BUSS454

Product and Brand Management

Measuring Sources of Brand Equity: Capturing Market Performance

(Chapter 11)

BUSS454 Spring 2021 Tony Garrett

Measuring Sources of Brand Equity:
Capturing Market Performance

BUSS454 Spring 2021 Tony Garrett

Brand Value Chain

BUSS454 Spring 2021 Tony Garrett

Learning Objectives

• Recognize the multidimensionality of brand equity and

the importance of multiple methods to measure it
• Contrast different comparative methods to assess brand
equity
• Review different holistic methods for valuing brand
equity
• Describe the relationship between branding and finance

BUSS454 Spring 2021 Tony Garrett

Measuring Brand Equity

• Multi-dimensional concept
• Many different measures required
• The ultimate value of a brand depends on the underlying
components of brand knowledge and sources of brand
equity

BUSS454 Spring 2021 Tony Garrett

Positive brand equity customer benefits

• Be perceived differently and produce different interpretations of

product performance
• Enjoy greater loyalty and be less vulnerable to competitive marketing
actions
• Command larger margins and have more inelastic responses to price
increases and elastic responses to price decreases
• Receive greater trade cooperation and support
• Increase marketing communication effectiveness
• Yield licensing opportunities
• Support brand extensions

BUSS454 Spring 2021 Tony Garrett

Comparative Methods

Comparative methods are research studies or experiments that examine

consumer attitudes and behavior toward a brand to directly estimate
specific benefits arising from having a high level of awareness and strong,
favorable, and unique brand associations.

BUSS454 Spring 2021 Tony Garrett

Comparative Methods

• Brand-based comparative approaches

• Marketing-based comparative approaches
• Conjoint analysis (combines the two above)

BUSS454 Spring 2021 Tony Garrett

Brand-Based Approaches

The marketing element under consideration is fixed.

• Consumer response is examined based on changes in
brand identification.
• Application example: Blind testing
• Advantage: Isolates the value of the brand
• Disadvantage: The totality of what is learned depends on
how many applications are examined.

BUSS454 Spring 2021 Tony Garrett

Marketing-Based Approaches

The brand is held fixed and consumer response is examined

based on changes in marketing programs.
• Applications: Explore price premiums’ effect on
switching, consumer evaluations of marketing activities,
brand extensions, etc.
• Advantage: Ease of implementation

BUSS454 Spring 2021 Tony Garrett

Reactions* to Proposed Planters Extensions

10. Peanuts
9. Snack mixes
8. -
7. Pretzels, chocolate nut
candy, caramel corn
6. Snack crackers, potato chips
…
1. Yoghurt
* Consumers rated hypothetical proposed extensions on an 11-point scale
anchored by 0 (definitely would not expect Planter’s to sell it) and 10 (definitely would expect Planter’s to sell it).
BUSS454 Spring 2021 Tony Garrett
Marketing-Based Approaches

The brand is held fixed and consumer response is examined

based on changes in marketing programs.
• Applications: Explore price premiums’ effect on
switching, consumer evaluations of marketing activities,
brand extensions, etc.
• Advantage: Ease of implementation
• Disadvantage: Difficult to determine whether consumer
responses are caused by brand knowledge or generic
product knowledge

BUSS454 Spring 2021 Tony Garrett

Conjoint Analysis

A survey-based multivariate technique that enables

marketers to profile the consumer decision process with
respect to products and brands
• Helps researchers determine the trade-offs consumers
make between brand attributes
• Applications: Assess advertising effectiveness and brand
value; analyze brand/price trade-off

BUSS454 Spring 2021 Tony Garrett

 K2R
Bissell

Glory

Money
Back
Guarantee

$1.19 $1.39 $1.59

Green and Wind 1974

108 possible combinations

BUSS454 Spring 2021 Tony Garrett
BUSS454 Spring 2021 Tony Garrett
BUSS454 Spring 2021 Tony Garrett
BUSS454 Spring 2021 Tony Garrett
BUSS454 Spring 2021 Tony Garrett
BUSS454 Spring 2021 Tony Garrett
Conjoint Analysis

A survey-based multivariate technique that enables

marketers to profile the consumer decision process with
respect to products and brands
• Helps researchers determine the trade-offs consumers
make between brand attributes
• Applications: Assess advertising effectiveness and brand
value; analyze brand/price trade-off
• Disadvantage: May violate consumers’ expectations
based on what they already know about brands

BUSS454 Spring 2021 Tony Garrett

Holistic Methods

BUSS454 Spring 2021 Tony Garrett

Holistic Methods

• Attempt to place an overall value on the brand in either

abstract utility terms or concrete financial terms
• Net out various considerations to determine the unique
contribution of the brand
• Holistic methods:
• Residual approaches
• Valuation approaches

BUSS454 Spring 2021 Tony Garrett

Residual Approaches

• Scanner Panel
• Choice Experiments
• Multi-Attribute Attitude Models

BUSS454 Spring 2021 Tony Garrett

Residual Approaches

• Residual approach is most suited for brands with many

product-related attribute associations
• Cannot distinguish between different types of nonproduct-
related attribute associations
• Generally take a static view of brand equity

BUSS454 Spring 2021 Tony Garrett

Residual Approaches

Examine the value of the brand by subtracting consumers’ preferences

based on physical product attributes alone from their overall brand
preferences
• Advantage: Useful benchmark for interpreting brand equity,
especially from a financially oriented perspective
• Residual approach is most suited for brands with many product-
related attribute associations
• Disadvantage: Cannot distinguish between different types of
nonproduct-related attribute associations
• Static view. Limited diagnostic value for strategic decision making

BUSS454 Spring 2021 Tony Garrett

 Valuation Approaches
• Widely held belief is that much of corporate value of it is wrapped up in the value of a
brand

Company Brand Value (in $ billions)* Total Value (in $ billions)** Brand Value as a Percentage of Overall
Value
Apple 234.2 1296.5 18.1%
Google# 167.7 927.7 18.1%
Amazon 125.3 912.8 13.7%
Microsoft 108.9 1201.8 9.1%
Coca-Cola 63.4 236.7 26.7%
Samsung ## 61.1 301.7 20.3%
Toyota 56.3 196.9 28.6%
Mercedes ### 50.8 58.6 86.7%
McDonalds 45.4 149.8 30%
Disney 45.4 261.1 17.4%

*Source: Data are for 2019; https://www.interbrand.com/best-brands/best-global-brands/2019/

**Source: Market Capitalization information based on data @12/31/19
# Alphabet ## Samsung market capitalization converted to US Currency from South Korean Won ### Daimler converted
from Euro
BUSS454 Spring 2021 Tony Garrett
Valuation Approaches

• Attempt to place a financial value on brand equity for accounting

purposes
• Useful in cases of mergers and acquisitions, brand licensing, fund
raising, and brand management decisions
• Valuation approaches:
• Accounting background
• Historical perspectives
• General approaches

BUSS454 Spring 2021 Tony Garrett

Brand Valuation: A Review of Major
Approaches
• Academic approaches
• Seminal academic research study proposed estimating a firm’s
brand equity derived from financial market estimates of brand-
related profits
• Three additional well-established brand valuation
approaches
• Interbrand
• BrandZ
• Brand finance

BUSS454 Spring 2021 Tony Garrett

Accounting Background

• Intangible assets are typically lumped under the heading

of goodwill and include things such as patents,
trademarks, and licensing agreements, as well as “softer”
considerations such as the skill of the management and
customer relations.
• In an acquisition, the goodwill item often includes a
premium paid to gain control, which, in certain instances,
may even exceed the value of tangible and intangible
assets.

BUSS454 Spring 2021 Tony Garrett

Historical Perspectives

• In Australia Rupert Murdoch’s News Corporation included a valuation

of some of its magazines on its balance sheets in 1984.
• British firms used brand values primarily to boost their balance
sheets.
• In the United States, generally accepted accounting principles
(blanket amortization principles) mean that placing a brand on the
balance sheet would require amortization of that asset for up to 40
years. Such a charge would severely hamper firm profitability; as a
result, firms avoid such accounting maneuvers.

BUSS454 Spring 2021 Tony Garrett

General Approaches

• In determining the value of a brand in an acquisition or

merger, firms can choose from three main approaches:
• Cost approach: Brand equity is the amount of money that would
be required to reproduce or replace the brand
• Market approach: The present value of the future economic
benefits to be derived by the owner of the asset
• Income approach: The discounted future cash flow from the
future earnings stream for the brand

BUSS454 Spring 2021 Tony Garrett

Other Approaches

BUSS454 Spring 2021 Tony Garrett

Interbrand

BUSS454 Spring 2021 Tony Garrett

Interbrand

• Leading brand valuation firm

• How a brand benefits an organization
• Internally and externally
• Three key components:

1. Financial forecast
2. Role of brand
3. Strength analysis

BUSS454 Spring 2021 Tony Garrett

Interbrand Brand Valuation Method

BUSS454 Spring 2021 Tony Garrett

Interbrand’s Brand Valuation

• Assumes that brand value is the present worth of the benefits of future
ownership
• Follows five valuation steps:
• Market segmentation
• Financial (role of branding) analysis
• Demand (brand strength) analysis
• Competitive benchmarking
• Brand value calculation
• Brand value calculation : Calculate the brand value as the net present value
(NPV) of the forecast brand earnings, discounted by the brand discount rate

BUSS454 Spring 2021 Tony Garrett

Brand Value

Internal Factors External Factors

• Clarity • Authenticity
• Commitment • Relevance
• Protection • Differentiation
• Responsiveness • Consistency
• Presence
• Understanding

Best Global Brands 2012, Interbrand 2012

BUSS454 Spring 2021 Tony Garrett
Interbrand

• The charge
• Inversely proportional to the Brand Strength Score

• Brand Strength Score

• An assessment about the brand’s ability to secure ongoing
customer demand (loyalty, repurchase and retention) and thus
sustain future earnings, translating branded earnings into net
present value

BUSS454 Spring 2021 Tony Garrett

BrandZ (

• Based on the Meaningfully Different Framework

• Suggests brands create value if they offer three key benefits:
• They are meaningful
• They are different
• They are salient

BUSS454 Spring 2021 Tony Garrett

BrandZ

• Key steps in the BrandZ valuation include:

• Calculating financial value
• Calculating brand contribution
• Calculating brand value

BUSS454 Spring 2021 Tony Garrett

Brand Finance

• Based on the “relief from royalty” approach

• Brand’s value is based on the royalties that a company would
have paid for licensing that brand from a third party
• Assuming it was not the brand owner

BUSS454 Spring 2021 Tony Garrett

Comparing the Major Brand Valuation
Approaches

1. All three approaches are based on some variation of the

income-based approach to brand valuation
• All are based on projections of income
2. All three methods compute the present value of
projected future earnings
• Based on an estimate of brand strength, and
• An application of a discount rate

BUSS454 Spring 2021 Tony Garrett

Comparing the Major Brand Valuation
Approaches

3. All three approaches use available financial and market

data
• And compute the economic value added
4. Types of data used to measure brand perceptions vary
across the three approaches

BUSS454 Spring 2021 Tony Garrett

2019 Brand Rankings and Values
Interbrand Brand Z Brand Finance
Apple 234.3 Amazon 315.5 Amazon 187.9
Google 167.7 Apple 309.5 Apple 153.6
Amazon 125.3 Google 309.0 Google 142.8
Microsoft 108.9 Microsoft 251.2 Microsoft 120
Coca Cola 63.4 Visa 177.9 Samsung 91.3
Samsung 61.1 Facebook 159 AT&T 87
Toyota 56.3 Alibaba 131.3 Facebook 83.2
Mercedes 50.8 Tencent 130.9 ICBC 79.8
McDonald’s 45.4 McDonalds 130.4 Verizon 71.2
Disney 44.4 AT&T 108.4 China 69.7
Construction
Bank
BUSS454 Spring 2021 Tony Garrett
Comparing the Major Brand Valuation
Approaches
• Spend Wisely
• Focus and be creative
• Look for Benchmarks
• Examine competitive spending levels and historical company
norms
• Be Strategic
• Apply brand equity models
• Be Observant
• Track both formally and informally
BUSS454 Spring 2021 Tony Garrett
Brand Value Chain

BUSS454 Spring 2021 Tony Garrett