Brand equity
Encyclopedia
Brand equity is the marketing
effects and outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name. Fact of the well-known brand name is that, the company can sometimes charge premium prices from the consumer . And, at the root of these marketing effects is consumers' knowledge. In other words, consumers' knowledge about a brand makes manufacturers and advertisers respond differently or adopt appropriately adept measures for the marketing of the brand. The study of brand equity is increasingly popular as some marketing research
ers have concluded that brands are one of the most valuable assets a company has. Brand equity is one of the factors which can increase the financial value of a brand to the brand owner, although not the only one. Elements that can be included in the valuation of brand equity include (but not limited to): changing market share, profit margins, consumer recognition of logos and other visual elements
, brand language
associations made by consumers, consumers' perceptions of quality and other relevant brand values.
Brand equity is strategically crucial, but famously difficult to quantify. Many experts have developed tools to analyze this asset, but there is no universally accepted way to measure it. In a survey of nearly 200 senior marketing managers, only 26 percent responded that they found the "brand equity" metric very useful.
. A brand encompasses the name, logo
, image, and perceptions that identify a product, service, or provider in the minds of customers
. It takes shape in advertising
, packaging, and other marketing communications, and becomes a focus of the relationship with consumers. In time, a brand comes to embody a promise about the goods it identifies—a promise about quality, performance, or other dimensions of value, which can influence consumers'
choices among competing products
. When consumers trust a brand and find it relevant, they may select the offerings associated with that brand over those of competitors
, even at a premium price. When a brand's promise extends beyond a particular product, its owner may leverage it to enter new markets. For all these reasons, a brand can hold tremendous value, known as brand equity
Firm Level: Firm level approaches measure the brand as a financial asset. In short, a calculation is made regarding how much the brand is worth as an intangible asset
. For example, if you were to take the value of the firm, as derived by its market capitalization—and then subtract tangible assets and "measurable" intangible assets—the residual would be the brand equity. One high-profile firm level approach is by the consulting firm Interbrand. To do its calculation, Interbrand estimates brand value on the basis of projected profits discounted to a present value. The discount rate is a subjective rate determined by Interbrand and Wall Street equity specialists and reflects the risk profile, market leadership, stability and global reach of the brand.
Product Level: The classic product level brand measurement example is to compare the price of a no-name or private label product to an "equivalent" branded product. The difference in price, assuming all things equal, is due to the brand. More recently a revenue premium approach has been advocated.
Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. This approach seeks to measure the awareness (recall and recognition) and brand image (the overall associations that the brand has). Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes, attitudes, and intentions about a brand. Brands with high levels of awareness and strong, favorable and unique associations are high equity brands.
All of these calculations are, at best, approximations. A more complete understanding of the brand can occur if multiple measures are used.
Positive brand equity vs. negative brand equity
Brand equity is the positive effect of the brand on the difference between the prices that the consumer accepts to pay when the brand known compared to the value of the benefit received.
There are two schools of thought regarding the existence of negative brand equity. One perspective states brand equity cannot be negative, hypothesizing only positive brand equity is created by marketing activities such as advertising, PR, and promotion. A second perspective is that negative equity can exist, due to catastrophic events to the brand, such as a wide product recall or continued negative press attention (Blackwater
or Halliburton
, for example).
Colloquially, the term "negative brand equity" may be used to describe a product or service where a brand has a negligible effect on a product level when compared to a no-name or private label product.
Family branding vs. individual branding strategies
The greater a company's brand equity, the greater the probability that the company will use a family branding
strategy rather than an individual branding
strategy. This is because family branding allows them to leverage the equity accumulated in the core brand. Aspects of brand equity include: brand loyalty, awareness, association (read more here), and perception of quality .
Examples
In the early 2000s in North America, the Ford Motor Company
made a strategic decision to brand all new or redesigned cars with names starting with "F." This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer
with the letter "E." The Toronto Star quoted an analyst who warned that changing the name of the well known Windstar
to the Freestar
would cause confusion and discard brand equity built up, while a marketing manager believed that a name change would highlight the new redesign. The aging Taurus
, which became one of the most significant cars in American auto history, would be abandoned in favor of three entirely new names, all starting with "F," the Five Hundred
, Freestar
, and Fusion. By 2007, the Freestar was discontinued without a replacement. The Five Hundred name was thrown out and Taurus was brought back for the next generation of that car in a surprise move by Alan Mulally
.
In practice, brand equity is difficult to measure. Because brands are crucial assets, however, both marketers and academic researchers have devised means to contemplate their value. Some of these techniques are described in the "Methodologies" section below.
Brand Equity Index (Moran): Marketing executive Bill Moran has derived an index of brand equity as the product of three factors:
Brand Asset Valuator (Young & Rubicam): Young & Rubicam
, a marketing communications agency, has developed the Brand Asset Valuator, a tool to diagnose the power and value of a brand. In using it, the agency surveys consumers' perspectives along four dimensions:
Brand Valuation Model (Interbrand and Brand Finance):
Conjoint Analysis: Marketers use conjoint analysis
to measure consumers' preference for various attributes of a product, service, or provider, such as features, design, price, or location. By including brand and price as two of the attributes under consideration, they can gain insight into consumers' valuation of a brand—that is, their willingness to pay a premium for it.
Note: These customer satisfaction methodologies have not been independently audited by the Marketing Accountability Standards Board (MASB)
according to MMAP (Marketing Metric Audit Protocol).
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
effects and outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name. Fact of the well-known brand name is that, the company can sometimes charge premium prices from the consumer . And, at the root of these marketing effects is consumers' knowledge. In other words, consumers' knowledge about a brand makes manufacturers and advertisers respond differently or adopt appropriately adept measures for the marketing of the brand. The study of brand equity is increasingly popular as some marketing research
Marketing research
Marketing research is "the function that links the consumer, customer, and public to the marketer through information — information used to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve...
ers have concluded that brands are one of the most valuable assets a company has. Brand equity is one of the factors which can increase the financial value of a brand to the brand owner, although not the only one. Elements that can be included in the valuation of brand equity include (but not limited to): changing market share, profit margins, consumer recognition of logos and other visual elements
Visual brand language
Visual brand language is branding terminology for a unique "alphabet" of design elements – such as shape, color, materials, finish, typography and composition – which directly and subliminally communicate a company's values and personality through compelling imagery and design style...
, brand language
Brand language
Brand language is the body of words and systems for their use in written and verbal communication associated with an organisation and/or its separate product offerings or business units. Brand Language consists of brand vocabulary and brand tone of voice...
associations made by consumers, consumers' perceptions of quality and other relevant brand values.
Brand equity is strategically crucial, but famously difficult to quantify. Many experts have developed tools to analyze this asset, but there is no universally accepted way to measure it. In a survey of nearly 200 senior marketing managers, only 26 percent responded that they found the "brand equity" metric very useful.
Purpose
The purpose of brand equity metrics is to measure the value of a brandBrand
The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
. A brand encompasses the name, logo
Logo
A logo is a graphic mark or emblem commonly used by commercial enterprises, organizations and even individuals to aid and promote instant public recognition...
, image, and perceptions that identify a product, service, or provider in the minds of customers
Customer
A customer is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...
. It takes shape in advertising
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
, packaging, and other marketing communications, and becomes a focus of the relationship with consumers. In time, a brand comes to embody a promise about the goods it identifies—a promise about quality, performance, or other dimensions of value, which can influence consumers'
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
choices among competing products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
. When consumers trust a brand and find it relevant, they may select the offerings associated with that brand over those of competitors
Competition (economics)
Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services...
, even at a premium price. When a brand's promise extends beyond a particular product, its owner may leverage it to enter new markets. For all these reasons, a brand can hold tremendous value, known as brand equity
Construction
There are many ways to measure a brand. Some measurements approaches are at the firm level, some at the product level, and still others are at the consumer level.Firm Level: Firm level approaches measure the brand as a financial asset. In short, a calculation is made regarding how much the brand is worth as an intangible asset
Intangible asset
Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset...
. For example, if you were to take the value of the firm, as derived by its market capitalization—and then subtract tangible assets and "measurable" intangible assets—the residual would be the brand equity. One high-profile firm level approach is by the consulting firm Interbrand. To do its calculation, Interbrand estimates brand value on the basis of projected profits discounted to a present value. The discount rate is a subjective rate determined by Interbrand and Wall Street equity specialists and reflects the risk profile, market leadership, stability and global reach of the brand.
Product Level: The classic product level brand measurement example is to compare the price of a no-name or private label product to an "equivalent" branded product. The difference in price, assuming all things equal, is due to the brand. More recently a revenue premium approach has been advocated.
Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. This approach seeks to measure the awareness (recall and recognition) and brand image (the overall associations that the brand has). Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes, attitudes, and intentions about a brand. Brands with high levels of awareness and strong, favorable and unique associations are high equity brands.
All of these calculations are, at best, approximations. A more complete understanding of the brand can occur if multiple measures are used.
Positive brand equity vs. negative brand equity
Brand equity is the positive effect of the brand on the difference between the prices that the consumer accepts to pay when the brand known compared to the value of the benefit received.
There are two schools of thought regarding the existence of negative brand equity. One perspective states brand equity cannot be negative, hypothesizing only positive brand equity is created by marketing activities such as advertising, PR, and promotion. A second perspective is that negative equity can exist, due to catastrophic events to the brand, such as a wide product recall or continued negative press attention (Blackwater
Blackwater Worldwide
Xe Services LLC, better known by its former names, Blackwater USA and Blackwater Worldwide, is a private military company founded in 1997 by Erik Prince and Al Clark.. Xe is currently the largest of the U.S. State Department's three private security contractors...
or Halliburton
Halliburton
Halliburton is the world's second largest oilfield services corporation with operations in more than 70 countries. It has hundreds of subsidiaries, affiliates, branches, brands and divisions worldwide and employs over 50,000 people....
, for example).
Colloquially, the term "negative brand equity" may be used to describe a product or service where a brand has a negligible effect on a product level when compared to a no-name or private label product.
Family branding vs. individual branding strategies
The greater a company's brand equity, the greater the probability that the company will use a family branding
Family branding
Family branding is a marketing strategy that involves selling several related products under one brand name. Family branding is also known as umbrella branding...
strategy rather than an individual branding
Individual branding
Individual branding, also called individual product branding or multibranding, is the marketing strategy of giving each product in a portfolio its own unique brand name. This contrasts with family branding, corporate branding, and umbrella branding in which the products in a product line are given...
strategy. This is because family branding allows them to leverage the equity accumulated in the core brand. Aspects of brand equity include: brand loyalty, awareness, association (read more here), and perception of quality .
Examples
In the early 2000s in North America, the Ford Motor Company
Ford Motor Company
Ford Motor Company is an American multinational automaker based in Dearborn, Michigan, a suburb of Detroit. The automaker was founded by Henry Ford and incorporated on June 16, 1903. In addition to the Ford and Lincoln brands, Ford also owns a small stake in Mazda in Japan and Aston Martin in the UK...
made a strategic decision to brand all new or redesigned cars with names starting with "F." This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer
Ford Explorer
The Ford Explorer is a sport-utility vehicle sold in North America and built by the Ford Motor Company since 1990, as a replacement for the smaller but related Ford Bronco II. It is manufactured in Chicago, Illinois...
with the letter "E." The Toronto Star quoted an analyst who warned that changing the name of the well known Windstar
Ford Windstar
The Ford Windstar is a minivan that was produced and sold by the Ford Motor Company from the 1995 to 2003 model years. This front-wheel drive minivan was the second minivan designed by the company, serving as a replacement for the rear-wheel drive Aerostar minivan. The two were sold concurrently...
to the Freestar
Ford Freestar
The Ford Freestar is a minivan that was manufactured by the Ford Motor Company from 2004 until November 2006. It replaced the Ford Windstar for the 2004 model year. The name change accommodated Ford's strategy to rename all their cars to words beginning in F...
would cause confusion and discard brand equity built up, while a marketing manager believed that a name change would highlight the new redesign. The aging Taurus
Ford Taurus
The Ford Taurus is an automobile manufactured by the Ford Motor Company in the United States. Originally introduced in the 1986 model year, it has remained in near-continuous production for more than two decades, making it the fourth oldest nameplate that is currently sold in the North American...
, which became one of the most significant cars in American auto history, would be abandoned in favor of three entirely new names, all starting with "F," the Five Hundred
Ford Five Hundred
The Ford Five Hundred is a full-size sedan that was produced by the Ford Motor Company during the 2005 to 2007 model years in North America. In North America, the name evoked the classic Fairlane 500 and Galaxie 500 models of the 1950s through 1970s.-Overview:The Five Hundred was introduced at the...
, Freestar
Ford Freestar
The Ford Freestar is a minivan that was manufactured by the Ford Motor Company from 2004 until November 2006. It replaced the Ford Windstar for the 2004 model year. The name change accommodated Ford's strategy to rename all their cars to words beginning in F...
, and Fusion. By 2007, the Freestar was discontinued without a replacement. The Five Hundred name was thrown out and Taurus was brought back for the next generation of that car in a surprise move by Alan Mulally
Alan Mulally
Alan Roger Mulally is an American engineer and business executive who is currently the President and Chief Executive Officer of the Ford Motor Company...
.
In practice, brand equity is difficult to measure. Because brands are crucial assets, however, both marketers and academic researchers have devised means to contemplate their value. Some of these techniques are described in the "Methodologies" section below.
Methodologies
Brand Equity Ten (Aaker): David Aaker, a marketing professor and brand consultant, highlights ten attributes of a brand that can be used to assess its strength. These include Differentiation, Satisfaction or Loyalty, Perceived Quality, Leadership or Popularity, Perceived Value, Brand Personality, Organizational Associations, Brand Awareness, Market Share, and Market Price and Distribution Coverage. Aaker doesn't weight the attributes or combine them in an overall score, as he believes any weighting would be arbitrary and would vary among brands and categories. Rather he recommends tracking each attribute separately.Brand Equity Index (Moran): Marketing executive Bill Moran has derived an index of brand equity as the product of three factors:
- Effective Market Share is a weighted average. It represents the sum of a brand's market shares in all segments in which it competes, weighted by each segment's proportion of that brand's total sales.
- Relative Price is a ratio. It represents the price of goods sold under a given brand, divided by the average price of comparable goods in the market.
- Durability is a measure of customer retention or loyalty. It represents the percentage of a brand's customers who will continue to buy goods under that brand in the following year.
Brand Asset Valuator (Young & Rubicam): Young & Rubicam
Young & Rubicam
Y&R is a marketing and communications company specializing in advertising, digital and social media, sales promotion, direct marketing and brand identity consulting.-History:...
, a marketing communications agency, has developed the Brand Asset Valuator, a tool to diagnose the power and value of a brand. In using it, the agency surveys consumers' perspectives along four dimensions:
- Differentiation: The defining characteristics of the brand and its distinctiveness relative to competitors.
- Relevance: The appropriateness and connection of the brand to a given consumer.
- Esteem: Consumers' respect for and attraction to the brand.
- Knowledge: Consumers' awareness of the brand and understanding of what it represents.
Brand Valuation Model (Interbrand and Brand Finance):
- InterbrandInterbrandInterbrand, a division of Omnicom, is a global branding consultancy, specializing in vast brand services, including brand analytics, brand strategy, brand valuation, corporate design, digital brand management, and naming...
, a brand strategy agency, draws upon financial results and projections in its own model for brand valuation. It reviews a company's financial statements, analyzes its market dynamics and the role of brand in income generation, and separates those earnings attributable to tangible assets (capital, product, packaging, and so on) from the residual that can be ascribed to a brand. It then forecasts future earnings and discounts these on the basis of brand strength and risk. The agency estimates brand value on this basis and tabulates a yearly list of the 100 most valuable global brands. - The Royalty Relief approach of Brand FinanceBrand FinanceBrand Finance is an independent intangible asset valuation consultancy. It advises strongly branded organisations, or those with valuable intangible assets, on how to maximise their value through effective management of their brand and other intangible assets...
, an independent brand valuation consultancy, is based on the assumption that if a company did not own the trademarks that it exploits, it would need to license them from a third party brand owner instead. Ownership therefore ‘relieves’ the company from paying a license fee (the royalty) for the use of the third party trademarks. The royalty relief method involves estimating likely future sales, applying an appropriate royalty rate to them and then discounting estimated future, post-tax royalties, to arrive at a Net Present Value (NPV). This is held to represent the brand value. The independent consultancy publishes yearly lists by industry sector and geographic region as well as a top 500 global list.
Conjoint Analysis: Marketers use conjoint analysis
Conjoint analysis
Conjoint analysis, also called multi-attribute compositional models or stated preference analysis, is a statistical technique that originated in mathematical psychology. Today it is used in many of the social sciences and applied sciences including marketing, product management, and operations...
to measure consumers' preference for various attributes of a product, service, or provider, such as features, design, price, or location. By including brand and price as two of the attributes under consideration, they can gain insight into consumers' valuation of a brand—that is, their willingness to pay a premium for it.
Note: These customer satisfaction methodologies have not been independently audited by the Marketing Accountability Standards Board (MASB)
Marketing Accountability Standards Board (MASB)
The Marketing Accountability Foundation and its Marketing Accountability Standards Board is the independent, private sector, self-governing body of authorized by its membership constituency to establish marketing measurement and accountability standards across industry and domain, for continuous...
according to MMAP (Marketing Metric Audit Protocol).
See also
- Brand managementBrand managementBrand management is the application of marketing techniques to a specific product, product line, or brand.The discipline of brand management was started at Procter & Gamble as a result of a famous memo by Neil H...
- BrandBrandThe American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
- Brand languageBrand languageBrand language is the body of words and systems for their use in written and verbal communication associated with an organisation and/or its separate product offerings or business units. Brand Language consists of brand vocabulary and brand tone of voice...
- Customer engagementCustomer engagementCustomer engagement refers to the engagement of customers with one another, with a company or a brand. The initiative for engagement can be either consumer- or company-led and the medium of engagement can be on or offline....
- Equity (disambiguation)
- MarketingMarketingMarketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
- Product managementProduct managementProduct management is an organizational lifecycle function within a company dealing with the planning, forecasting, or marketing of a product or products at all stages of the product lifecycle....
- Brand ArchitectureBrand architectureBrand architecture is the structure of brands within an organizational entity. It is the way in which the brands within a company’s portfolio are related to, and differentiated from, one another...
- Brand extensionBrand extensionBrand extension or brand stretching is a marketing strategy in which a firm marketing a product with a well-developed image uses the same brand name in a different product category. The new product is called a spin-off. Organizations use this strategy to increase and leverage brand equity...
- Threaded marketingThreaded marketingThe term Integrated Marketing Communications refers specifically to the connectivity of all communications about a brand in the marketplace - its packaging, media, in-store, website, etc....
- Visual brand languageVisual brand languageVisual brand language is branding terminology for a unique "alphabet" of design elements – such as shape, color, materials, finish, typography and composition – which directly and subliminally communicate a company's values and personality through compelling imagery and design style...