Brand Equity 2007

Definition

Brand Equity is a set of assets (and liabilities) linked to a brand’s name and symbol that adds to (or substracts from) the value provided by a product or service to a firm and/or that firm’s customers.

Brand equity is the value built-up in a brand. The value of a company's brand equity can be

calculated by comparing the expected future revenue from the branded product with the expected future revenue from an equivalent non-branded product.

This calculation is at best an approximation.

This value can comprise both tangible, functional attributes (eg. TWICE the cleaning power or thrice the whitening effect) and intangible, emotional attributes (eg. The brand for people with style and good taste).

Brand Equity Increases Value

BrandEquity

Brand Loyalty

Brand Awareness

Perceived Quality

Brand Associations

Other Brand Assets

Value to Customer

Value to Firm

Categories of Assets

Brand name awareness Brand loyalty(franchise) Perceived Quality(image) Brand Associations(image) Other Proprietary Brand Assets (e.g.,

channel relationships, patents,…)

Brand Name Awareness Brand awareness is composed of the strength

of the brand in consumers' minds, for example their ability to recall the brand, or the visual identity.

Anchor to which other associations can be attached- Shoppers’ StopShoppersStop.htm

Familiarity-liking Signal of substance/commitment- Brands to be considered

Signal of substance/ commitment

Brand considered

Recall connected to buying decisions by ensuring product is in consideration set

Critical for frequently purchased products like coffee, detergents etc where the brand is pre-decided

How to achieve awareness( how to enhance recognition and recall

Be different,memorable Involve a slogan/jingle/mnemonic Symbol exposure Publicity Event sponsorships Brand extensions Repetition

Awareness pyramid

Brand unawareness

Brand recognition

Brand recall

Top of mind

importance of brand recognition and brand recall depends on whereconsumers make decision of purchasing.

the first stage of purchasing is selection of a consideration set of brands. Therefore, brand recall play a main role to enter the set.

top of mind and brand recall play critical role for products whichpurchasing decision is done before going to stores.

importance of brand recognition and brand recall depends on whereconsumers make decision of purchasing.

the first stage of purchasing is selection of a consideration set of brands. Therefore, brand recall play a main role to enter the set.

top of mind and brand recall play critical role for products whichpurchasing decision is done before going to stores.

Brand Loyalty Reduced marketing costs Trade leverage Attracting new customers

Create awareness Reassurance

Time to respond to competitive threats

Loyalty pyramid

Switchers / Price sensitive/ No brand Loyalty

Satisfied/ Habitual Buyer

Satisfied Buyer with Switching Cost

Like the BrandConsider It a Friend

Committed Buyer

Brand loyalty is different from other brand equities, because it strongly related to

experience in using.

Brand loyalty is different from other brand equities, because it strongly related to

experience in using.

Double – jeopardy line

Super – loyalty brands

Change – of – space brands

Niche brands

Market share

Rep

eate

d pu

rcha

se p

roba

bilit

y

100%0%0

1.0

“There is a wide consensus that brand loyalty does develop systematically in connection

with penetration in stable markets for frequently purchased low-involvement products and

for established brands. There, however , are exceptions.”

“There is a wide consensus that brand loyalty does develop systematically in connection

with penetration in stable markets for frequently purchased low-involvement products and

for established brands. There, however , are exceptions.”

Double – jeopardy line

From awareness to brand loyalty

All brands

Aware

Unaware

Spontaneous awareness

Aided awarenessonly

Considerationset

Not acceptable

Not consideration

Unique(Only accepted)

Top brand

Second brand

Third brand

In repertoire

Not in repertoire

100% brandloyalty

Top brandbuyers

Repertoire buyers

Occasional buyers

Maintaining and enhancing loyalty

Customers do not like to change – inertia People do not want to admit that they were wrong…Hence..

Treat the customer right(There is no brand loyalty that a 20% discount cannot buy)

Stay close to the customer Measure/manage customer satisfaction Create switching costs Provide extras SELL TO OLD CUSTOMERS INSTEAD OF NEW Analyse irritations,reasons for brand exits, plug the holes in the

bucket Young brand managers should avoid short term “blip” temptations

Perceived Quality Reason-to-buy Differentiate/Position Price Channel member interest Extensions

Brand Associations

Help process/retrieve information Reason-to-buy Create positive attitude/feelings Extensions

Brand Equity and Brand Value

Brand Equity provides value to customers: Interpretation/processing of information Confidence in the purchase decision Use satisfaction

Brand Building Inhibitors Pressure to compete on price – Indica/Indigo Proliferation of competitors - Laptops Fragmenting markets and media - Movies Complex brand strategies and relationships -

Hyundai Bias toward changing strategies - Coke Bias against innovation - Nirma Pressure to invest elsewhere – Reliance - Vimal Short-term pressures

Brand Equity and Brand Identity

BrandIdentity

BrandAssociations

BrandEquity

Beyond Brand Equity:Using Customer Equity Insights to Make Profitable Marketing Decisions

The Conference Board

prepared for:

These are tough times for brand businesses. Consumer confidence has dropped like a stone; revenues

are growing but unit profits are down even more; investments

in R&D and marketing have been cut to the bone.

14%Above

average

2%Well below

average

68%Average marketing

program

The Zone ofExceptional Marketing

The Zone ofConventional Marketing

14%Below

average

2%Well above

average

Marketing Performance

Embarrassing

Troubling Disappointing Pleasing Amazing

Market Share Growth Precipitous

DeclineSignificant

Decline Modest DeclineSignificant Increase

Dramatic

Increase

New Product Success Rate 0% 5% 10% 25% 40%+

Advertising ROI

Negative 0% 1-4% 5-10% 20%

Consumer and Trade Promotion Disaster

Very Unprofitable

Marginally Unprofitable Profitable

Very Profitabl

eCustomer Satisfaction 0-59% 60-69% 70-79% 80-89% 90-95%

Even brand equity is imperiled. Four different studies suggest that

equity scores for some leading brands are in decline.

AirlinesAthletic ShoesAuto Insurance

BanksBeers

BookstoresBottled water

Catalog clothingCigarettes

ColasCold Cereals

CookiesCosmetics

Credit CardsDepartment Stores

Fast Food Restaurants

Categories StudiedGas Stations

Haircare ProductsHeadache Remedies

Health & Fitness ClubsHome Entertainment

EquipmentHotels

Household CleansersInternet Search Engines

Internet Service ProvidersJewelry

Laundry DetergentsLiquor

Long-Distance Telephone Services

Luxury American CarsLuxury Foreign Cars

Major Household Appliances

The study revealed that out of 48 product categories, Brand Equity

scores are:

Decreasing in 39 Stable in 5 Improving in only 4

The study also showed that in 25 out of 37 product categories, a low price is becoming more important

than brand driven product features, attributes, and benefits.

This study led us to conclude that far more brands are being

transformed into commodities than commodities are being transformed

into brands.

Why are so many marketing programs

under performing?

Decisions based on intuition, not research

No time to do it right, lots of time to do it over

The pursuit of short-term results, often in 30 days

Emphasis on brand juice not brand equity; visual identity, not strategy and substance

Little knowledge of real customer needs and problems

No clear targeting and positioning Entertaining rather than informative

advertising Weak implementation, poor follow

through

Decisions based on intuition, not research

No time to do it right, lots of time to do it over

The pursuit of short-term results, often in 30 days

Emphasis on brand juice not brand equity; visual identity, not strategy and substance

Little knowledge of real customer needs and problems

No clear targeting and positioning Entertaining rather than informative

advertising Weak implementation, poor follow

through

1960s The Product Life Cycle

1970s Benefit Segmentation

1980s Simulated Test Marketing

1990s Brand Equity

2000s Customer Equity

Breakthrough Marketing Concepts

Customer Equity

How much each customer will spend (over time) in your marketSummed up (over all the customers in the market)Discounted back to present value

Is a measure of…

Brand switching patterns

Demographic projections

Life expectancy forecasts

Value discounting

It’s A Sophisticated Concept Which Takes Into Account…

Three Factors Drive Customer Equity

Product Manager

s

Advertising Managers

BrandEquity

Product Equity

Loyalty Program Managers

Customer

Equity

Relationship Equity

Customer Equity

Three Drivers of Equity

Brand Equity

Relationsh

ip Equity

Product

Equity

Pathways to Customer EquityImprove

Customer Equity

ImproveCustomer Lifetime

Value

ImproveSwitching Matrix

ImproveProduct Equity

ImproveRetention Equity

ImproveProduct Equity

Drivers

ImproveRetention Equity

Drivers

ImproveBrand Equity

ImproveBrand Equity

Drivers

References David Aaker, Managing Brand Equity and

Building Strong Brands Keller.K, Strategic Brand Management M G Parmeswaran, Building Brand Value Kasai, Brand Equity

Measuring Brand Equity

2007 brand values Infosys: Rs 17,000 cr Tata: Rs 14,000 cr Satyam: 3,500 cr Color plus: Rs 70 cr Dabur paid 1430 cr for Balsara British telecom giant Vodafone has bagged the

67% Hutch Telecom International (HTIL) stake in Hutch-Essar at an enterprise value of $19.3 billion (approx Rs 86,000 crore). 30% of this came from the brand alone

Changes in Brand Equity Occur When…

• Major New ProductsMajor New Products

• Product ProblemsProduct Problems

• Change in top ManagementChange in top Management

• Competitor ActionsCompetitor Actions

• Legal ActionsLegal Actions

Methods for Calculating Customer ValueMethods for Calculating Customer Value1. Composition approach: Questions to

consumers about value of attributes

2. Importance ratings: Customer rank ordering or rating of the importance of product attributes as well as comparisons between competitors.

3. Value-in-Use Approach3. Value-in-Use Approach

Product manager selects a reference product (product used by customer or competitive product)

Product manager calculates the incremental economic benefit to the customer of using the product or brand in question

4. Simulating the Buying Experience4. Simulating the Buying Experience Laboratories at or near shopping malls

“Customer” groups receive different price/attribute treatments

“Customers” select product they would choose

4. Estimating Brand Equity with Conjoint Analysis4. Estimating Brand Equity with Conjoint Analysis Conjoint Analysis

Price Thresholds

Currency Scales

5. Estimating Brand Equity with Conjoint Analysis5. Estimating Brand Equity with Conjoint Analysis

Assume 3 attributes of a laptop computer choice:4 or 8 Hour Battery | Intel Pentium or AMD | Dell or Compaq

Task: Rank order the following combinations of these characteristics from 8 = most preferred to 1 = least preferred

4 Hours, PV, Dell _____ 4 Hours, PV, Compaq ____8 Hours, AMD, Compaq _____ 8 Hours, AMD, Dell ____8 Hours, PV, Dell _____ 8 Hours, PV, Compaq ____4 Hours, AMD, Compaq _____ 4 Hours, AMD, Dell ____

6. Estimating Brand Equity with Currency Scales6. Estimating Brand Equity with Currency Scales

Rather than use 1-7 likelihood of purchase scales, responses are given in currency terms. What should the relative prices of the five brands be? First, the respondent chooses the brands most preferred, and next, how much extra would they be willing to pay for a six pack? Coke, Pepsi 2 Coke, 7Up 8 Analysis Totals: Comparative Brand Value Coke, Dr Pepper 5 Coke: +2 +8 +5 +12 = 27 cents Coke, Fresca 12 Pepsi: -2 +6 +3 +10 = 17 cents Pepsi, 7Up 6 7Up: -8 -6 -3 +4 = -13 cents Pepsi, Dr Pepper 3 Dr Pepper: -5 -3 +3 +7 = 2 cents Pepsi, Fresca 10 Fresca: -12 -10 -4 -7 = -33 cents 7Up, Dr Pepper 3 7Up, Fresca 4 Dr Pepper, Fresca 7

7. Estimating Brand Equity using the Perceived Value Concept7. Estimating Brand Equity using the Perceived Value Concept

Market Share, Perceived Value, Price Relationship Perceived Value

Market Share = f [ -------------------- ] Price

Increase Perceived Value by: Improving the product itself by increasing actual quality or offering

better service or a longer warranty period Advertise to enhance the product’s image Institute value added services in the distribution channels such as

technical support or financing Improve sales effort by training the sales force to sell value rather

than price

Brand Equity, Perceived Value and PriceBrand Equity, Perceived Value and Price Reducing price is more common, but often more

expensive than adding value. (# of units sold) x ( Decrease in contribution margin)

= Cost of Price Decrease

VS:

Cost of providing sales training, Cost of improving customer service, Improved warranty, Improving time for delivery, Reducing phone waiting time.

Value added is also distributed over all units sold

Nine ways to manage your brand as an asset

1. Formally link business and brand strategy

2. Create a unique and relevant Brand Identity

3. Create a clear and distinct Positioning

4. Extend your brand strategically

5. Build a strategic Brand Architecture

6. Evaluate and align touchpoints

7. Consistently deliver on your Brand Contract

8. Practice effective global brand management

9. Set the organization up for success

Virgin’s Brand Identity

Essence of the Brand

IrreverenceCore Identity Elements

Innovation

Fun & Entertainment

Value

Service Quality

Extended Identity Elements

Underdog

Personality

Richard

Brand Identity

Build a strategic Brand Architecture

The logical, strategic and relational structure for all of the brands in the organization’s brand portfolio

The objective is to maximize clarity, synergy and leverage to maximize customer value and internal efficiencies

Should clarify what role each of your brands and products play in different markets, and may result in a brand rationalization

Brand Architecture is the organizing structure of a brand portfolio

Brand Architecture is the organizing structure of a brand portfolio

– David A. Aaker, Brand Leadership

Master brand

Subbrands

Product brands

The Brand Architecture spectrum

A Branded House uses a single Master Brand to span a set of offerings that operate only with descriptive offerings.

A House of Brands consists of independent stand-alone brands, each maximizing its impact on the market with little connection to its parent.

Significant investment in multiple Brands Significant investment in multiple Brands

Build Brand Equity in Master BrandBuild Brand Equity in Master Brand

Maximize synergies among business unitsMaximize synergies among business units

Target unique & separate customer baseTarget unique & separate customer base

Reinforce comprehensive solution focusReinforce comprehensive solution focus

Key Issues Driving The Spectrum:

Branded House

House of Brands

Sub-Brands

Stand-Alone

A flexible architecture can be used to address local differences

The Sony brand system uses the Sony brand in a variety of ways, in different markets, to target specific customers with unique value propositions

Endorser

IngredientDriver

Stand-AloneCorporate

Play Station and Columbia Tri-Star are not visibly connected to Sony, but many consumers know about the link. This shadow endorsement provides positive associations, but allows the strong brands to stand on their own

The ProAudio brand augments the Sony brand by communicating cutting edge technology across multiple Sony Electronics product lines

Endorser brands usually represent organizations, rather than products, and provide credibility to the offering. Since the Sony brand is somewhat insulated from the product brand, poor performance of Metreon is unlikely to affect the Sony brand

A driver brand has the primary responsibility for a purchase decision and owns the customer’s brand experience. Sony uses their master brand with a descriptive, “Pictures,” to drive the film division

Sony chooses a flexible architecture and leverages their corporate brand in several different ways

What is brand equityMeaning

Difference between perceived value of the brand and the core product, i.e., the total value of the brand minus that part of the value “owed” to the core product.

Perspectives: Marketing, MR, FinancialMarketing Perspective: Brand Building- How to improve the Brand Value/ Brand Equity: Identification & Appreciation of Factors that influence Brand Equity: Conceptual Framework

What is brand equity Perspective (contd.)

MR Perspective: Brand Equity Measure: To Evaluate, Compare & Track the Brand Building efforts in a particular market :

Proprietary Tools- May or May not be monetary

Financial Perspective: To estimate the asset value of a Brand for the Purpose of Merger / Acquisition or any other Financial Transaction/ Purpose :

Proprietary Tools- Always in Monetary Terms

Do brands add value ? Successful brand producers / owners can:

Charge premium Higher volumes Better economies of scale Customer recognition and loyalty Lower customer acquisition and retention cost Enhance corporate value

Successful brands are valuable to retailers / suppliers: Stimulate customer flow Facilitate choice Command higher price

The Coca-Cola brand name is worth $67 billion, a whopping 59 percent of the company’s

market capitalization, according to Interbrand, a global brand consultancy

based in New York.

Why are brands valuable?

Brands are consistent holistic pledge made

by the company

Serve as unmistakable symbol of products

and services

Conveys values and attitudes embodied in

product and company

In mergers and acquisitions

Increasing role of branding

60

40

155

30

30

25

15

Features of Global Brands

Strength in home market Geographical sales balance Consistent positioning Addresses similar consumer needs

worldwide Country of origin provides customer value Product category focus Easy to pronounce name

Approaches for Valuing Brands

1. Cost Original cost to develop brand Replacement cost

2. Market Valuation Premium paid over book value

3. Income Discounted value of future net revenues

• Price premium over generic• Future brand extensions

4. Multi-factor Index

Efforts to measure brand equities

Young & Rubicam’s Brand Asset Evaluator

Total Research’ Interbrand’s Top Brands

Young & Rubicam’s Brand Asset Evaluator 450 global, 8000 local brands in 24 countries 32 item questionnaire, 4 sets of measures

Differentiation Relevance Brand strength = DxR Esteem Knowledge Brand stature= ExK

Power Grid

Brand stature vs Brand strength

High Stature Low Stature

HighStrength

Wipro,Infosys, Maruti

Colas, MTNL

Low strength Lenova Adlabs, Lays?

Total Research’s Equitrend

700 brands, 100 categories Salience Quality Satisfaction

Give Equitrend Brand equity score

Brand Equity =

• Ability to influence market• Ability to maintain a consumer franchise• Vulnerability of market demand to changes in taste or

technology• International scope• Long-term appeal to consumers• Strength of communication support• Security of legal or property rights

Brand Valuation Using the Interbrand Index

AdjustedNet Income

(after tax)

BrandStrength

x

less earnings expected for an equivalent unbranded product

multiples range from 6 to 20

The Value of the Kellogg Name1994 World-wide Operating Income

Less: Operating Income of equivalentunbranded product*

Adjusted Operating Income

Less U.S. corporate tax (.34)

Net income

Estimate of brand strength

brand value

*Estimated capital investment to produce sales of $5.5 billion = .32 x 5.58 = $1.76 billion

ROCE for equivalent unbranded = 0.05 x $1.76 billion = .09 billion

= $ 1.00 billion

- .09

0.91 billion

- 0.31

0.60

x 18.76

= $11.25 billion