insurance
company in Germany, with German as the instruction language. In accordance with the
research agreement, the name of the company is not disclosed here to ensure anonymity.
A pilot test was administrated to 67 subjects to check the initial draft of the questionnaire.
A few items were modified accordingly. The final study had 376 respondents, of whom
52% were male, 96% held high school or above degree, 74% had a household income
of E30,000 or above.
Measures. Given the vast amount of literature, the measures for brand equity were
drawn and adapted from past research. Whenever needed, scales were professionally
translated from English to German with back translation to ensure conceptual equivalence
(Mullen, 1995). In accordance with Keller (1993), brand equity is defined as ‘the differ-
ential effect of brand knowledge on consumer response to the marketing of the brand’
(Keller, 1993: 12). It includes consumers’ cognitive, emotional and conative focuses on
the brand. The indirect approach proposed by Keller is used to measure the brand
equity. For marketing mix variables, exploratory interviews were conducted to establish
proper measures given that different companies have different forms of marketing activi-
ties. The marketing mix variables in this context refer to consumers’ evaluation of the com-
pany’s performance in each area. They are formed by the marketing activities the company
conducts (Fornell & Bookstein, 1982). In the final questionnaire, measures for all con-
structs were on a five-point scale with 1 ¼ ‘Strongly Disagree’ and 5 ¼ ‘Entirely Agree’.
Cognitive Focus reflects the extent to which the brand is anchored in the world as envi-
saged by the consumer. The seven-item scale in Beatty & Kahle (1988) was adapted to
measure this construct. Exemplar items are ‘This insurance company is an advertisement
for German business’ and ‘The management of the company is exemplary’.
Emotional Focus records consumer’s emotional bonds with the brand triggered by feel-
ings. Nine indicators are selected from past research to measure this dimension (Rossiter
& Percy, 1987). Exemplar items are ‘My impression of this insurance company is that it is
friendly’ and ‘I am very pleased to wear a pullover bearing this company’s logo’.
Conative Focus often reflects consumer’s behavioral intention toward the focal brand
(Mahajan et al., 1994). Four items from the literature (e.g. Yoo et al., 2000) were
adapted to measure this dimension. Exemplar items are ‘I would be pleased to purchase
all financial services from this company’ and ‘I recommend the products of this
company to friends and acquaintances’.
536 A. Herrmann et al.
Marketing Mix variables are the drivers of brand equity. Several researchers have advo-
cated the use of formative rather than reflective indicators to measure marketing mix (e.g.
Diamantopoulos & Winklhofer, 2001; Fornell & Bookstein, 1982). Their suggestions were
followed in this study. To establish the full spectrum of marketing activities that would
form the marketing mix variables, the vast amount of literature on marketing mix were
reviewed. In addition, a series of five exploratory workshops were conducted with a
total of 110 customers of the insurance company. During the workshops, participants in
groups discussed the important attributes of insurance products and they explained why
these attributes are important for them. They explained how and what they talk about
regarding insurance products in their social environment. They proposed how they
would change insurance products in order to gain competitive advantage if they were man-
agers. They also described the purchasing process of insurance products for themselves
and for their relatives. Further, they indicated what a competitor of their insurance
company should do in order to make them switch. Through these workshops, five
salient performance areas corresponding to the company’s marketing mix were identified:
product, field personnel, communications, in-house personnel, and company resources.
The product performance area includes such indicators as ‘Attractiveness of the price-
performance ratio’ and ‘Consideration of individual requirements’. The area of field
personnel includes items such as the ‘Technical knowledge of the adviser’ and the ‘Friend-
liness of the adviser’. The communications performance area includes indicators such as
‘Presence of the company in the relevant media’ and ‘Convincing arguments in communi-
cations’. The area of in-house personnel is measured by items such as ‘Reliability of the
administration’ and ‘Goodwill in the event of a claim’. Finally, the area of company
resources subsumes items such as ‘Careful handling of insurance premiums’ and
‘Serious style of senior managers’.
Analysis. LISREL was run to purify the reflective measurement of the dependent vari-
able brand equity while the partial least squares (PLS) approach was applied to estimate
the structural model because of the formative nature between marketing mix variables and
their indicators (Fornell & Bookstein, 1982; Fornell et al., 1991; Lohmöller, 1989).
Results
Measurement calibration of brand equity. As previously discussed, brand equity has
three dimensions. An exploratory factor analysis was first administrated to eliminate those
items with low factor loadings, resulting in the selection of two items for the cognitive
dimension, three items for the emotional dimension, and three items for the conative
dimension. A second-order confirmatory factor analysis was further run to validate the
measurement for this construct. Fit indices indicated a fair fit between the measurement
model and the data (x 2(18) ¼ 85.24; GFI ¼ 0.94; CFI ¼ 0.92; TL ¼ 0.87). Table 1
further presents the measurement validation information for the brand equity construct.
Measurement for the cognitive focus and the conative focus showed relatively low
reliability, which probably further weakened the overall fit between the model and the
data. Nevertheless, we chose to proceed with the analysis provided that (1) this study is
one of only a few of its kind in the literature; and (2) should solid research findings be
obtained with weak measurement then it is probable that improved results would be
found with stronger measurements.
Table 1. Measurement validation of the brand equity construct
First Order
Cognitive Focus 0.63 0.66
I pay considerable attention to the annual report 0.65a
and other communications
The management of the company is exemplary 0.70 9.22
Emotional Focus
The company’s insurance is the best product in 0.79a 0.71 0.77
the market.
My impression of this insurance company is that 0.56 9.18
it is friendly
The company provides best value to customers. 0.65 10.59
537
538 A. Herrmann et al.
Effect on
brand equity Formative indicators Impact Importance Efficiency
(Std. Error) (reflective indicators in measurement calibration) coefficienta scoreb scorec
539
(Table continued)
540
Table 2. (Continued)
Effect on
A. Herrmann et al.
brand equity Formative indicators Impact Importance Efficiency
(Std. Error) (reflective indicators in measurement calibration) coefficienta scoreb scorec
Note: aImpact Coefficient ¼ Weight Loading, both available in the PLS result.
b
Importance Score ¼ Effect of the construct on brand equity Impact coefficient.
c
Efficiency Score ¼ Mean of the indicator.
Building Brand Equity via Product Quality 541
the individual marketing activities to brand equity. For instance, the technical knowledge
of the adviser has an effect of 0.11 on the field personnel performance area, which in turn
has an effect of 0.16 on the brand equity variable. Therefore, the influence of the adviser’s
technical knowledge on the company’s brand equity is 0.02. As shown in Table 2, different
performance areas have a dissimilar contribution to the insurance company’s brand equity.
Even within the same performance area, different marketing activities exhibit a different
effect on brand equity.
The mean of each marketing activity reflects consumers’ perception of the company’s
performance on that dimension. From the company’s perspective, this score indicates the
extent the company can further boost its performance on the dimension. Thus, this mean is
called the efficiency of the company’s marketing activity (see Table 2). For example, the
efficiency score for the item ‘explanation by the advisor’ is 2.06 (out of a maximum 5).
Thus, the company still has space to improve on this dimension. However, the priority
of such improvement should be determined by the joint consideration of its importance
and efficiency. Once the importance and efficiency scores were obtained for each market-
ing activity, an importance– efficiency matrix can be constructed as in Figure 2. The
matrix permits the identification of concrete marketing actions and the associated reallo-
cation of financial and human resources.
yet low efficiency, i.e. those in the lower right area such as A1 and A2. In the current case, the
insurance company adjusted their marketing activities in line with the importance and effi-
ciency values. Attention was drawn to the activities in the product performance area, which
were all modified, amplified and, in some cases, redesigned at the start of 1999, taking
account of costs. In addition, the company’s communications were changed to the extent
that conventional advertising and the provision of unspecific information no longer
played a role. These activities – in interaction with the changed market conditions –
have brought about a considerable increase in the brand equity, which was measured in a
tracking study between 1998 and 2000. In the study, both scores of the overall brand
equity and the three dimensions were obtained, and all increased over time (Figure 3).
Discussion
All companies are striving to establish and maintain strong brand equity. It is essential to
find an effective approach to doing so. We proposed an approach to assess and further
enhance companies’ brand equity. Specifically, the proposed brand equity model relates
marketing activities to brand equity. This indicates a practical way to assess the import-
ance and adequacy of a company’s daily operation in contributing to its brand equity.
The importance-efficiency mix further provides management with feasible suggestions
on adjusting their marketing activities. Tracking brand equity over time allows managers
to evaluate the effectiveness of such adjustment. An empirical study with an insurance
company was conducted to illustrate the practical application of the proposed approach.
Using the approach, the insurance company has successfully enhanced their brand
equity. This clearly attests to the managerial value of the proposed approach.
Although our illustration uses data from the insurance industry, the proposed approach
is not limited to the insurance industry. With adaptations, it could be generalized to both
Building Brand Equity via Product Quality 543
manufacturing sectors and other service areas. For example, when applying to the manu-
facturing sector, the traditional marketing mix (product, pricing, distribution, and pro-
motion) will be more relevant. In addition, the marketing activities relating to each
marketing mix could be very different from what we have in this study. The specific con-
tents of such marketing activities will greatly depend on the focal company. Exploratory
interviews with managers and customers, such as we did in this study, will be very useful
in identifying these activities.
The current empirical study was conducted with an insurance company in Germany.
This reduces the concern by many academicians and practitioners who feel that propor-
tionally too many studies are conducted in the US. The proposed approach is not con-
strained by any country specific variables (e.g. social, political, and cultural factors).
Thus, it holds sufficient flexibility to be applied in various countries.
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