Brand Equity: Marketing Study Notes

🏷️ Brand Equity

• Definition of brand equity and two research perspectives (cognitive psychology vs. information economics)
• The brand equity concept: consumer and business-to-business markets, drivers, and the difficulty of quantifying it
• Purpose of brand equity metrics and what a brand embodies
• Construction: firm-level, product-level and consumer-level measurement
• Positive vs. negative brand equity
• Family branding vs. individual branding
• Automobile industry examples: Oldsmobile Cutlass, Chevrolet Malibu, Mercury Cougar, Ford's "F" names
• Methodologies: Aaker's Brand Equity Ten, Moran's Brand Equity Index, Young & Rubicam's BrandAsset Valuator, CoreBrand's Brand Contribution to Market Cap, conjoint analysis, event studies
• Managing brand equity: reinforcement, re-genesis (revitalization) and consistency

💡 What Is Brand Equity?

Brand equity, in marketing, is the worth of a brand in and of itself, i.e., the social value of a well-known brand name.

• The owner of a well-known brand name can generate more revenue simply from brand recognition.
• Consumers perceive the products of well-known brands as better than those of lesser-known brands.
• It has been said that brand equity is "the branding of a product name on an attention-deficit public."

Two Research Perspectives

Perspective	Where brand equity lies
Cognitive psychology	In the consumer's awareness of brand features and associations, which drive attribute perceptions
Information economics	A strong brand name works as a credible signal of product quality for imperfectly informed buyers and generates price premiums as a form of return to branding investments

• It has been empirically demonstrated that brand equity plays an important role in the determination of price structure.
• Firms are able to charge price premiums that derive from brand equity after controlling for observed product differentiation.

🧭 The Brand Equity Concept

Consumer vs. Business-to-Business Markets

• Most brand equity research has taken place in consumer markets.
• The concept is also important for understanding competitive dynamics and price structures of business-to-business markets.
• In industrial markets, competition is often based on differences in product performance.
• Firms may nevertheless charge premiums that cannot be explained solely by technological superiority and performance-related advantages. Such price premiums reflect the brand equity of reputable manufacturers.

Three Brand Equity Drivers

Researchers selected three drivers from the numerous factors that have impact on a brand:

1. Brand awareness
2. Brand perspective
3. Brand attachment

Difficulty of Quantifying Brand Equity

• Brand equity is strategically crucial, but famously difficult to quantify.
• Many experts have developed tools to analyze this asset, but there is no agreed way to measure it.
• A serial challenge is the disconnect between quantitative and qualitative equity values:
  • Quantitative brand equity includes numerical values such as profit margins and market share.
  • It fails to capture qualitative elements such as prestige and associations of interest.
• Most marketing practitioners therefore take a more qualitative approach.
• In a survey of nearly 200 senior marketing managers, only 26 percent found the "brand equity" metric very useful.

Brand Equity as a Valuable Asset

• Some marketing researchers conclude 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 (not limited to these):
  • 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

How Brand Equity Is Created and Appreciates

• Consumers' knowledge about a brand also governs how manufacturers and advertisers market the brand.
• Brand equity is created through strategic investments in communication channels and market education.
• It appreciates through economic growth in profit margins, market share, prestige value, and critical associations.
• Generally, these strategic investments appreciate over time to deliver a return on investment, which is directly related to marketing ROI.
• Brand equity can also appreciate without strategic direction:
  • Example: A Stockholm University study in 2011 documents Jerusalem's city brand.
  • The city organically developed a brand that experienced tremendous brand equity appreciation over centuries through non-strategic activities.
  • A booming tourism industry in Jerusalem has been the most evident indicator of a strong ROI.

🎯 Purpose of Brand Equity Metrics

• The purpose of brand equity metrics is to measure the value of a brand.
• 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 its offerings 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, which is known as brand equity.
• Social media has changed the traditional communication between brands and consumers, enabling consumers to make positive as well as negative influence on brand equity.
• Brand equity is best managed with the development of brand equity goals, which are then used to track progress and performance.

📏 Construction: Levels of Measuring a Brand

There are many ways to measure a brand. Some approaches are at the firm level, some at the product level, and still others at the consumer level.

Firm Level

• Measures the brand as a financial asset: a calculation of how much the brand is worth as an intangible asset.
• Example: Take the value of the firm as derived by its market capitalization, then subtract tangible assets and "measurable" intangible assets. The residual would be the brand equity.
• Measuring brand equity this way is often referred to as brand valuation.
• A number of models have been developed by different consultancies.
• Brand valuation models typically combine a brand equity measure (e.g., the proportion of sales contributed by "brand") with commercial metrics such as revenue or economic profit.

Product Level

• The classic example is comparing 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.
• Marketing mix modeling can isolate "base" and "incremental" sales, and it is sometimes argued that base sales approximate a measure of brand equity.
• More sophisticated marketing mix models have a floating base that can capture changes in underlying brand equity for a product over time.

Consumer Level

• Seeks to map the mind of the consumer to find out what associations the consumer has with the brand.
• Measures:
  • Awareness (recall and recognition)
  • 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.

Level	Treats the brand as	Typical approach
Firm	A financial, intangible asset	Market cap minus tangible and measurable intangible assets
Product	A source of price or sales difference	Branded vs. private label price; revenue premium; base sales
Consumer	Associations in the consumer's mind	Awareness and image via free association and projective techniques

All of these calculations are, at best, approximations. A more complete understanding of the brand can occur if multiple measures are used.

Positive 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 is known compared to the value of the benefit received.
• There are two schools of thought on whether negative brand equity exists:
  1. It cannot be negative: only positive brand equity is created by marketing activities such as advertising, PR, and promotion.
  2. It can be negative: due to catastrophic events to the brand, such as a wide product recall or continued negative press attention (Blackwater or Halliburton, for example).
• Colloquially, "negative brand equity" may describe a product or service where a brand has a negligible effect at the product level when compared to a no-name or private label product.

Family Branding vs. Individual Branding

• The greater a company's brand equity, the greater the probability that it will use a family branding strategy rather than an individual branding strategy.
• Reason: family branding allows the company to leverage the equity accumulated in the core brand.
• Aspects of brand equity include:
  • Brand loyalty
  • Awareness
  • Association
  • Perception of quality

🚗 Automobile Industry Examples

Oldsmobile Cutlass

• "Cutlass" was one of Oldsmobile's best known brands, first used in 1961.
• By the 1980s it was confusingly used on three different platforms; the Oldsmobile Cutlass Ciera became Oldsmobile's best selling model, sold alongside the smaller Cutlass Calais and a newer Cutlass Supreme.
• The Aurora-inspired Intrigue introduced in 1988 retired the aging Cutlass nameplate, as Oldsmobile tried to recast itself as an import fighter and phase out past model names.
• Sales continued to decline; Cutlass briefly re-appeared as a rebadged Malibu in 1997.
• To reduce costs at General Motors by consolidating a profusion of divisions, the Oldsmobile division was entirely phased out in 2004.

Chevrolet Malibu, Impala and Nova

• Chevrolet re-entered the midsize market when it resurrected the Malibu nameplate in 1997 (and later the Impala in 2000, as an answer to imports such as the Honda Accord and Toyota Camry). As of the 2018 model year, both nameplates are still in production.
• The Malibu was originally the top trim level of the mid-size Chevelle lineup until 1977. When the Chevelle nameplate was retired, its trim level had brand recognition and was better known, so GM promoted it to full model status.
• This practice was first demonstrated in 1969, when the Chevy II lineup was rebadged and the Nova, its top trim level, became an official model.
• The Nova's promotion broke Chevrolet's tradition of car nameplates beginning with a "C."

Mercury Cougar

• The Mercury Cougar was the best known brand of the Lincoln-Mercury division of Ford from the late 1960s to 2002.
• It was first used as a twin to the Ford Mustang, and later as a personal luxury coupe sharing its platform with the midsize Torino lineup.
• In 1977 the entire midsize lineup (at the time branded as the Montego) was rebadged as part of the Cougar lineup, ranging from a base coupe to a station wagon.
• In the early 1980s Lincoln-Mercury repositioned its midsized lineup by rebadging the Cougar under the Marquis nameplate.

Ford's "F" Naming Decision

• In the early 2000s in North America, Ford decided to brand all new or redesigned cars with names starting with "F," aligning with the earlier tradition of naming sport utility vehicles with "E" since the Ford Explorer.
• 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; a marketing manager believed the name change would highlight the new redesign.
• The aging Taurus, one of the most significant cars in American auto history, was abandoned in favor of three new names: 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 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.

🛠️ 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:

1. Differentiation
2. Satisfaction or Loyalty
3. Perceived Quality
4. Leadership or Popularity
5. Perceived Value
6. Brand Personality
7. Organizational Associations
8. Brand Awareness
9. Market Share
10. Market Price and Distribution Coverage

• Aaker does not weight the attributes or combine them into an overall score, believing any weighting would be arbitrary and would vary among brands and categories.
• He recommends tracking each attribute separately.

Brand Equity Index (Moran)

Marketing executive Bill Moran derived an index of brand equity as the product of three factors:

Factor	Type	Meaning
Effective Market Share	Weighted average	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	Ratio	The price of goods sold under a given brand, divided by the average price of comparable goods in the market
Durability	Customer retention or loyalty	The percentage of a brand's customers who will continue to buy goods under that brand in the following year

BrandAsset Valuator (Young & Rubicam)

Young & Rubicam, a marketing communications agency, developed the BrandAsset Valuator (BAV), a tool to diagnose the power and value of a brand. It surveys consumers' perspectives along four dimensions:

Dimension	Meaning
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 Contribution to Market Cap Method (CoreBrand)

• CoreBrand is a research, brand strategy, communication, and design firm.
• It uses the Corporate Branding Index database, composed of Familiarity and Favorability data, as the quantitative basis of its system.
• Familiarity and Favorability scores are analyzed in the context of a company's market cap and revenue to determine a base expected level at which the brand's value would be zero.
• Using statistical regression analysis of the factors driving the cash flow multiple and thus share price, the variance in Familiarity and Favorability above or below the base expected level is analyzed.
• As a point-in-time analysis, it is used for brand equity valuation based on current Familiarity, Favorability, Revenue and Market Cap.
• The output provides two pieces of data:
  1. The percentage of market cap attributable directly to the corporate brand (how hard the brand is working to create value for the company).
  2. The dollar value of the brand at a point in time: the asset value of the brand as a component of the company's market valuation.
• According to this analysis, the corporate brand is responsible for 5-7% of stock performance on average.

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, they 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 validated by the Marketing Accountability Standards Board (MASB) according to MMAP (Marketing Metric Audit Protocol).

Brand Equity with Time-Series Data (Event Study)

• Event studies offer evidence that brand equity positively affects financial performance, though many studies focus on customer mindset metrics to show this relationship (Berger et al., 2006; Buil, Martinez & de Chernatony, 2013).
• The event method determines the stakeholder interest or value assessed in a brand before, during or after an event.

Study	Finding
Agrawal & Kamakura (1995)	On the economic worth of celebrity endorsers: an announcement of brand association between a product and a celebrity creates a movement in stock value, so shareholder interest is influenced by the endorsement
Lane & Jacobson (1995)	Stock market reactions to brand announcements, factoring customer attitudes and brand familiarity: the response was favorable when consumers were familiar with the brand and held it in high esteem. The same applied to low familiarity and low esteem brands, because (Keller, 2002) "there was little to risk and much to gain"
Roy & Cornwell (2003)	Lesser known brands may benefit from event sponsorships as a brand-building exercise, but customers' associations with the event sponsors could determine affective attitudes; high equity counterparts yield stronger results due to market familiarity
Simon & Sullivan (1993)	Suggested long-term analysis of events, based on financial returns and market performance, better captures the effect of customer mindset brand equity

Timing of Returns by Sector

• Restaurant sector: returns of branding are contemporaneous.
• High-tech sector: no contemporaneous effects; brand equity is realized in the future with significant delay.
• Distribution/retail sector: both contemporaneous and positive future profitability.

Berger et al. (2006) acknowledge the long-term approach of considering customer lifetime value as relevant to the shareholder value or financial performance of a brand. This perspective contributed to concepts like "brand awareness," which Huang & Sarigöllü (2012) apply to commonly used marketing metrics to determine stock market performance.

🔧 Managing Brand Equity

• The marketing environment changes, often significantly: shifts in consumer behavior, competitive strategies, government regulations, and other aspects can profoundly affect a brand's fortunes.
• The firm itself may also change activities or strategic focus, requiring adjustments in how brands are marketed.
• Effective brand management therefore requires proactive strategies designed to at least maintain, if not enhance, brand equity in the face of these forces.

Brand Reinforcement

As a company's major enduring asset, a brand needs careful management so its value does not depreciate. Marketers can reinforce brand equity by consistently conveying the brand's meaning in terms of:

1. What product it represents, what core benefits it supplies, and what needs it satisfies.
2. How the brand makes the product superior, and which strong, favorable, and unique brand associations should exist in consumers' minds.

Both issues depend on the firm's general approach to product development, branding strategies, and other strategic concerns.

Brand Re-genesis

• Changes in the marketing environment can affect a brand's performance.
• Brand revitalization typically begins with an assessment of the existing sources of brand equity:
  • Have positive associations weakened or lost distinctiveness?
  • Have negative associations developed?
• This analysis informs the decision of whether to retain the existing brand positioning or adopt a new one.

Maintaining Brand Consistency

• The most important consideration in reinforcing brands is the consistency of the marketing support the brand receives, in both the amount and nature of support.
• Brand consistency is critical to maintaining the strength and favorability of brand associations.
• Brands receiving inadequate support, such as shrinking research and development or marketing communication budgets, risk becoming technologically disadvantaged or even obsolete.
• Consistency does not mean avoiding changes to the marketing program. Being consistent may require numerous tactical shifts to maintain the proper strategic thrust and direction of the brand.
• The tactics most effective for a brand at one time can differ from those at another time. Over time:
  • Prices may move up or down
  • Product features may be added or dropped
  • Ad campaigns may employ different creative strategies and slogans
  • Different brand extensions may be introduced or withdrawn
• The aim is to create the same desired knowledge structures in consumers' minds.