BRAND EQUITY

Brand Management by YLR Moorthy, IIMB, Vikas Publishing House, 2010

Brand Management by Harsh V VermaFMS Delhi, Excel Books 2010

Definitions of Brand Equity• “Brand equity can be thought of as the additional cash flow achieved by

associating a brand with the underlying product or service” (Biel, 1992)• “Brand Equity consists of differential attributes underpinning a brand

which gives increased value to the firm’s balance sheet.”(Chernatony and McDonald)

• “Brand Equity is a set of brand assets and liabilities linked to a brand, its name and symbol add to or subtract from the value provided by a product or service to a firm and/or to that firm’s customers.”(Aaker, 1991)

• “ Brand Equity is the totality of brand’s perception, including the relative quality of products and services, financial performance , customer loyalty, satisfaction and overall esteem towards the brand. It is all about how consumers , customers, employees and all stakeholders feel about the brand.”(Konapp, 2000)

Definitions of Brand Equity• “ Brand Equity is defined in terms of marketing effects uniquely

attributable to the brands -for example, when certain outcomes result from the marketing of a product or service because of its brand name that would not occur if the same product or service did not have the name.”(Keller, 1993)

• “Broadly stated, Brand Equity refers to the residual assets resulting from the effects of past marketing activities associated with a brand” (Rangaswamy et. Al., 1990)

• “Brand Equity can be measured by incremental cash flow from associating the brand with the product”.(Farquhar, 1989)

• “Brand Equity is the added value that is attributable to the brand name itself which is not captured by the brand’s performance on functional attributes” (Sikr, 1992)

Brand Equity Methods

• Consumer based• Brand Knowledge Method: Awareness ,Image• Attribute Oriented Approach: score on attributes • Blind Test: Objective and subjective comparison

• Cost based • Historical Cost• Replacement Cost• Market Value Method• Discounting Cash Flow Method• Brand Contribution• Inter-Brand

• Price Based• Price Premium Method• Market Share Equalisation Method

2.6

Customer-Based Brand Equity

• “The differential effect that brand knowledge has on consumer response to the marketing of that brand.”

Keller, 1993

2.7

Customer-Based Brand Equity Pyramid

RESONANCE

SALIENCE

JUDGMENTS FEELINGS

PERFORMANCE IMAGERY

4. RELATIONSHIPS =

What about you and me?

4. RELATIONSHIPS =

What about you and me?

3. RESPONSE =

What about you?

3. RESPONSE =

What about you?

2. MEANING =

What are you?

2. MEANING =

What are you?

1. IDENTITY =

Who are you?

1. IDENTITY =

Who are you?

Sub-Dimensions of CBBE Pyramid

LOYALTYATTACHMENTCOMMUNITYENGAGEMENT

QUALITY CREDIBILITYCONSIDERATIONSUPERIORITY

WARMTHFUNEXCITEMENTSECURITYSOCIAL APPROVALSELF-RESPECT

CATEGORY IDENTIFICATIONNEEDS SATISFIED

PRIMARY CHARACTERISTICS &SECONDARY FEATURES

PRODUCT RELIABILITY, DURABILITY & SERVICEABILITY

SERVICE EFFECTIVENESS, EFFICIENCY & EMPATHY

STYLE AND DESIGN PRICE

USER PROFILESPURCHASE & USAGE

SITUATIONSPERSONALITY &

VALUESHISTORY, HERITAGE & EXPERIENCES

Source of Brand Equity

• Brand awareness • Brand Image

Brand Knowledge Method

Scale can be developed for TOMR, aided, unaided recall, brand association.

• Brand recall• Strength of Brand association• Attitudes• Image

Measure Brand Recall(score)

• What brand comes to your mind when I say detergent powder?

• Which detergent brand comes to your mind when I say “low Price”?

• Which brand comes to your mind when I say “white cream or blue detergent cake”?

• The advertisement for which brand says “ “doodh see safedi” ?

• 10,6,4,2.

Similarly

• Score for brand recognition, • Score for favorability • Score for strength of brand associations can be

measured.

Equity is not in price but in the mind of customer.

Scores are summed up and averaged to give a measure of brand equity.

• Score needs extensive validation.• Needs to be several groups as representative

of population.• Difficulty in getting inter-category comparison

of equity.

• Lux international : 7.5• Cinthol : 7.03• Dettol : 5.71• Nirma Beauty : 4.77

Attribute-oriented approach

• Take a brand …PONDS• List all its attributes• Get ratings for each of these attributes on a 0-10

scale from consumers. • Sum up the scores.• Convert the scores to scale of 100.• This represents the equity of brand scale.• Brand equity is more than what the attributes

bestow on the brand. This is the limitation.

Hypothetical exhibit PONDS CINTHOL LIRIL GOKUL

Freshness 8 7 8 6

Fragrance 7 7 7 8

Long-lasting 9 9 8 6

Appearance 8 7 6 5

Desirability 8 6 7 6

Sum of scores 40 36 36 31

Brand Equity (on a scale of 100)

80 72 72 62

Blind Test

• Brand equity is defined as the difference between the overall performance of a brand and the sum of scores it obtains on objective parameters.

Exhibit – overall preference and preference objectively

• This is the score obtained when you ask the consumer “how much does this brand score on 100 according to you?” Yamaha RX, TVS Shaolin and Hero Honda Splendour

• Now consider objective parameters like • Fuel(e.g., 70 km /litre)• Pick up (e.g., 70kmph in 10sec)• Load it can carry (e.g., 100kg)

Ratings

• Sample of 250 respondents for each of the attribute on a scale of 10.

• Brand equity of Shaolin = 82-63= 19• Brand equity of Shaolin = 85-70= 15• Brand equity of Yamaha = 78-70= 08

SHAOLIN SPLENDOUR YAMAHA

Fuel Efficiency 6 9 8

Pick – Up 6 6 7

Load Carrying capacity

7 6 6

Out of 30 19 21 21

Out of 100 63 70 70

Problems

• Identification of subjective and objective parameters.

Cost based methods

• Historical Cost• Replacement Cost• Market Value Method• Discounting Cash Flow Method• Brand Contribution• Inter-Brand

Historical cost

This is the money that has been spent on the brand till date.

Suppose Rs. 100million has been spent on the brand “X” till date

The value at which the brand can be sold should be Rs. 100 million.

Issues in historical cost

• A prospective buyer is interested in the future cash flows from a brand.

• The fact that 100 million has been spent on brand X does not guarantee the realisation of even a fraction of that amount in future sales.

•

Thus the cost incurred in brands are no measure of the efficiency with which the

money was spent.

Poorly spent finances hardly get converted into brand equity.

• The R & D budgets of GM, Siemens, Philips, Xerox and IBM are much more than their respective Japanese competitors.

• Still successful models produced by Japanese far outnumber the ones produced by western counterparts.

Replacement cost

Consider Colgate,How much would it cost to create a brand

with similar turnover, profitability, distribution reach, brand loyalty etc?

This cost is brand equity.

Replacement cost

• Launch cost +• Production and administrative costs incurred

over the years +• Brand premium acquired over the years due

to brand loyalty +• Distribution

Close Up

• If Rs.200cr has been spent on production and marketing over the years to achieve the present turnover.

• Rs. 50cr accounts for distribution and loyalty.• The brand value stands for Rs.255cr.

Million dollar question?

What is the guarantee that if a brand is created with a cost of Rs. 255 crores today it will obtain a market

share of about 17% as Close Up?

Market Value Method

The brand value is the value realised in a comparable current merger or

acquisition.

Business World 1994PRESENT ( Rs. In million)

BRAND TAKEN OVER BY PRICE

kelvinator Whirlpool 2500

Farex, Glucon-D Heinz 2100

Thumbs Up, Gold Spot Coca-Cola 1800

Cibaca Colgate 1310

Transelektra Godrej 800

Discounting Cash Flow Method

• Estimating the cash flows that would accrue to the brand in future

• Converting these to present value using the time value of money

• Useful only when the industry’s and company’s turnover are stable and predictable.

Brand Contribution

• This method tries to identify the value that is added by the “Brand” to the product.

• It compares the profits earned by the brand with the profits earned by an unbranded or generic product in the same category.

•

Brand Equity = K (profits from the brand- profits from an unbranded product in the same

category)

Inter-Brand Method

• The weighted average of the last three years’ profits of the brand is computed.

• Consider Brand X• Year 1993 – 15 million profit- 1 weight• Year 1994 –20 million profit – 2 weight• Year 1995 –30 million profit – 3 weight• Average Profit = (15 *1)+(20*2)+(30*3)/ 1+2+3 • = 24.2 million

Step 2

• Multiply this figure with a number to arrive at value of brand equity.

• The number is arrived at by multiplying the price/earning(P/E)of the company or industry in which the brand operates.

• This is further multiplied with brand strength to arrive at Brand Equity.

Brand strength =0.43(depends on number of variables)

FACTORS IMPLICATION MAXIMUM SCORE SCORE FOR BRAND X

Leadership Is the brand leader in market share?

25 13

Stability Brand loyalty and stable market share?

15 7

internationality Acceptance level internationally?

15 1

Support Is the brand actively promoted and supported by company?

15 8

Protection Trademark protected?

5 2

Market Stable? 5 2Trend Long term future? 20 10Total 100 43

Brand Equity by Inter-Brand Method

Weighted average of brand profits * P/E of industry * brand strength24.2*15*0.43= 156.09 million

http://www.interbrand.com/en/knowledge/best-global-brands/best-global-brands-2008/

best-global-brands-2010.aspx

Price-Based Methods

• Price-Premium method• Market share equalisation method

Price Premium Method

• Comparing the difference between the retail price of a brand and that of a unbranded product in the same category.

• Difference will give an indication of brand equity.

Issues

• Brands can be placed at varied price points.(premium and penetrative)

• Low priced brands Nirma and lifebouy may indicate low equity.

• Difficult to compare for brand extensions.

Market share equalisation method

• Let us suppose there are totally hundred consumers of toothpastes in the country.

• We assume there are only 4 toothpastes in the market.

• We will ignore the differences in brand extensions.

• No. of people using the brand is close to brand’s market share.

Exhibit : find prices at which market share of each brand will be equal.

BRAND PRICES NO. OF PEOPLE USING

COLGATE 17.40 65

CLOSE-UP 22.50 20

PROMISE 17.40 5

BABOOL 14.60 10

Prices at which the market share for each of these brands is equal.

BRAND PRICES NO. OF PEOPLE USING

COLGATE 24.50 25

CLOSE-UP 23.00 25

PROMISE 17.40 25

BABOOL 14.60 25

• We have forced a situation where market shares are equal.

• This indicates a price premium that the brand commands.

• Prices give a straight indication of equity.• Babool 146• Promise 175• Close Up 235• Colgate 245

• Inter-brand methodology adopted for Best Global Brand 2012.

• Comparison with Method highlighted by YLR Moorty.

• Description of 10 Best global Brands.• Adoption of any of the model for calculating brand equity.

• Price premium• Market share equalisation• Brand Knowledge Method: Awareness ,Image• Attribute Oriented Approach: score on attributes • Blind Test: Objective and subjective comparison• Market Value Method• Brand Contribution