Building brand equity in the wine industry the case of Tikves brand Tga za jug in Macedonia

University American College Skopje School of Business Economics and ManagementBuilding brand equity in the wine industry the case of Tikves brand Tga za jug in MacedoniaMaster thesis in Business AdministrationCandidate: Mentor:Anisija Mincikovska Krum Efremov PhD

2/27/2015

Abstract

Branding has emerged as a top management priority in the last decade due to the growing realization that brands are one of the most valuable intangible assets that companies have. Brands are considered to be the valuable assets of business. Branding and brand equity has been the topic of interest for the researchers in the area of marketing. Because of the significant intangible value of brands, building and managing brand equity had become a priority for companies in a wide variety of industries and markets.Nowadays a brand reflects the quality and credibility of a firms products or services and it is a perception of the consumers towards the organization. Therefore, each time more companies focus on creating strong and powerful brands and use them as a strategy to create value and differentiation in todays competitive environment.The thesis investigates the concept of brand equity and its dimensions and provides the necessary depth and breadth of understanding of brand equity and its importance. The overall purpose of this thesis, which is of an exploratory nature, is to provide an overview of the brand equity building process, as well as to reveal the importance of brand equity with special emphasis on the wine industry in Macedonia through the case of Tikves brand Tga za jug. Furthermore, the thesis aims to describe, explain and understand how Macedonian wine producers create and sustain a strong brand, with special emphasis on explaining and understanding its importance.

Keywords: brand, brand equity, brand equity determinants, customer-based brand equity, brand building, wine, wine industry, wine brand

Table of ContentsAbstractiTable of Contents...2List of tables and figures4Chapter 1 Introduction51.1. Introduction51.2. Problem formulation71.3. Objectives of the research71.4. Structure of the thesis8Chapter 2 Review of literature The concept of brand equity92.1. Brand equity conceptualizations92.2. Customer-based brand equity132.3. Brand equity models142.4. Brand equity determinants202.4.1. Brand loyalty202.4.2. Brand awareness212.4.3. Perceived quality222.4.4. Brand associations242.4.5. Other proprietary brand assets242.4.6. Brand knowledge252.4.7. Brand image252.5. Marketing mix elements and brand equity262.6. Brand equity measurements302.6.1. Financial measurement302.6.2. Customer-based measurement322.7. The value of brand equity352.7.1. Value for the firm352.7.2. Value for the customers372.8. Brand equity in wine industry38Chapter 3 Wine industry in the Republic of Macedonia403.1. General information403.2. Sector analysis413.3. Domestic market and exports423.4. Competitive landscape443.5. Wine regions453.6. Types of wine463.7. Tikve Winery463.7.1. Market position of Tikve Winery483.8. The brand Tga za jug503.8.1. History503.9. Sales information523.9.1. General information523.9.2. Tga za jug52Chapter 4 Research methodology and results544.1. Research methodology544.1.1. Research aim and objectives544.1.2. Research design and method554.2. Research results and findings574.2.1. The brand building process584.2.2. Tikves strategy for the brand Tga za jug594.2.3. Marketing activities654.2.4. Other activities for brand reinforce684.2.5. Budgetary information704.3. Discussion71Chapter 5 Conclusions75 5.1. Conclusion....75 5.2. Contributions of the thesis79 5.3. Limitations of the research79 5.4. Recommendations for further research.80References80Appendix 1: Interview guide84Appendix 2: Interview guide85

List of tables and figures

Figure 2.1.1 From awareness to financial valueFigure 2.3.1 Aakers brand equity model Figure 2.3.2 Kellers dimensions of brand knowledgeFigure 2.3.3 Kellers customer-based brand equity pyramidFigure 2.3.4 Sub dimensions of brand building blocksFigure 2.5.1 Yoo et al.s model of brand equityFigure 2.5.2 Chattopadhyay et al.s conceptual framework of brand equityFigure 3.2.1 Total wine production in Republic of Macedonia (2010-2013)Figure 3.3.1 Total wine exports in Republic of Macedonia (2010-2013)Figure 3.5.1 Wine regions in Republic of MacedoniaFigure 3.7.1.1 Market position of Tikve WineryFigure 3.7.1.2 Market share of Tikve Winery in total turnover in hospitality and tradeFigure 3.8.1.1 Evolution of the label of Tga za jug over the yearsTable 3.9.2.1 Total sales of Tga za jug in 2012 and 2013Figure 4.2.1.1 Tikves strategy for the brand Tga za jugFigure 4.2.3.1 The new label of Tga za jug

Chapter 1 IntroductionThe first chapter provides a general overview of the contents of the thesis, including brief introduction in the topic of the thesis, presents the problem discussion, together with the aim and objectives of the research, and introduces the structure of the thesis. 1.1. IntroductionThe role of brands within companies has changed over the last decades. Being no longer just any part of the corporate value chain they are today the key to a companys success. This development can be explained by the fact that the market value of a company does not mainly come from its tangible assets anymore, but its intangibles and goodwill. Brands as intangible assets thus gain more and more importance for a companys existence. This rising position of brands within companies implicates the need to understand how to manage the brand governance mechanisms effectively in order to maximize brand value and therewith also the companys profit.Over the last decades much of the marketers attention has been devoted to the concept of brand equity, which has become one of the most popular and potentially important marketing concepts, discussed by both academicians and practitioners. The motivations for studying brand equity were primarily financially based in order to estimate the value of a brand more precisely for accounting purposes or for merger, acquisition or divestiture purposes. The dynamic environment made it later obvious that brand equity was important especially from a strategy based motivation to improve marketing activity, given higher costs, greater competition and flattering demand in many markets. However, it is widely recognized that the brand has developed into one of a companys most important assets, which makes effective management of the brand a key factor in corporate success.The concept of brand equity has been debated both in the accounting and marketing literatures, and has highlighted the importance of having a long-term focus within brand management. In a general sense, brand equity is defined in terms of the marketing effects uniquely attributable to the brand. That is, brand equity relates to the fact that different outcomes result from the marketing of a product or service because of its brand element, as compared to outcomes if that same product or service did not have hat brand identification. Although a number of different views of brand equity have been expressed, they all are generally consistent with the basic notion that brand equity represents the added value endowed to a product or a service as a result of past investments in the marketing for the brand.Basically, brand equity arises from the greater confidence that customers place in a brand than they do in its competitors. This confidence translates into customers loyalty and their willingness to pay a premium price for the brand. Additionally, brand equity is the driving force for incremental financial gains to the company. Therefore, building a strong brand with significant equity has been seen as providing a host of possible benefits to a company, including greater consumer loyalty and less vulnerability to competitive marketing actions, larger margins as well as more favorable consumer responses to price increases and decrease, increased marketing communication effectiveness, and licensing and brand-extension opportunities (Keller, 2001).It is not surprising that some marketing academics have studied wine marketing and building brand equity (Nowak, et al., 2006). Building brand equity in the wine industry is particularly difficult yet necessary. By building equity a brand will stand out from its competitors. In making a brand recognizable, and developing relationships with consumers, the decision making process for wine purchases becomes simpler and more direct to the consumers. It is widely recognized that equity can be built into brands that will give them value and strength in the market well beyond that which is provided by the inherent characteristics of the products. Therefore, it is vital for the wine brands to ensure that they have the brand equity required to rise above the competition and get their labels off the shelf and into the homes of their target consumers.This thesis has identified dimensions of brand equity from academic literature and provides the necessary depth and breadth of understanding of brand equity and its importance. Further, there will be outlined a detailed explanation of the process of brand building through applicative example of one of the most well-known wine brands on the Macedonian market Tikves brand Tga za jug. The aim of the thesis is to describe, explain and understand how Macedonian wine producers create and sustain a strong brand, with special emphasis on explaining and understanding its importance.1.2. Problem formulationFollowing the previous problem outline, the research question of the thesis Building brand equity in the wine industry the case of Tikves brand Tga za jug in Macedonia can be distinguished in two parts and formulated as follows: How brand equity can be built and maintained? How brand equity can provide value for the company?This main problem is approached through a number of sub-questions that will be addressed in the different chapters: What is brand equity? How can brand equity be measured? What are the determinants of brand equity? Which steps does the brand building process include? How does brand equity provide value for the firms/customers? What does strong brand means to a winery?

1.3. Objectives of the researchThe aim of the thesis Building brand equity in the wine industry the case of Tikves brand Tga za jug in Macedonia is to provide an overview of the brand equity building process, as well as to reveal the importance of brand equity with special emphasis on the wine industry in Macedonia through the case of Tikves brand Tga za jug. Furthermore, the thesis aims to describe, explain and understand how Macedonian wine producers create and sustain a strong brand, with special emphasis on explaining and understanding its importance.Therefore, the thesis is expected: To analyze relevant academic literature on the issue of building the brand equity with particular focus on the wine industry; To describe, explain and analyze the process of brand building through the case of a wine brand Tikves brand Tga za jug; To suggest further improvements for the company.

The expected results from this thesis are to get a picture of the overall brand equity building process through an example of wine brand. The importance of having a strong brand, as well as, the benefits that a company can enjoy are the priorities that the thesis will emphasize.

1.4. Structure of the thesisThe first part of the thesis Building brand equity in the wine industry the case of Tikves brand Tga za jug in Macedonia consists of an introduction chapter, which illustrates the relevance of the topic and defines the thesis research question. Furthermore, it outlines the research approach as well as its structure. The second chapter gives an introduction to brand equity in general by defining the term brand equity, describing how it can be built and measured, and explaining its importance for the companys existence and success, as well as for the customers purchase decisions. This chapter includes conceptualization of brand equity, analyzing it in different perspectives, and presents its dimensions and determinants constructed in reference to different theories from the literature. Thereby, the models of brand equity developed by Aaker (1991) and Keller (1993; 2001) are given particular consideration. Further, this chapter analyses the benefits of having strong brand equity, both for companies and for the customers. Special attention is thereby paid to the importance of brand equity for the companys success, as well as to the advantages it can enjoy while having a strong brand. Chapter 3 analyzes the wine industry in the Republic of Macedonia and provides general information, mainly focusing on the sector analysis, annual production, domestic and export sales, as well as competitive landscape of the Macedonian wineries. In addition, this chapter analyzes the case of Tikve Winery and the brand Tga za jug, taken as a subject of research. Chapter 4 presents research methodology and techniques of collecting data considering the case of Tga za jug, than it continues discussing the results from the researches and analyzing the data collected. The thesis ends with conclusions derived from the research results, consists of a summary on what was previously researched and discussed in the thesis, as well as guidelines and suggestions for further improvements in terms of building brand equity, as well as recommendations for further research.Chapter 2 Review of literature The concept of brand equityThe literature review chapter provides insight in the theoretical perspective on the topic of the thesis, analyzing the academic literature relevant for answering the previously defined research questions. The chapter presents a conceptual framework, regarding the concept of brand equity, and it represents a base for further research. 2.1. Brand equity conceptualizationsSo far, the brand equity construct has been viewed from two major perspectives in the literature. Some authors focused on the financial perspective of brand equity (Farquhar, et al., 1991; Simon & Sullivan, 1993; Winters, 1991) and others on the customer-based perspective (Aaker, 1991; Keller, 1993; Shocker, et al., 1994; Chaudhuri, 1999; Yoo & Donthu, 2001). The first perspective discusses the financial value that brand equity creates to the business and is often referred to as firm-based brand equity. However, the financial value of brand equity is only the outcome of consumer response to a brand name. The latter, is considered the driving force of increased market share and profitability of the brand and it is based on the markets perceptions (customer-based brand equity). The customer-based perspective focuses on customer mind-set and is explained with such constructs as attitudes, awareness, associations, attachments, and loyalties (Keller & Lehmann, 2006) .The firm-based perspective, however, uses product-market outcomes such as price premium, market share, relative price, and financial-market outcomes such as brands purchase price and discounted cash flow of license fees and royalties (Ailawadi, et al., 2003). In sum, there are different approaches to the concept of brand equity depending on the actors, measures, and the final purpose of using it.As Winters (1991) states, if you ask ten people to define brand equity, you are likely to get ten (maybe eleven) different answers as to what it means (p.70). Since then, many studies have been published on brand equity and it is obvious that Winterss statement is even more relevant today than it was in 1991. Brand equity is such a complex concept, including diversity of its conceptualizations in the literature, and different studies describing different aspects of this intangible asset. The lack of an agreed definition of brand equity has in turn caused various methodologies for measuring the construct. Yoo et al., (2000) emphasize that brand equity poses the difference in consumers choice between a focal branded product or service and an unbranded product or service given the same level of product features or service attributes. Winters (1991) relates brand equity to added value by suggesting that brand equity involves the value added to a product by consumers' associations and perceptions of a particular brand name. Bello and Holbrook (1995) argue that brand equity comes into the picture when consumer knowingly pay higher prices for the same level of quality in products as well as services, because of the charisma of the name emotionally involved in that particular product or service. Simon and Sullivan (1993) take advantage of the financial approach and define brand equity as the incremental cash flows which accrue to branded products over and above the cash flows which would result from the scale of unbranded products, while the incremental cash flows are based on the value consumers place on branded products and on cost savings brand equity generates through competitive advantages. Farquhar (1989) in turn, considers brand equity as the added value with which a given brand endows a product, explaining that product is something that offers a functional benefit, while brand is a name, symbol, design or mark that enhances the value of a product beyond its functional purpose. The author further agrees that, depending on which perspective is considered, the brand can have added value to the company, the trade or the consumer.Aaker (1991) presents one of the most detailed and widely accepted definitions of brand equity as A set of brand assets and liabilities linked to a brand, its name and symbol that add or subtract from the value provided to a firm and/or to that firms customers (p.15). Although the brand assets on which brand equity is based, can differ depending on the context, they can be usefully grouped into five categories: brand loyalty, brand awareness, perceived quality, brand associations and other proprietary assets. His model demonstrates that brand equity is developed based on these five dimensions. How the brand performs on these dimensions is what leads consumers to develop an overall, intangible rating of brand equity. This equity then provides value to the consumer and the firm in different ways. The model by Aaker was one of the first seminal works in the field of brand equity and led to future research in the area.Yoo et al. (2000) extend Aakers (1991) model by placing brand equity as a separate construct between the dimensions of brand equity and the value for the customer and the firm. They also add price, store image, distribution intensity, advertising spending, and price deals as antecedents of brand equity with their significant effects on the dimensions of brand equity. In their model, brand awareness and brand associations dimensions have emerged as a single dimension, whereas perceived quality and brand loyalty are retained as separate dimensions. Yoo and Donthu (2001) also developed and validated a cross-culturally invariant multidimensional consumer-based brand equity scale containing these dimensions.One of the first critical articles of brand equity (Feldwick, 1996) finds that the term brand equity has three different meanings depending on its use. At any one time brand equity can be used to refer to brand description (consumer associations with the brand name), brand strength (similar to Aaker as a measure of relative consumer demand for the brand), and brand value (to set a price of the brand for when it is sold). Feldwick (1996) argues that brand equity is a vague concept especially due to its lack of measurability and application in the business environment. He concludes that brand equity is too imprecise to be used as the holistic measure of everything that a company should be doing to improve its future performance. As accountants tend to define brand equity differently from marketers, with the concept being defined both in terms of the relationship between customer and brand (consumer-oriented definitions), or as something that accrues to the brand owner (company-oriented definitions), Feldwick (1996) simplifies the variety of approaches, by providing a classification of the different meanings of brand equity as: 1) the total value of a brand as a separable asset when it is sold, or included in a balance sheet; 2) a measure of the strength of the consumers attachment to a brand; 3) a description of the associations and beliefs the consumer has about the brand.Kotler and Keller (2009) argue that the foundation of brand equity is formed by the brand knowledge of the consumers. Brand knowledge enables the consumer to differentiate brands and guides the mind and response to marketing activities as a result of this knowledge. In conceptualizing how customers evaluate brand equity, Srivastava and Shocker (1991) view it as consisting of two components brand strength and brand value. Brand strength constitutes the brand associations held by customers, while brand values are the gains that accrue when brand strength is leveraged to obtain superior current and future profits. Kapferer (2008) stands that brand equity is the financial value of a brand which provides capital/value to products and services. Brand equity is related to future returns that customers generate to the product or service. Developed brand assets in the past, enable the brand to leverage her strength and should deliver future value to the brand. Hence brand equity fulfils a bridging role where it connects the past to the future. Kapferer (2008) distinguishes three levels; 1) brand assets, 2) brand strength and 3) brand value. The sequence from past to future is a conditional consequence which differs in time due to competitive and environmental changes. See Figure 2.1.1. Figure 2.1.1 From awareness to financial valueBrand assetsBrand strength Brand value

Brand awarenessMarket shareNet discounted cash flow

Brand reputationMarket leadershipattributable to the brand

Perceived brand personalityMarket penetrationafter paying the cost of

Perceived brand valuesShare of requirementscapital invested to

Reflected customer imageryGrowth rateproduce and run the

Brand preferences or attachmentLoyalty ratebusiness and the cost

Patents and rightsPrice premiumof marketing

Percentage of products the trade cannot delist

Source: Kapferer Jean Noel (2008) The New Strategic Brand Management: Advanced Insights and Strategic Thinking. 5th edition, London, GBR: Kogan Page Ltd.Although there is no universally accepted definition of brand equity, and a number of different views of brand equity have been expressed, they are all generally consistent with the basic notion that brand equity represents the added value endowed to a product or a service as a result of past investments in the marketing for the brand. Additionally, brand equity can be defined as the marketing effects or outcomes that accrue to a product given its brand name compared with those that would accrue if the same product does not have the brand name (Feldwick, 1996; Aaker, 1991; Farquhar, 1989).

2.2. Customer-based brand equityAs indicated above, the literature shows that brand equity can be approached from the perspective of the individual consumer. However, the customer-based perspective has been proved as more conceptualized and analyzed as in the literature, as well as applied in practice. The advantage of conceptualizing brand equity from the consumers perspective is that it enables managers to consider specifically how their marketing program improves the value of their brands. Though the eventual goal of many marketing programs is to increase sales, it is first necessary to establish knowledge structures for the brand so that consumers respond favorably to marketing activity for the brand (Keller, 1993).Keller (1993) as one of the most prominent authors considers brand equity from a consumer perspective. The author introduces the concept of customer-based brand equity (CBBE), which differs slightly from Aakers (1991). CBBE may be either positive or negative when consumer react more (less) favorably to a brand, compared to an unnamed version of the product or service, and it is related strongly to the knowledge (memory and associations) of the brand. Keller (1993) includes the companys view and defines CBBE as the differential effect of brand knowledge on consumer response to the marketing of the brand. According to Keller (2003), CBBE occurs when the consumer has a high level of awareness and familiarity with the brand and holds some strong, favorable, and unique brand associations in memory. Kellers model of brand equity focusses on brand knowledge, conceptualized in terms of two components brand awareness and brand image. Thus, brand awareness relates consumers ability to identify the brand under different conditions and consists of brand recognition and brand recall, while brand image refers to the perception about the brand as reflected by a set of brand associations held in consumers memory. The author classifies the associations in three major categories attributes, benefits and attitudes, which can vary according to their favorability, strength and uniqueness. The basic premise of Kellers (1993) customer-based brand equity model is that the power of a brand lies in what customers have learned, felt, seen, and heard about the brand as a result of their experiences over time. In other words, the power of a brand lies in what customers have in their minds (Keller, 2008). His model is an insightful way to represent how brand knowledge is the key to creating brand equity. Keller (1993) viewed customer-based brand equity as the differential effect of brand knowledge on consumer response to the marketing of the brand. He conceptualized the sources of brand knowledge as brand awareness and brand image.According to Keller (1993; 1998) brand is said to have positive (negative) customer-based brand equity when consumers react more (less) favorably to a product and the way it is marketed when the brand is identified as compared to when it is not. Thus, a brand with positive customer-based brand equity might result in consumers being more accepting of a new brand extension, less sensitive to price increases and withdrawal of advertising support, or more willing to seek the brand in a new distribution channel. Customer-based brand equity occurs when the consumer is familiar with the brand and holds some positive brand associations in memory. Favorable consumer response, in turn, can lead to enhanced revenues, lower costs, and greater profits for the firm.Customer-based brand equity occurs when the customer is familiar with the brand and holds some positive brand associations in memory. A brand with positive customer-based brand equity might result in consumers being more accepting of a new brand extension, less sensitive to price increases and withdrawal of advertising support, or more willing to seek for the brand in a new distribution channel. Favorable consumer response, in turn, can lead to enhanced revenues, lower costs, and greater profits for the firm. Conceptualizing brand equity from customer perspective is useful because it suggests both specific guidelines for marketing strategies and tactics and areas where research can be useful in assisting managerial decision making (Lassar, et al., 1995).

2.3. Brand equity models It is widely recognized that the brand has developed into one of a companys most important assets, which makes effective management of the brand a key factor in corporate success. The development and long term enhancement of brand strength has been identified as a target function of any company that wishes to maintain a competitive position in the market, being it local, national, regional or international, allowing brand equity and hence the companys enterprise value to be increased. Therefore, many perspectives and approaches regarding the concept of brand equity has appeared and many models of brand building have been developed, primarily describing what brand equity is and how it should be built, measured and managed. In addition, there will be emphasized and described some of the most popular models of brand equity extracting the main issues of each: brand equity dimensions, the benefits of brand equity and the brand building process implications.Aaker (1991) considers that brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by a product or service to a firm/or to that firms customers(p.15). In his brand equity model, the author identifies five brand components: brand loyalty, brand awareness, perceived quality, brand associations and other proprietary assets. Aakers concept is summarized in Figure 2.3.1., the figure illustrating how each brand equity asset/liability generates value for the customer or the firm in a variety of ways.Figure 2.3.1 Aakers brand equity model Source: Aaker David A. (1991) Managing Brand Equity: Capitalizing on the Value of a Brand Name. Free Press: New York; adaptedFurthermore, Keller (1993; 1998) has approached brand equity from more of a consumer behavior perspective. He defines customer-based brand equity as the differential effect of brand knowledge on consumer response to the marketing of the brand (p.2; p.45). According to his model, a brand is set to have positive (negative) customer-based brand equity when customers react more (less) favorably to an element of the marketing mix when it is attributed to a fictitiously named of unnamed version of the product or service. Customer-based brand equity occurs when the consumer is familiar with the brand and holds some favorable, strong, and unique brand associations in memory. Three key elements of Kellers definition must be outlined: the differential effect (brand equity arises from differences in consumer response), the brand knowledge (the difference in consumer response is generated by consumers knowledge of the brand and the consumer response to marketing (the differential response is reflected in perceptions, preferences and behavior related the marketing of a brand).To understand how customer-based brand equity can be built, measured, and managed, Keller described a detailed conceptualization of brand knowledge. According to Keller, brand knowledge is defined in terms of two components/dimensions, brand awareness and brand image. Brand awareness is the consumers ability to identify the brand under different conditions and consists of brand recognition and brand recall. Brand image is defined as perceptions about a brand as reflected by the brand associations held in consumers memory. Considering these aspects, a brand may have positive customer based brand equity, when consumers are more accepting of a new brand extension, less sensitive to price increases and withdrawal of advertising support or more willing to seek the brand in a new distribution channel etc., which means they react favorably to marketing activity of the brand as compared to an unnamed or fictitiously named version of the product, or a negative customer based brand equity when consumers react less favorably to marketing activity for the brand in the same comparison context. Figure 2.3.2 illustrates the Kellers model of brand equity the dimensions of brand knowledge.

Figure 2.3.2 Kellers dimensions of brand knowledge

Source: Keller, Kevin Lane, (1993), "Conceptualizing, measuring and managing customer-based brand equity", Journal of Marketing, 57(1), p. 7

Additionally, Keller (2001) considers that building a strong brand implies a series of four steps, where each step is contingent upon the successful completion of the previous step: establishing the proper brand identity, create the appropriate brand meaning, elicit the right brand responses, and forge appropriate brand relationships with customers. All steps involve accomplishing certain objectives with customers, both existing and potential. These four steps represent a set of fundamental questions that customers invariably ask about brands either implicitly or explicitly: 1) Who are you? (brand identity), 2) What are you? (brand meaning), 3) What about you? What do I think or feel about you? (brand responses), 4) What about you and me? What kind of association and how much of connection would I like to have with you? (brand relationships). The first step is to ensure identification of the brand with customers and an association of the brand in customers minds with a specific product class or customer need. The second step is to firmly establish the brand meaning in the minds of customers by strategically linking a host of tangible and intangible brand associations. The third step is to elicit the proper customer responses to this brand identity and brand meaning. The fourth and final step is to convert brand response to create an intense, active loyalty relationship between customers and the brand. Keller (2001) divides these four steps into six brand-building blocks: brand salience, brand performance, brand imagery, brand judgments, brand feelings and brand resonance. To connote the sequencing involved, these building blocks can be assembled as a brand pyramid. Creating significant brand equity involves reaching the top of the pyramid and will only occur if the right brand-building blocks are in place. The corresponding brand steps represent different levels of the pyramid as illustrated in Figure 2.3.3. Figure 2.3.4 examines each of the building blocks in detail.Figure 2.3.3 Kellers Customer-based brand equity pyramid

Source: Keller, Kevin Lane, (2001), "Building Customer-Based Brand Equity: A Blueprint for Creating Strong Brands", Marketing Science Institute, p.7

Figure 2.3.4 Sub dimensions of brand building blocks Source: Keller, Kevin Lane, (2001), "Building Customer-Based Brand Equity: A Blueprint for Creating Strong Brands", Marketing Science Institute, p.8

Considering the dimensions of brand equity described above, both Aakers and Kellers models are very customer-oriented and emphasize the importance of brand awareness and associations. Despite this commonality, some important differences exist. The primary difference is that the customer-based brand equity framework of Keller is based on a more detailed conceptual foundation. A much stronger focus on consumers and their brand knowledge structures can be seen in his brand equity model, compared to Aakers model. In spite of the differences Aakers model seems to complement customer-based brand equity quite well, because it takes the perceived quality aspect into account. Both Aaker and Keller suggest clear advices to build brand equity. Aaker outlines general guidance for each dimension of brand equity, while Keller suggests a four step process of building strong brands. Both authors outline the need to understand how customers respond to the brands and their marketing activities so as brand building strategies can develop into the desired direction.

2.4. Brand equity determinants2.4.1. Brand loyaltyAaker (1991) defines brand loyalty as the attachment that a customer has to a brand. Brand loyalty generates value by reducing marketing costs and leveraging trade. Loyal customers expect the brand to be always available and entice others advising them to use it. Brand loyalty, which can reflect a range from the habitual buyer to the satisfied buyer to those that like the brand to the truly committed, generates value mainly by reducing marketing costs: retaining existing customers is much less costly than attracting new ones. It is also difficult for competitors to communicate to satisfied brand users because they have little motivation to learn about alternatives. The burden on the competitor brand is substantial. A common mistake is to grow sales by enticing new customers to the brand while neglecting existing ones. Loyal customers, in some cases, can also entice others by using the product or advising others to use it (Aaker, 1992). Brand loyalty represents a favorable attitude toward a brand resulting in consistent purchase of the brand over time. It is the result of consumers learning that only the particular brand can satisfy their needs. Two approaches to the study of brand loyalty have dominated marketing literature: behavioral and cognitive loyalty (Keller, 1998). The first, a behavioral approach to brand loyalty, views consistent purchasing of one brand over time as an indication of brand loyalty. Behavioral measures have defined loyalty by the sequence of purchases and/or the proportion of purchases. Repeat purchasing behavior is assumed to reflect reinforcement and a strong stimulus-to-response link. The second, a cognitive approach to brand loyalty, underlines that behavior alone does not reflect brand loyalty. Loyalty implies a commitment to a brand that may not be reflected by just measuring continuous behavior. The brand loyalty of the customer base is often the core of a brands equity. It reflects how likely a customer will be ready to switch to another brand, especially when that brand makes a change, either in price or in product features. As brand loyalty increases, the vulnerability of the customer base to competitive action is reduced (Aaker, 1991).The brand loyalty of existing customers represents a strategic asset that, if properly managed and exploited, has the potential to provide value in several ways. A loyal set of customers can reduce marketing costs, since it is much less costly to keep a customer than to gain and regain, and it provides trade leverage over others in the distribution channel. Customers can create brand awareness and generate reassurance to new customers. Loyal customers will also give a company time to respond to competitive threats (Aaker, 1991).Traditionally, in marketing literature, it has been considered that loyalty is a component of brand equity (e.g. Aaker, 1991), whereas others argue that loyalty is an outcome of brand equity (e.g. Van Riel et al, 2005 (Swait & Erdem, 1998)), and that it could positively influence the customers willingness to stay, repurchase and recommend the brand (Vogel, et al., 2008).2.4.2. Brand awarenessBrand awareness is considered to be a key determinant of brand equity (Aaker, 1991; Keller, 1993; Yoo & Donthu, 2001). It is defined as an individual's ability to recognize and recall a brand (Aaker, 1991; Keller, 2003), and it is related to the strength of the brand node in memory, as reflected by consumers ability to identify the brand under different conditions. In particular, brand name awareness relates to the likelihood that a brand name will come to mind and the ease with which it does to (Keller, 1993; 1998).Aaker (1996) defines three levels of brand awareness: brand recognition, brand recall and top of mind. Recognition reflects familiarity and linking acquired from past exposure. Remembering as such, one brand among others is a manner of aided recall. Brand recognition relates to consumers ability to confirm prior exposure to the brand when given the brand as a cue. In other words, brand recognition requires that consumers correctly discriminate the brand as having been seen or heard previously (Keller, 1998). Recall reflects awareness of a brand when it comes in mind as soon as its product class is mentioned. It relates to the consumers ability to retrieve the brand when given the product category, the needs fulfilled by the category, or some other type of probe as a cue. In other words, brand recall requires that consumers can correctly generate the brand from memory (Keller, 1998). It is a manner of unaided recall. Top of mind is the highest awareness level, where the brand dominates the mind and appears as first whenever applicable (Aaker, 1991).Awareness can affect customers perceptions, which lead to different brand choice and even loyalty. A brand with strong brand recall and top of mind can affect customers perceptions, which lead to different customer choice inside a product category. Brand awareness, even at the recognition level, can provide the brand with a sense of the familiar and a signal of substance and commitment. A brand that is familiar is probably reliable and of reasonable quality. Awareness at the recall level further affects choice by influencing what brands get considered and selected as the brand must first enter the consideration set before being on the purchase list.Brand awareness is the ability of a potential buyer to recognize or recall that a brand is a member of a certain product category. A link between product class and brand is involved. Brand awareness involves a continuum ranging from an uncertain feeling that the brand is recognized to a belief that it is the only one in the product category (Aaker, 1991).Brand awareness creates value in different ways. Brand awareness provides the anchor to which other associations can be linked. Recognition provides the brand with a sense of familiarity and people like the familiar. In the absence of motivation to engage in attribute evaluation, familiarity may be enough. Brand awareness can be a signal of substance. The first set in the buying process often is to select a group of brands to consider. Brand awareness can be crucial to getting into this group (Aaker, 1991).The specific activities to increase or to transit of each level of awareness, depends on the purchase cycle, on the decision making process, and on the level of involvement. Awareness comes from customers who feel themselves attracted and interested to the brand, is not just a matter of high pressure advertising. It's all about managing selective perceptions, exposure, attention and memory (Kapferer, 2008).The studies of Yoo et al., (2000) and Yoo and Donthu (2001) incorporate this dimension into their empirical models but have not detected any direct effect on brand equity. Therefore, in their studies, it is simply combined with brand associations.2.4.3. Perceived qualityPerceived quality refers to the customers perception of the overall quality or superiority of a product or service relative to alternatives. Perceived quality can be defined as the customers judgment about a products overall excellence or superiority in comparison to alternative's brand and overall superiority that ultimately motivates the customer to purchase the product. It cannot necessarily be objectively determined, because perceived quality itself is a summary construct (Aaker, 1991).Perceived quality provides a reason to buy. A brand will have associated with it a perception of overall quality not necessarily based on a knowledge of detailed specifications. The quality associated with a brand can also be a strong factor of differentiation and positioning. Building a strong durable brand implies nevertheless an above average quality positioning or at least a minimum perceived quality when considering brands positioned as low market competitors. Perceived quality can also attract channel member interest, allow extensions and support a higher price that provides resources to reinvest in the brand.Keller (2008) defines perceived quality as customers perceptions of the overall quality or superiority of a product or service relative to another and with respect to its intended purpose. Thus, perceived quality is an overall assessment based on customer perceptions of what constitutes quality product and how well the brand rates on those dimensions. According to Keller (2008), achieving a satisfactory level of perceived quality has become more difficult as product improvements have led to higher customer expectations regarding the quality of products.Perceived quality is valuable in several ways. In many contexts, the perceived quality of a brand provides a crucial reason to buy. It is influencing which brands are included and excluded from the consideration set and which brand is to be selected. A principal positioning characteristic of a brand is its location within the dimension of perceived quality. A perceived quality advantage provides the option of charging a premium price. The price premium can increase profits and/or provide resources with which to reinvest in the brand. Perceived quality can also be meaningful to retailers, distributors and other channel members and thus aid in gaining distribution. Channel members are motivated to carry brands that are well regarded. In addition, the perceived quality can be exploited by introducing brand extensions, using the brand name to enter new product categories. A strong brand with respect to perceived quality will be able to extend further, and will find a higher success probability than a weak brand (Aaker, 1991).

2.4.4. Brand associationsBrand associations are a key to building strong brands since they represent what the brand stands for in the customers mind (Aaker, 1991). In essence, brand association helps process and retrieves information about the brand and, in the ideal case, creates a positive attitude and feelings about the brand. The way consumers perceive brands is a key determinant of long-term business-consumer relationships. Hence, building strong brand perceptions is a top priority for many firms today. Brand associations are important to marketers and to consumers. Marketers use brand associations to differentiate, position, and extend brands, to create positive attitudes and feelings toward brands, and to suggest attributes or benefits of purchasing or using a specific brand. Consumers use brand associations to help process, organize, and retrieve information in memory and to aid them in making purchase decisions (Aaker, 1991). Brand associations may include, e.g., product attributes, customer benefits, uses, life-styles, product classes, competitors and countries of origins. The association not only exists but also has a level of strength. The brand position is based upon associations and how they differ from the competition. An association can affect the processing and recall of information, provide a point of differentiation, provide a reason to buy, create positive attitudes and feelings and serve as the basis of extensions. The associations that a well-established brand name provides can influence purchase behavior and affect user satisfaction. Even when the associations are not important to brand choices, they can reassure, reducing the incentive to try other brands (Aaker, 1991; 1992).2.4.5. Other proprietary brand assetsOther proprietary brand assets refer to patents, trademarks and channel relationships which can provide strong competitive advantage. A trademark will protect brand equity from competitors who might want to confuse customers by using a similar name, symbol or package. A patent can prevent direct competition if strong and relevant to the purchase decision process. Finally, a distribution channel can be indirectly controlled by a brand as customers expect the brand to be available (Aaker, 1991; 1996).

2.4.6. Brand knowledgeConsidering the Kellers brand equity model, brand knowledge is the key issue in creating customer-based brand equity (Keller, 1993; 1998). Brand knowledge is defined in terms of two dimensions: brand awareness and brand image. Brand awareness relates to brand recall and recognition performance by consumers. Brand image refers to the set of associations linked to the brand that consumers hold in memory. Consistent with an associative network memory model, brand knowledge is conceptualized as consisting of a brand node in memory to which a variety of associations are linked. Building brand awareness requires repeatedly exposing consumers to the brand as well as linking the brand in consumer memory to its product category and to purchase, usage and consumption situations. Creating a positive brand image requires establishing strong, favorable and unique associations for the brand. The relevant dimensions that distinguish brand knowledge and affect consumer response are the awareness of the brand (in terms of recall and recognition) and the favorability, strength and uniqueness of the brand associations in consumer memory. These dimensions are affected by other characteristics of and relationships among the brand associations (Keller, 1993).2.4.7. Brand image According to Keller (1993; 1998), brand image refers to consumer perceptions of a brand as reflected by the brand associations held in consumers memory. Brand associations are informational nodes linked to the brand node in memory and contain the meaning of the brand for consumers. In addition, Keller (1993; 1998) states that brand associations may take different forms. One way to distinguish among brand associations is the level of abstraction, that is, how much information is summarized or subsumed in the association. Within this dimension, the types of brand associations can be classified into three major types of increasing scope: attributes, benefits, and attitudes.Brand attributes are those descriptive features that characterize a product or service. They can be further distinguished according to how directly they relate to product or service performance. Along these lines, attributes can be classified into product-related and non-product-related attributes (Keller, 1993). Brand benefits are the personal value and meaning that consumers attach to the product or service. Benefits can be further distinguished into three categories according to the underlying motivations to which they relate: functional benefits, experiential benefits, and symbolic benefits. The third and most abstract types of brand associations, brand attitudes are defined in terms of consumers overall evaluations of a brand. Brand attitudes are important because they often form the basis for actions and behavior that consumers take with the brand (e.g., brand choice) Consumers brand attitudes generally depend on specific considerations concerning the attributes and benefits of the brand. It is important to note that brand attitudes can be formed on the basis of benefits about product-related attributes and functional benefits and/or beliefs about non-product-related attributes and symbolic and experiential benefits (Keller, 1993; 1998).Considering the previously mentioned pyramid consisted of four steps for creating strong brand, suggested by Keller (2001), each step is seen as a brand equity determinant, and each step is a contingent upon the successful completion of the previous one. The process of brand building, according to these steps includes: establishing the proper 1) brand identity, create the appropriate 2) brand meaning, elicit the right 3) brand responses, and build corresponding 4) brand relationships with customers.

2.5. Marketing mix elements and brand equityMarketing strategy is often considered the most important mean of establishing brand equity. Over the years, a large number of studies have explored how various marketing mix elements affect brand equity.Brand equity is seen as the outcome of long term marketing efforts operated to build a sustainable, differential advantage relative to competitors (Yoo, 1996). According to Keller (1993) a brand is said to have a positive (negative) customer-based brand equity if consumers react more or less favorably to the product, price, promotion, or distribution of the brand than they do to same marketing mix element when it is attributed to a fictitiously names or unnamed version of the product or service. Yoo (1996) suggests, any marketing actions will affect on customers brand knowledge e.g., psychological perception, which is result in a positive or negative impact on brand equity. Based on Aakers concept, Yoo et al., (2000) created brand equity creation process model to systematically examine the relationship among marketing efforts, brand equity dimensions, and brand equity. Their model was an extension of Aakers proposal which indicated that marketing activities had significant effects on brand equity dimensions, which in turn created and strengthened the equity. Yoo et al., (2000), extend Aakers model by placing brand equity as a separate construct between the dimensions of brand equity and the value for the customer and the firm. They also add price, store image, distribution intensity, advertising spending, and price deals as antecedents of brand equity with their significant effects on the dimensions of brand equity. In their model, brand awareness and brand associations dimensions have emerged as a single dimension, whereas perceived quality and brand loyalty are retained as separate dimensions. As clarification, their study investigates the relationships between selected marketing mix elements and the creation of brand equity. The authors explore how these marketing actions increase or decrease brand equity. The findings provide insights into how marketing activities may be controlled to generate and manage brand equity. Figure 2.5.1 exhibits their model of brand equity. Figure 2.5.1 Yoo et al.s model of brand equity

Source: Yoo B., Donthu N. and Lee S., (2000), An Examination of Selected Marketing Mix Elements and Brand Equity, Journal of the Academy of Marketing Science, p. 196With an increase in marketing efforts, there is an increase in the dimensions of brand equity, which in turn positively influences brand equity. Increase in brand equity leads to an increase in the value of the brand to the customers and also to the firm, which means the firm has an increased bottom line now and can hence invest in more marketing activities. The idea that brand adds value to products or services is fundamental to marketing (Yoo, et al., 2000).Chattopadhyay et al., (2009) investigate the consumers perceptions on several factors that in turn affect brand equity. The study examines the relationship between marketing mix elements, the factors that are not part of the marketing mix, and brand equity. The authors divide the two groups into direct marketing mix variables and indirect marketing mix elements. The first group contains price, store image, advertising frequency, price promotions and distribution intensity. The indirect variables include peer recommendation, country of origin of the brand and celebrity endorsement. The authors study the interaction effect of the direct and indirect marketing mix parameters that impact brand equity. The results of the study unambiguously prove that both direct and indirect marketing mix variables have a significant impact on the dimensions of brand equity and thereby on the brand equity of the products. Figure 2.5.2 illustrates their conceptual framework of brand equity. Figure 2.5.2 - Chattopadhyay et al.s conceptual framework of brand equity

Source: Chattopadhyay et al., (2009), Determinants of brand equity - A blue print for building strong brand: A study of automobile segment in India, African Journal of Marketing Management, Vol. 1(4), p. 110Advertising is considered as an obvious variable that one would assume to have a relationship with brand equity. It is seen as one of the most important means of establishing brand awareness and educating consumers on the different attributes or dimensions of a brand. Aaker (1991) frequently indicated that advertising was important to the building of consumer perceptions in the five dimensions of brand loyalty, name awareness, perceived quality, brand associations, and other proprietary brands assets. The author further proposed that advertising may be the key driver of brand equity through the means of cumulative advertising and possessing a higher share of industry advertising.Simon and Sullivan (1993) use advertising as a variable related to market share in the development of a financial-based measure of brand equity. It has been concluded that companies with higher advertising budgets possessed higher levels of brand equity when compared to companies with smaller advertising budgets. Furthermore, Yoo et al. (2000) found that frequent price promotions are related to low brand equity while high advertising spending, high price, good store image, and high distribution intensity are related to high brand equity.Kotler and Keller (2006) argued advertising could create long-term brand image for a product or service and trigger quick sales by reacting a number of customers. A company invests a huge amount of fund in advertising of its product or service in order to create and increase brand awareness by exposing brands to customers. As well as, advertising strengthens the brands likelihood of being included in consumers mindset. Thus, enhance the market performance of a brand.According to Hoeffler and Keller (2002) there are six means by which marketing programs can build brand equity: (1) building brand awareness, (2) enhancing brand image, (3) establishing brand credibility, (4) evoking brand feelings, (5) creating a sense of brand community, and (6) eliciting brand engagement. It is of particular importance for one brand to develop its marketing strategy in accordance with the companys mission and vision.Shocker et al., (1994) believed that companies must pay more attention to develop a systematic sight of products and brands in order to specify how intangible assets which are resulted from managers pricing, promotion, services and distribution decisions, contribute with self-product to form brand equity and affect the buyer decision-making.However, there exist many studies that examine the effects of marketing mix elements, as well as marketing activities on brand equity. Some of the mostly investigated marketing elements that has relationship with brand equity include price, store image, distribution intensity, advertising frequency, celebrity endorsement, price promotion, non-price promotions, event sponsorship, country-of-origin and word-of-mouth recommendation (Chattopadhyay, et al., 2010; Kabadayi, et al., 2007; Rajh, 2005).

2.6. Brand equity measurementsAs the concept of brand equity has gained much prominence both in academia and industry, along with it appeared different methods of measurement. Unlike the developments at a conceptual level, however, the existing literature does not provide a satisfactory measurement method for understanding the sources of brand equity.Studies regarding the measurement of brand equity can be grouped mainly in two distinct categories. As was the case with the definitions, some authors have studied the financial aspects of the brand equity measurement, whereas others have focused on the customer-based measurement issues. The first perspective of brand equity is from a financial markets point of view where the asset value of a brand is appraised (Simon & Sullivan, 1993; Farquhar, 1989), while consumer-based brand equity has attitudinal associations and refers to evaluating the consumers response to a brand name (Keller, 1993; Shocker, et al., 1994; Chaudhuri, 1999). 2.6.1. Financial measurementDeveloping a financial measure of brand equity is crucial for effective brand management. Quantifying the dollar value of a brand would allow firms to report brand asset values in financial statements, and assign an objective value to a brand during sale or acquisition. A standard measure of brand equity that can be tracked longitudinally would also allow marketers to evaluate changes in a brands value over time, helping to evaluate the effects of changes in marketing strategies or tactics, competitive factors, or managerial impact. Developing a financial measure of brand equity would address MSIs top priority of increasing accountability and measuring ROI of marketing expenditures (MSI, 2008). Firm-based measures, such as revenue premium, provide single objective number that is credible to senior management and the financial community and acts as a useful guide to the value of a brand in mergers and acquisitions.Among the financially-oriented studies, Simon and Sullivan (1993) emphasized macro and micro approaches as an estimation technique extracting the value of brand equity from the value of the firms other assets. The authors first assign an objective value to a companys brands and relate this value to the determinants of brand equity according to the macro approach. Then, the micro approach isolates changes in brand equity at the individual brand level. In a similar manner, Motameni and Shahrokhi (1998) proposed a global brand equity valuation model quantifying all the components and applying the generally accepted financial techniques. Interbrand Group has used a subjective multiplier of brand profits based on the brands performance along seven dimensions: leadership, stability, market stability, internationality, trend, support and protection (Keller, 1993).Simon and Sullivan (1993) present a financial technique based on financial market estimates of brand-related profits. The method for the financial approach takes into consideration expenditures on advertising and research and development, company market share, age of the firm, and market concentration in combination with tested dummy variables. The results provide evidence that brand equity comprises a large percentage of the total value of many firms and gives weight to the belief that brands must be managed effectively.Furthermore, Farquhar (1989) explains that, from the firms perspective, brand equity can be measured by the incremental cash flow from associating the brand with the product. Incremental cash flow also results from premium pricing and reduced expenses. The author, also, outlines three main elements that are essential in building a strong brand with the consumer: a positive brand evaluation, an accessible brand attitude, and a consistent brand image.Whereas the consumer-based method of measuring brand equity is based on the feedback of consumers, the financial-based brand equity methods are more focused on valuating brand equity upon financial performance. This methodology involves highlighting key financial measures and factoring these results into a formula for evaluating brands. Winters (1991) provides three methods accountants use when determining the value of a brand as:1. Market approach present value of the future economic benefits to be derived by the owner of a property.2. Cost approach amount of money required to replace a brand, including the costs of product development, test marketing, advertising, etc.3. Income approach net income derived from the brand divided by the risks associated with the brand achieving the prospective earnings.The revenue premium measure developed recently by Ailawadi et al. (2003) and defined as the difference in revenue (Net Price Volume) between a branded good and a corresponding private label can also be considered within the firm-based perspective.Park and Srinivasan (1994) proposed a survey-based method for measuring and understanding brand equity at the individual consumer level in a specific product category, which offers brand managers an indication of the sources of brand equity. This method measures brand equity as the difference between an individual consumers overall brand preference and his or her brand preference on the basis of objectively measured product attribute levels. Brand valuation is a relatively new phenomenon. Many different methods have been proposed because financial accounting standards for valuing intangible assets vary across countries. However, little consensus has emerged about how brand performance should be measured.2.6.2. Customer-based measurementOn the other hand, a consumer-based measure of brand equity is based on the value consumers derive from the brand name. Some researchers define this added value as the positive associations, awareness, loyalty, and perceived quality of the brand (Aaker, 1991), as the differential effect of brand knowledge to the marketing of the firm (Keller, 1993), or as the price premium that consumers are willing to pay for the brand (Park & Srinivasan, 1994). Consumer-based measures of brand equity can provide valuable insights and diagnostics for the marketing or brand manager concerned about a brands value to consumers. Such measures can effectively capture the equity of strongly positioned popular brands and the equity of brands that enjoy high consumer loyalty and command a significant price premium in niche markets.Aaker (1991) was the first to propose a means of assessing customer-based brand equity measurements. He supports that brand equity is measured by how consumers perceive a brand in regards to brand loyalty, name awareness, perceived quality, brand associations, and other proprietary brands assets. This measurement is to be established by surveying customers directly to determine satisfaction and perceptions regarding a brand and its equity.Keller (1993) carried the research of Aaker one step further by defining and outlining customer-based brand equity measurement methods and encouraging managers to think more strategically about brand equity. Keller defines customer-based brand equity as the differential effect of brand knowledge on consumer response to the marketing of a brand. He views the measurement in a broad manner as a brand has positive (or negative) customer-based brand equity if consumers react more (or less) favorably to the product, price, promotion, or distribution of the brand than they do to the same marketing mix when it is attributed to an unbranded version of the product or service. According to Keller (1993; 1998), there are two basic complementary approaches to measuring customer-based brand equity. The indirect approach attempts to assess potential sources for customer-based brand equity by measuring brand knowledge structures, that is, consumers brand awareness and brand image. The indirect approach is useful for identifying what aspects of the brand knowledge may potentially cause the differential response that creates customer-based brand equity. The direct approach to measuring customer-based brand equity, on the other hand, attempts to more directly assess the impact of brand knowledge on consumer response to different elements of the marketing program for the firm. The direct approach is useful in approximating the possible outcomes and benefits that arise from the differential response that creates customer-based brand equity. The indirect and direct approaches to measuring customer-based brand equity are complementary and should be used together. In order to apply these two different types of measures in a managerial setting, it is necessary to design and put into place a customer-based brand equity measurement system. There exists an extensive set of research procedures designed to provide timely, accurate and actionable information for marketers so that they can make the best possible tactical decisions in the short run and strategic decisions in the long run.Yoo and Donthu (2001) propose a multidimensional consumer-based brand equity scale based on the research of Aaker and Keller, where consumer-based means measurement of cognitive and behavioral brand equity at the individual consumer level through a consumer survey. The authors develop a scale utilizing 22 items for assessment: five on brand loyalty, four on brand awareness, seven on perceived quality, and six on brand associations. They developed a brand equity measure with an etic approach, in which a universal measurement structure across cultures is sought using multiple cultures simultaneously. The outcome measure that an etic approach produces is functionally, conceptually, linguistically, and metrically equivalent across cultures, which provides the basis for generating valid cross-cultural comparisons.Park and Srinivasan (1994) developed a survey-based method of measurement. Their method is intended to gather different customer opinions and attitudes to determine possible factors in building brand equity, which will assist brand managers in making informed decisions. By collecting data on the importance of attribute and non-attribute based factors, brand managers can determine how the companys brand rates compared to the competition and plan for the future direction of the brand.Silverman et al., (1999) explored the relationship between customer-based and financial/market-based brand equity measurements. The overall implication of customer-based research suggests that measures of customer-based brand perceptions are accurate reflections of brand performance in the marketplace. Customer-based brand equity, in this respect, is the driving force for incremental financial gains to the firm. The challenge for many brands is to develop credible and sensitive measures of brand strength that supplement financial measures with brand asset measures. When brand objectives and programs are guided by both types of measures, the incentive structure becomes more balanced, and it becomes more feasible to justify and defend brand-building activities (Aaker, 1996). General progress in the measurement of brand equity will help managers develop valid instruments for individual brands.

2.7. The value of brand equityThe importance of brand equity has been discussed in many writings. Brand equity can be regarded as an indicator of the success of a brand. It is widely recognized that the brand has developed into one of a companys most important assets, which makes effective management of the brand a key factor in corporate success. One of the reasons for its popularity is its strategic role and importance in gaining competitive advantage and in strategic management decisions (Simon & Sullivan, 1993). There is no doubt that if there is no obvious difference between the products or services of different companies and their prices are the same, customers will be attracted to the stronger brand.Aakers five assets model implicates that brand equity provides value to the customer, as well as to the firm. The resulting customer value becomes a basis for providing value to the firm. The implication is that in managing brand equity, it is important to be sensitive as to how value can be created in order to manage brand equity effectively and to make informed decisions about brand-building activities (Aaker, 1992). 2.7.1. Value for the firmA companys brand equity is of great importance in the increasingly competitive market today. Having strong brand equity means keeping the valuable customers, influencing the spreading of positive word-of-mouth as well as ensuring the companys good reputation and thereby its market position. Today, too many companies neglect or down-prioritize the brand equity of the company, which means losing a great opportunity to build their competitive advantage. Generally, brand equity is the driving force for incremental financial gains to the firm. Competitive advantage for firms may be determined in terms of revenue, profit, added value or market share. Farquhar, (1989) early on, suggests the result of high brand equity may be the allowance of premium pricing for a product. A successful brand with high equity is able to charge more for its products and thus receive a higher return or gross profit when compared to other companies. Farquhar (1989) additionally suggests a relationship between high brand equity and market power asserting that the competitive advantage of the firms that have brands with high equity includes the opportunity for successful extensions a strong brand provides a platform for new products and for licensing; resilience against competitors promotional pressures a strong brand has the resiliency to endure crisis situations, periods of reduced corporate support, or shifts in consumer tastes; and creation of barriers to competitive entry a dominant brand name provides resistance from competitive attack.This was reinforced by Aaker (1991) who believes that a brand possessing high ratings in the dimensions of name awareness, perceived quality, associations, and loyalty is able to charge more for its products. The author suggests that a strong brand will usually provide higher profit margins and better access to distribution channels, as well as providing a broad platform for product line extensions. Aaker (1996) further points out that the most suitable method for determining brand equity may be using conjoint analysis to establish how much more a consumer is willing to spend on one brand product versus another. His model assumes six ways that brand assets create value for the firm. Firstly, brand equity can enhance the efficiency and effectiveness of marketing programs. A promotion, for example, will be more effective if the brand is familiar and if the promotion does not have to influence a skeptical consumer of brand quality. Secondly, brand awareness, perceived quality and brand associations can all strengthen brand loyalty by increasing customer satisfaction and providing reasons to buy the product. Even when these assets are not visibly pivotal to brand choice, they can reassure the customer, reducing the incentive to try other brands. Enhanced brand loyalty is especially important in buying time to respond to competitor innovations. Thirdly, brand equity will usually provide higher margins for products, permitting premium pricing and reducing reliance on promotions. Brand equity can also provide a platform for growth by brand extensions and can provide leverage in the distribution channel as well. Channel members have less uncertainty dealing with a proven brand name that has already achieved recognition and has established strong associations. Finally, a strong brand represents a barrier that prevents customers from switching to a competitor.Brand equity is a key marketing asset, which can engender a unique and welcomed relationship differentiating the bonds between the firm and its stakeholders. Understanding the dimensions of brand equity, then investing to grow this intangible asset raises competitive barriers and drives brand wealth (Yoo, et al., 2000). For firms, growing brand equity is a key objective achieved through gaining more favorable associations and feelings among target consumers. In paying very high prices for companies with brands, buyers are actually purchasing a position in the minds of potential customers. Awareness, trust and reputation are the best guarantees of future earnings (Kapferer, 1992). Pitta and Katsanis (1995) suggest that brand equity increase the profitability of brand choice, leads to brand loyalty and insulates the brand from a measure of competitive threats. Neal and Strauss (2008) state that in the marketplace, the concept of brand equity allows firms to charge a price premium over the ones with poor brand equity, and that price differential allows firms to reinforce their brand equity through improved product quality, higher levels of customer service, investment in socially responsible programs, and more effective promotion. It also gives firms pricing power the power to trade off margin against share. Brands also play an important role in determining the effectiveness of marketing efforts such as advertising and channel placement (Keller & Lehmann, 2006). Some researchers have identified brands as central to companys ability to earn profit and as firms most valuable assets (Erdem, 1998). It is also proved that high brand equity help company attract new customers, establish superior position and retain high customer loyalty (Lee, 2011).According to Keller (2001), building a strong brand with significant equity has been seen as providing a host of possible benefits to a company, including greater consumer loyalty and less vulnerability to competitive marketing actions, larger margins as well as more favorable consumer responses to price increases and decrease, increased marketing communication effectiveness, and licensing and brand-extension opportunities. Positive customer-based brand equity can lead to greater revenue, lower costs and higher profits, and it has direct implications for the firms ability to command higher prices, customers willingness to seek out new distribution channels, the effectiveness of marketing communications, and the success of brand extensions and licensing opportunities (Keller, 2003). 2.7.2. Value for the customersPowerful brands create meaningful images in the minds of customers, with brand image and reputation enhancing differentiation and having a positive influence on buying behavior.Brand equity from an individual consumers perspective is reflected by the increase in the strength of associations an individual has for a product by using the brand. Successful branding means lower uncertainty in purchasing. There is also less need for an extensive decision making process on the part of the customer. Brands carry with them certain assurances of product quality and reliability in use. Apart from this, there are also psychological benefits to the customer using brands.Aakers (1991) brand equity model lists three ways of how brand assets create value for the customer. Firstly, brand equity can help a customer interpret, process, store, and retrieve a huge quantity of information about products and brands. Secondly, it can affect the customers confidence in the purchase decision; a customer will usually be more comfortable with the brand that was last used, is considered to have high quality, or is familiar. Finally, perceived quality and brand associations provide value to the customer by enhancing the customers satisfaction.For customers, strong brands can simplify choice, promise a particular quality level, reduce risk, and/or engender trust (Keller & Lehmann, 2006) and also can motivate repeated buying (Aaker, 1996; Keller, 2001). Brands thus reflect the complete experience that customers have with products. Brand equity, also creates value to customers by enhancing efficient information processing and shopping, building confidence in decision making, reinforcing buying, and contributing to self-esteem.

2.8. Brand equity in wine industryBuilding brand equity in the wine industry is particularly difficult yet necessary. By building equity a brand will stand out from its competitors. In making a brand recognizable, and developing relationships with consumers, the decision making process for wine purchases becomes simpler and more direct to the consumers. It is widely recognized that equity can be built into brands that will give them value and strength in the market well beyond that which is provided by the inherent characteristics of the products. Therefore, it is vital for the wine brands to ensure that they have the brand equity required to rise above the competition and get their labels off the shelf and into the homes of their target consumers.It is not surprising that some marketing academics have studied wine marketing and building brand equity (Nowak, et al., 2006). The authors examined the tasting room experience and its effect on building loyal wine drinkers who would continue to purchase the winerys brand after the tasting room experience is over. They suggested that by understanding their target customers, wineries can learn how to meet the customers expectations for the type of tasting room experience that will lead to positive word of mouth, wine club memberships, and repeat purchases.There is a considerable evidence that brand names are associated to consumer perceptions of quality and their purchase intentions (e.g. Dawar and Parker, 1994; Wanke et al, 2007). As with other product classes, the brand name of a wine can either help to bring it success or cause it to struggle. A boring name may be easy to forget, whilst a distinctive one can connect with the story or place behind the wine.Today, the wine industry is making signicant efforts to develop processes and procedures in grape cultivation and wine production. Macedonian wine is seeking to become more competitive, both in terms of quality and price. In line with an international phenomenon that is occurring in the increasing homogenization of goods and services, branding has progressively become more important to the wine industry as a means of differentiation and competitive advantage. Branding is crucial in any industry, company or product. Wineries and the wine industry in general should appreciate and recognize that branding is of paramount importance, as strong brands will continue to enjoy robust growth. The success of a brand is the work of everyone in the organization. Building the brand is very important in the wine market where the consumer can be overwhelmed by too many choices. By having a strong brand a company can enjoy cost effective marketing campaigns, greater trade leverage, higher margins, ease of extending lines, stands out of competition and defense against price competition. These benets come as a result of the brand becoming recognizable and established in the minds of the consumers and thus triggering recognition of the brand name and/or mark in a purchasing situation. Strong brands lead to strong companies, consumer loyalty and to an overall strong industry.

Chapter 3 Wine industry in the Republic of MacedoniaThe following chapter provides general information about the wine industry in the Republic of Macedonia, mainly focusing on the sector analysis, annual production, differences between domestic and export sales, competitive landscape of the Macedonian wineries, as well as the wine regions and types of wine in Macedonia.

3.1. General informationLocal tradition of wine-making and consumption in the Republic of Macedonia has deep roots and long history. Vineyard cultivation and wine-making date back in time for several millennia. Following modern trends, in recent years a new type of wine culture has begun developing in Macedonia which includes establishing on-site wine bars, clubs and restaurants, located throughout the most important wine-making regions of Macedonia, which organize wine-tasting tours coupled with a local culinary experiences. These kinds of events had a positive influence on wine consumption over the review period and introduced new wine tourism development concepts.Macedonia is a country at the crossroads of a Continental and Mediterranean climate. Crucially, summers are very hot and dry with an enormous amount of sunshine, while winters are mild and bearable for vines during the dormancy period. The intense aroma of the Macedonian wines is result of the combined influence of the Mediterranean and Continental climates, with warm summer days and cooler nights. The lengthy ripening process concentrates the sugar and acids in the grapes, ensuring rich colors and complex aromas in the wines. In Macedonia grapes contain a high quantity of sugar and thus potential alcohol. The recent generation of local winemakers is responding well to the key challenge, to produce fruit with phenolic ripeness, natural acidity and eventually wines without excessive levels of alcohol.Considering the domestic attitude to wine, it is becoming a trend. People are eager to learn more regarding wine in general and curious when it comes to domestic wines and wineries. Even though Macedonia has from always been an export orientated country when it comes to wine, there have been massive changes in the last years. People are more and more interested to get to know about wine in general, domestic wine tourism is becoming a trend and wine tasting classes are much desired by wine enthusiasts.In the last years it is evident that some of the Macedonian wine producers join in local wine associations to work together on various issues. Examples include: Wines of Macedonia, Tikve Wine Route foundation and the Group of Macedonian Wine Producers. All these local associations are formed to encourage collaboration between member wineries on various issues, among which the promotion of Macedonian wine and increase of exports take important place.

3.2. Sector analysisThe wine sector in Macedonia has great macroeconomic significance. Around 70% of the total wine production in Macedonia is exported to foreign countries, indicating the export oriented character of the sector. In terms of export value, wine is the second most important agricultural product after tobacco (Dimitrievski & Kotevska, 2008). Therefore, the sector is very important for the national economy in terms of providing foreign capital. Moreover, the wine sector together with the grape sector contributes to employment in the viticulture regions (NARDS, 2007). Because of its strategic importance for the national economy, as well as a result of the global wine hyper production, the saturation of the wine market and the global financial crisis, the Macedonian government seeks to support the finding of new trade partners (DSVWP, 2010). In addition, the financial support that the government provides to the wine sector, among the other measures, includes measures to support scientific research projects, organization and participation on a wine fairs and manifestations as well as promotion and marketing.In the period from 2010 to 2013 average annual production of wine is about 975.740 hl (Figure 3.2.1). Minimum annual production of wine is noted in 2011 and is 789.949 hl. The trend of the wine production shows continued increases in the period from 2011 to 2013, wherein 2013 is noted the greatest wine production and it is 1.251.759 hl.

Figure 3.2.1 Total wine production in Republic of Macedonia (2010-2013)

Source: State Statistical Office of the Republic of Macedonia

3.3. Domestic market and exportsBased on an evaluation of the data from the State Statistical Office, about 85.500 hl are consumed within the Republic of Macedonia, which represents about 9% of total production (DSVWP, 2010). However, in recent years the consumption of wine per capita exceeds this figure taking into account the consumption of wine in tourist facilities and restaurants, including the consumption of domestic produced wine so-called unofficially production, consumption of wine per capita is estimated at 15 l per capita per year. In 2011 the domestic consumption of wine is estimated at an average of 8.6 l per household. Mixed households emerge as the largest consumers of wine, or consume 9.8 liters per household (ARARD, 2011). This relatively low consumption of wine in comparison with European countries, Macedonia's wine market is not attractive to major European manufacturers. For these reasons, although the Macedonian market for wine relatively open, there is a serious danger to the same as result of the importation of wine in the country.After tobacco, wine is the second most important exported agricultural product, and participates in the total exports of agricultural and food products with about 11% (DSVWP, 2010). Export of wine increases from year to year (Figure 3.3.1.), while only in 2013 it is noticed a slight decline. In 2011 compared with 2010 exports increased by 31.6%, and in 2012 compared to 2011 increased by 17.7%. In 2013 compared to 2012, export of wine has seen a reduction of 31.2%. According to information obtained from wineries and initial analysis of MAFWA (Ministry of agriculture, forestry and water economy), the increase is due to the quantities of wine that wineries reserved for the production of high quality wine, which have a period to serve, and the other became the global financial crisis and drastically decreased demand for wine in world markets.Figure 3.3.1 Total wine export in Republic of Macedonia (2010-2013)

Source: State Statistical Office of the Republic of MacedoniaEdited by: Mistry of agriculture Forestry and Water Economy

Most of the exported wine (approximately 85%) is exported in bulk, while about 15% of the exported wine is exported as wine bottles.The main export markets for Macedonian wine are the European Union (EU) countries and the member countries of CEFTA (Central European Free Trade Agreement), where wine is exported duty free (DSVWP, 2010). Wine is mainly exported in bulk quantities in the EU market (ranging from 60% to 72% of total exports of bulk wine), while exports in CEFTA member countries are dominated by bottled wine (accounting for 70% to 85% of total exports of bottled wine). Other markets where Macedonian wine is exported in smaller quantities are: United States of America, Canada and Japan.

3.4. Competitive landscapeWine production in the Republic of Macedonia takes place in the 80 officially registered wineries with a total capacity of 2.222.647 hl, which is two times the total production of wine (50% utilization of total capacity) (GMWP, 2009). The total capacity for pouring in bottles is around 650,000 hl per year, which is insufficient to cover the entire production of wine in the country. Although there is a lack of capacity, the capacity for pouring in wine bottles remains unused, because most of the wine is marketed in bulk. Considering this numbers, the wine industry in Macedonia plays a significant role in the whole economy, and it continues to expand rapidly, especially through export and placement on the foreign markets.Wineries in the Republic of Macedonia fairly much differ between sizes, product finalization, market orientation and innova