Understanding the Brand Value Chain

Donald R. Lehmann Columbia University February, 2006

Company Actions Competitor Actions Channel Behavior Customer Mind Set Customer Behavior Product Market Results Financial Results Stock Market Behavior/ Shareholder Value 2 .

Marketing Management. 27-31 . May-June. How Do Brands Create Value.The Brand Value Chain Marketing Program Investment Product Trade Employee Other Customer Mindset Awareness Associations Attitudes Attachment Activity Communications Brand Performance Price premiums Price elasticities Market share Expansion success Cost structure Profitability Shareholde r Value Stock price P/E ratio Market cap Program Quality Multipliers Clarity Relevance Distinctiveness Consistency Marketplace Conditions Competitive reactions Channel support Customer size & profile Investor Sentiment Market dynamics Growth potential Risk profile Brand contributions 3 Source: Keller and Lehmann (2003).

Acceptability) (Loyalty.Customer Mind-Set Awareness Associations Attitude Attachment Activity (Image) (Intention. Addiction) (WOM) 4 .

Sprite (US and China) Coke. Farley.Brand Equity Measurement within Category and Across Countries Lehmann. Dr. Pepsi McDonalds. Pepsi. Keller. Pepper Coke. KFC Colgate. Crest 5 . Pepsi. Ma ‡ Identify 27 constructs ‡ Study 1 US China Study 2 Coke.

Awareness. Quality Ambiance. Activity ³Other´ Loyalty. Nostalgia Bonding. Prestige. Innovation. Value for Money Persistence. Acceptability 6 . Trust. Intention. Difference. Service History.Factors Comprehension Product Advantage Social History Attitude Activity Construct Presence. Knowledge Relevance. Advantage Caring. Esteem. Endorsement. Performance. Extension Potential.

68 History 7 .76 Activity .Comprehension .62 Attitude .29 .06 .63 Product Advantage Social .74 .

8 . Inc. © 1995 Dow Jones & Company.DOLLAR-METRIC STRENGTH OF PREFERENCE Question: How much more are you willing to pay for Brand X compared to a no-name clone? Brand IBM Compaq Apple DEC AST Dell Hewlett-Packard 1993 $364 301 264 198 176 161 145 1995 $339 318 182 10 17 230 260 Source: The Wall Street Journal.

72 2.26 0.71 2.1 0. 1993 % of Vol/ Household Purch Buying 39.4 Price/ Vol 1.26 57 34 9 Volume / HH = 3.8% 0.0 2.6 1.34 60 49 47 61 24 10.8% 27.1 0.2% 26.2% 30.88 0.1 1.6 1.9 1.2% 3.7 1.1% Share of Category Requirements 68 36 36.3 5.9 30.28 .23 Volume Share Regular CurtisBruns (3-min.6% 32.0 2.9% 1.Quaker Oats Brand Equity Hot Cereal Market IRI Factbook (Grocery Stores).2 9.5 1.7 2.3% 1.17 1.5 0.7 1.82 2.) Quaker Private Label Generic Instant Great Foods America Quaker Private 49.5 1.

10 .

THE REVENUE PREMIUM MEASURE Sales SB SG y y VCB Brand y Generic ! PG ! PB ! Price Ailawadi. Lehmann. and Neslin. Journal of Marketing. 2003 11 .

Financial Impact Tobin¶s q Difference in P/E Ratio a) Basic Growth b) Option Value Market Capitalization 12 .

Link to Customer Equity: Customer 1 2 3 1 Brand 2 3 « Cell 1. 1: Brand Equity + ³Normal´ (Generic) Profit to Customer 1 13 .

Issues Heterogeneity and Aggregation Channel. Category Equity Assessing Option Value 14 .

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