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 .[1][2][3][4] 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.[5][6] The study of brand equity is increasingly popular as some marketing researchers have concluded that brands are one of the most valuable assets a company has.[7] 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.[8] 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.[9]
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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 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, which is known as brand equity." [9]
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. 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.[7] 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.[10]
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.[11] More recently a revenue premium approach has been advocated.[4]
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.[5] Brands with high levels of awareness and strong, favorable and unique associations are high equity brands.[5]
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."[9] Some of these techniques are described in the "Methodologies" section below.
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."[9]
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.[9]
Note: These customer satisfaction methodologies have not been independently audited by the Marketing Accountability Standards Board (MASB) according to MMAP (Marketing Metric Audit Protocol).
10. Paul Kilburn ad Alfred Riachi Brands vs non Branded Strategies, Journal of Marketing p 23, (12,1 2008).