Brand equity
Strategic perspective
Marketing and sales perspective
Key performance question this indicator helps to answer
To what extent is value driven by our brand?
Why is this indicator important?
A brand (at either corporate or product level) represents an enormously valuable piece of legal property, capable of influencing consumer behaviour and providing the security of sustained future revenues to their owner. The value directly or indirectly accrued by these various benefits is often called brand equity.
Brand equity is the value (positive and negative) that a brand adds to an organisation’s products and services. Brand equity may ultimately manifest itself in several ways. Three of the most important ways are as the price premium (to consumers or the trade) that the brand commands, the long-term loyalty the brand evokes and the resultant market share gains. The communication company Saatchi & Saatchi Worldwide has coined the term ‘love marks’ to describe how consumers relate to ‘great’ brands. They ‘love’ the brand so stay loyal, pay a premium and become an unpaid ambassador for the company or product.
Increasingly seen as an important financial metric (or at least a proxy), brand equity has become a very important measure in the eyes of investors. The largest part of an organisation’s market value is no longer in tangible assets (such as factories, plant, machinery) but in intangible assets such as reputation, trademarks, know-how and brand. If the brand is diminished in the eyes of the customer then there will be a commensurate fall in the overall value of the firm. Brand equity is not simply a nice to know KPI but one that has significant financial implications. Measuring brand equity enables an organisation to maintain, build and leverage that equity; that is, to help the organisation increase both the ‘R’ and ‘A’ in the brand’s Return on Assets.
How do I measure it?
Brand equity data are collected through qualitative and quantitative measurement techniques.
Data collection method
Qualitative measures can help identify associations to a brand, its strength, favourability and uniqueness. Face-to-face interviews or focus groups are typically used here.
However, quantitative measures are desirable to provide a more solid ground for strategic and tactical recommendations. Quantitative brand-tracking studies are often used for this purpose. When setting up a brand-tracking study, brand managers should include measures of brand awareness, usage, attitudes and perceptions. Different aspects of awareness such as recall and recognition tell us how strong a brand is, but depending on how and when the purchase decision is made (e.g. at point of purchase or away from it) one may be more important than the other for different product categories.
Usage and customers’ experience with different aspects of a product have an impact on perceptions about product performance, but often go beyond product attributes to encompass an overall attitude towards the brand and its maker. In the quest for sources of brand equity, product- and non-product-related associations and perceptions should be tracked. All these measurements will inform marketers about how to design marketing strategies and tactics that strengthen a brand’s appeal and uniqueness and thus increase its equity.
Formula
The formula for measuring brand equity depends on the level at which the equity is being measured. Some measurement 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. For example, if you were to take the value of the firm, as derived by its market capitalisation, 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.
Consumer Level: This approach aims 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, favourable 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.
Frequency
Brand perception is normally measured on an ongoing basis, especially within large organisations with multiple products.
Source of the data
Those that are being interviewed regarding their perceptions of the organisation’s brand.
Cost/effort in collecting the data
The simple fact is that the larger and more complex the organisation, the higher the costs. Typically, external consultancies will be used extensively to carry out the interviews/analysis and report on the findings. This is not a cheap process, but given the importance of brand equity it is a price that most organisations are willing to pay.
Target setting/benchmarks
There are many consultancies that will help an organisation set brand equity targets over, say, a five-year period (as with any key performance indicator, it should be subjected to targets). Initiatives are launched to build areas such as brand awareness and brand promise around an overall brand vision.
The world’s leading branding company, Interbrand, publishes an annual list of the world’s top 100 corporate brands. For 2010, the top four were:
| 1 | Coca-Cola: brand value (M) | $70,452 |
| 2 | IBM: | $64,727 |
| 3 | Microsoft: | $60,895 |
| 4 | Google: | $43,557 |
Source: www.interbrand.com
Example
Here is a good example of how not to build brand equity.
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 ageing Taurus, which became one of the most significant cars in American auto history, would be abandoned in favour 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. ‘Five Hundred’ was recognised by less than half the population, but an overwhelming majority was familiar with the ‘Ford Taurus’.
Tips/warnings
Organisations, and marketers in particular, need to be careful that they do not get blinded by brand equity. Yes, the brand is critically important but this should not be at the expense of the quality (or functionality) of the product. Moreover, at the product level, keep in mind that no matter how powerful the brand it will provide little protection against a new competitor that enters the market with a product with functionality and characteristics that essentially make the ‘high-brand’ product obsolete.
References
www.brandingstrategyinsider.com