Module 9 Flashcards
“If this business were split up, I would give you the land and bricks and mortar, and I
would take the brands and trade marks, and I would fare much better than you.”
- John Stuart, Chairman of Quaker
Seven important customer-related benefits of positive brand equity
- Different perceptions and interpretations of product performance.
- Enjoy greater loyalty – less vulnerable to competitive marketing actions.
- Command larger margins – more inelastic responses to price increases and more elastic responses to price decreases.
- Receive greater trade cooperation and support.
- Increase marketing communication effectiveness.
- Yield licensing opportunities.
- Support brand extensions.
Methods of Measuring Sources of Brand Equity
- Comparative Methods
- Holistic Methods
Comparative Methods
research studies or experiments that examine consumer attitudes and behavior toward a brand to directly estimate the benefits arising from having a high level of awareness and strong, favorable, and unique brand associations
Comparative Methods
Approaches
Brand-Based Comparative Approaches
Marketing-Based Comparative Approaches
Conjoint Analysis
Holistic Methods
Approaches
Residual Approaches
Valuation Approaches
Brand-Based Comparative Approaches uses experiments in which
one group of consumers responds to an element of the marketing program or some marketing activity when it is attributed to the target brand, and another group responds to that same element or activity when it is attributed to a competitive or fictitiously named brand.
The classic example of the brand-based comparative approach is
“blind testing” studies in which consumers examine or use a product with or without brand identification.
Brand-based comparative approaches are also useful to determine
brand equity benefits related to price margins and premiums.
Brand-Based Comparative Approaches Advantages
Effective in isolating the value of a brand
Useful in developing pricing and advertising strategies
Ability to study an infinite variety of marketing activities
Works well for new sales, promotions, campaigns or brand extensions
Brand-Based Comparative Approaches Disadvantages
Does not work well if a marketing activity is already strongly identified with the brand
Results may be distorted because simulations and concept statements may unnecessarily highlight particular product characteristics
Requires that scenarios be as realistic as possible
Detailed concept statements can be used when
it is too difficult for consumers to examine or experience the marketing program without being aware of the brand
Brand-Based Comparative Approaches: An Example
Deutsche Telecom
Deutsche Telecom has invested much time and money in recent years in building its T-Mobile communication brand. In the U.K., however, the company leases its network lines to competitor Virgin Mobile. As a result, the audio quality of the signal that a T-Mobile customer receives in making a call should be virtually identical to the audio quality of the signal for a Virgin Mobile USA customer. Despite that fact, research has shown that VM customers rate their signal quality significantly higher than do TM customers. The strong Virgin brand image appears to cast a halo over its different service offerings, literally causing customers to change their impressions of product performance.
Marketing-Based Comparative Approaches hold the brand fixed and
examine consumer response based on changes in the marketing program
Marketing-Based Comparative Approaches–
Many firms try to assess
price sensitivity and thresholds for different brands
Marketing-Based Comparative Approaches Applications:
Explore price premiums’ effect on switching, consumer evaluations of marketing activities, brand extensions, etc.
Can also be used to assess consumer response to different advertising strategies, executions or media plans through multiple test markets
Marketing-Based Comparative Approaches Advantages
Very easy to implement
Can compare any set of marketing actions for the brand
Marketing-Based Comparative Approaches Disadvantages
May be difficult to discern whether consumer responses are caused by brand knowledge or generic product knowledge
To determine whether consumer response is specific to the brand, similar tests must be conducted with
competing brands.
Conjoint Analysis
Survey-based multivariate technique that enables marketers to promote the consumer decision process with respect to products and brands.
In a Conjoint Analysis, consumers are asked to choose among a number of
carefully designed product profiles.
In a Conjoint Analysis, researchers can determine the trade-offs consumers are making between
various brand attributes and the importance they are attaching to them.
Ex: Green & Wind’s classic study examined consumer evaluations of a spot-remover product
Based on 5 attributes: package design, brand name, price, Good Housekeeping seal, and money-back guarantee
Conjoint Analysis Advantages
Allows simultaneous study of different brands and aspects of the product or marketing program
Can uncover information about consumers’ responses to different marketing activities for both the focal and competing brands
Conjoint Analysis Disadvantages
Marketing profiles may violate consumers’ expectations based on what they already know about brands
During a Conjoint Analysis, we must take care that consumers do not evaluate
unrealistic product profiles or scenarios.
Holistic Methods places an overall value on
the brand in either abstract utility terms or concrete financial terms.
Holistic Methods attempt to “net out” various considerations to
determine the unique contribution of the brand.
Holistic Methods
Approaches
Residual Approach
Valuation Approach
Residual Approach
Examines the value of the brand by subtracting consumers’ preferences for the brand — based on physical product attributes alone — from their overall brand preferences.
Valuation Approach
Places a financial value on brand equity for accounting purposes, mergers, acquisitions, or other such reasons.
Residual approaches are based on the idea that brand equity is
what remains of consumer preferences and choices after we subtract physical product effects.
The idea behind Residual Approaches is that we can infer the relative valuation of brands by
observing consumer preferences and choices if we take into account as many sources of measured attribute values as possible.
We can calculate brand equity by subtracting preferences for
objective characteristics of the physical product from overall preference.
Kamakura & Russel propose a model that employs consumer purchase histories from supermarket scanner data to estimate brand equity.
This approach explains brand choices observed from
a panel of consumers as a function of the store environment (sales promos, displays, prices, etc), the physical characteristics of available brands, and a residual term called ‘brand equity’.
Kamakura & Russel model continued…
By controlling for other aspects of the marketing mix, they infer the aspect of brand preference that is
unique to a brand and not duplicated by its competitors.
Srinivasan, Park, and Chang have proposed a comprehensive model to
measure brand equity based on the multi-attribute model.
Three components:
Brand Awareness
Attribute-Perception Biases
Non-attribute Preferences
Attribute-Perception Biased Component Of Brand Equity
The difference between subjectively perceived attribute values and objectively measured attribute values. Objectively measured attribute values come from independent testing services such as Consumer Reports or acknowledged experts in the field.
Non-attribute Preference Component of Brand Equity
The difference between subjectively perceived attribute values and overall preference. It reflects the consumer’s overall appraisal of a brand that goes beyond the utility of individual product attributes.
Residual Approaches Advantages
Residual approaches provide a usual benchmark for interpreting brand equity, especially when we need approximations of brand equity or a financially oriented perspective on it.
Residual Approaches Disadvantages
The disadvantage of residual approaches is that they are most appropriate for brands with a lot of product-related attribute associations because they are unable to distinguish between different types of non-product –related attribute associations.
Consequently, the residual approach’s diagnostic value for strategic decision making in other cases is
limited.
Valuation Approaches
The bulk of corporate value for many companies is wrapped up in a brand.
Eg., Forbes magazine noted that although PepsiCo has a net tangible book value of only $6.5 billion, it now has a market value of over $90 billion, with brands estimated to make up 70% of its intangible assets or more than $50 billion.
The ability to put a specific price tag on a brand’s value may be useful for a number of reasons:
Mergers and Acquisitions
-Both to evaluate possible purchases as well as to facilitate disposal
Brand Licensing
-Internally for tax reasons and to third parties
Fund Raising
-As collateral on loans or for sale or leaseback arrangements
Brand Management Decision
-To allocate resources, develop brand strategy, or prepare financial reports
Types of Valuation Approaches:
Accounting Background
Simon And Sullivan’s Brand Equity Value
Interbrand’s Brand Valuation Methodology
Accounting Background:
The assets of a firm can either be tangible or intangible
Simon And Sullivan’s Brand Equity Value:
Developed a technique for estimating a firm’s brand equity derived from financial market estimates of brand-related profits.
Interbrand’s Brand Valuation Methodology:
Probably the premier brand valuation firm… evaluated a number of different approaches in developing its brand valuation methodology.
Accounting Background:
Tangible assets include
property, plant and equipment; current assets (inventories, marketable securities, and cash); and investments in stocks and bonds.
Accounting Background:
Intangible assets are
any factors of production or specialized resources that permit the company to earn cash flows in excess of the return on tangible assets.
Accounting Background:
In an acquisition, the goodwill item often includes
a premium paid to gain control, which, in certain instances, may even exceed the value of tangible and intangible assets.
Accounting Background:
In determining the value of a brand in an acquisition or merger, firms
can choose three main approaches:
the cost,
market,
and income approaches.
Accounting Background:
Cost Approach
Maintains that brand equity is the amount of money that would be required to reproduce or replace the brand (including all costs for research and development, test marketing, advertising, and so on).
Accounting Background:
Market Approach
Perceives brand equity as the present value of the future economic benefits to be derived by the owner of the asset.
Accounting Background:
Income Approach
Argues that brand equity is the discounted future cash flow from the future earnings stream for the brand. Three such
income approaches are as follows:
Capitalizing royalty earnings from a brand name (where these can be defined)
Capitalizing the premium profits that are earned by a branded product (by comparing its performance with that of an unbranded product)
Capitalizing the actual profitability of a brand after allowing for the costs of maintaining it and the effects of taxation
Valuation Approaches define brand equity as the
incremental cash flows that accrue to branded products over and above the cash flow that would result from the sale of unbranded products.
Valuation Approach Methodology attempts to extract the value of a firm’s brand equity from the value of
the firm’s other asset… the result is an estimate of brand equity based on the financial market valuation of the firm’s future cash flows.
Three categories of intangible assets:
Brand equity,
Non-brand factors that reduce the firm’s costs relative to competitors like R&D and patents,
Industry-wide factors that permit monopoly profits, such as regulation.
Simon and Sullivan’s Brand Equity Value
Estimates a firm’s brand equity derived from financial market estimates of brand-related profits.
Defines brand equity as the incremental cash flows that accrue to branded products over and above cash flows from unbranded products.
Simon and Sullivan’s Brand Equity Value Equation
Total Asset Value of a firm = Market Values of: (Common Stock + Preferred Stock + Long term Debt + Short-term Debt)
Interbrand’s Valuation Methodology goal is to identify an approach that incorporated
marketing, financial, and legal aspects; followed fundamental accounting concepts; allowed for regular revaluation on a consistent basis; and was suitable for acquired and home-grown brands.
Interbrand’s Valuation Methodology decided to approach the problem of brand valuation by
assuming that the value of a brand, like the value of any other economic asset, was the present worth of the benefits of future ownership.
Interbrand’s Valuation Methodology follows a methodology largely based on
an income approach.
To capture the complex value creation of a brand, Interbrand recommends the following five valuation steps:
- Market Segmentation
- Financial
(role of branding) Analysis - Demand (brand strength) Analysis
- Competitive Benchmarking
- Brand Value Calculation
- Market Segmentation
Split the consumer market for the brand into non-overlapping and homogenous groups of consumers according to applicable criteria such as product or service, distribution channels, consumption patterns, purchase sophistication, geography, existing and new customers.
- Financial (role of branding) Analysis
Identify and forecast revenues and “earnings from intangibles” generated by the brand for each of the distinct segments determined in step 1.
- Demand (brand strength) Analysis
Assess the role the brand plays in driving demand for products and services in the markets in which it operates. Measure the proportion of intangible earnings attributable to the brand by an indicator referred to as the role of branding index (RBI), by first identifying the various drivers of demand for the branded business, then determining the degree to which each driver is directly influenced by the brand.
- Competitive Benchmarking
Determine the competitive strengths and weaknesses of the brand, deriving a specific brand discount rate that reflects the risk profile of its expected future earnings via a brand strength score.
- Brand Value Calculation
Calculate the brand as a net present value (NPV) of the forecast brand earnings, discounted by the brand discount rate.
Brand Valuation Model
Market Segments
-Financial Analysis
–Intangible Earnings
—Brand Earnings
—–Brand Value (net present value of future Brand Earnings)
-Demand Drivers
–Role of Branding
—Brand Earnings
—-Brand Value
-Competitive Benchmarking
–Brand Strength
—Brand Discount Rate
—-Brand Value
Brand Strength Assessment
Brand Strength Score =
Market Position
-Price Premium
-Market Share
Customer Franchise
-Loyalty
-Recommendation
-Satisfaction
-Consideration
-Awareness
Image
-Relevance
-Differentiation
Support
-Legal Support
-Visual & Verbal Identity
-Marketing Support
There are two main ways to measure the benefits or outcomes of brand equity:
Comparative Methods
Holistic Methods
Understanding the range of benefits for a brand based on comparative methods can be useful as
an input to estimate the overall brand value by holistic methods.
Combining these outcome measures with the measures of sources of brand equity can provide
insight into the effectiveness of marketing actions.
