A Framework

for Measuring and Managing

Brand Equity

6 Summer 2008

By William Neal and Ron Strauss

or most publicly owned organizations, the

majority of their assets cannot be accounted
for by current financial accounting methods.
On average, accountants account for less than
25% of the value that willing buyers and sellers
the marketplace on public firms. One only needs
to compare a public firms book value to its market
capitalization to understand just how much of the
firms asset value is unaccounted for in their financial
statements. For most public firms, the vast amount of
that hidden asset value is due to brand equity.
Most people refer to brand value and brand equity
as interchangeable and equal entities. Theyre not. In
fact, the difference between brand value and brand
equity goes to the core of understanding how to create value in todays world.

The Brand Value Concept

C. J. Burton/Veer

Several years ago I was helping a friend look for

an automobile to purchase. He was looking for a
smaller SUV with good reliability and was quite partial to smaller Japanese vehicles. After we looked over
several models he focused in on the Honda Passport
as just about the best combination of size, comfort,
economy, and price he was looking for. Hearing his
description, I did a search of Consumer Reports and
found that the Isuzu Rodeo was an identical vehicle
and it retailed for a lot less. I told my friend to look

at the Isuzu, instead. He did, but then bought the

Passport paying about $4,500 more than he would
have for an exact duplicate vehicle with a different
nameplate. Basically, my friend paid $4,500 for a
Honda emblem on a perfectly good Isuzu Rodeo.
Why would he do such a thing? The answer goes
to the heart of understanding the concepts of brand
value and brand equity. The answer lies in what my
friend perceived to be value. Value is most generally
defined as a measure of worth, which is most often
expressed as benefits less costs.
Value = Benefits - Costs
The benefits part of this value equation is where
most of the complexity lies. A branded product or
service should be viewed as a bundle of tangible and
intangible benefits. When you accept that premise,
then we can expand the value equation to:
Brand Value = Tangible Benefits + Intangible Benefits
Costs
Back to my friendsince there was no difference
between the two vehicles in terms of tangible benefits
(with the possible exception of minor differences in
depreciation and trade-in value), he placed high value
on the intangible aspects of the Honda brand name.
In fact, the value that he placed on the Honda nameplate was around $4,500.

marketing research 7

Executive Summar y
This article is an extract from Chapter 7 of the book
Value Creation: The Power of Brand Equity, which explains brand equity, how it differs from brand value,
and the strategic implications of understanding the
true value of brands. The goal of this article is to help
researchers develop a better framework for addressing brand equity and better communicate to senior
managers the importance of measuring and closely
managing their most important assetstheir brands.

Not only is this value equation essential in understanding

brand value and brand equity, but it also provides the framework for valid and accurate brand value measurement. When
we are talking about tangible benefits, we are addressing the
objective performance benefits delivered by the product or
service to which the brand name is affixed. These tangible
benefits may be delivered by the product or service itself or
by the channel in which the product or service is available.
For example, in the automobile category, the tangible
product benefits may include vehicle type (e.g., wagon, van,
sedan), the horsepower of the engine, handling characteristics,
safety features, warranty, and so forth. The intangible benefits
might include your trust in the brand name, perceived reliability, styling, how the image of the brand name aligns with your
self-image, and so on.
The channel (dealership) may add additional performance
benefits such as location convenience, selection, on-site service
and maintenance, readily available parts and expendables,
loaner cars, a comfortable waiting room, and so on.
Recognizing these different sources of benefits, we can once
again expand our value equation to:


Brand Value = (Product Benefits + Channel Benefits +

Intangible Benefits) Costs

Some products, especially in business-to-business categories, also have a significant service component that is an
integral part of the product and its value. Examples of adjunct
service components include online technical support, troubleshooting services, maintenance reminders, and so on. Turning
to our automobile example, the service attributes may include
a free-maintenance period, roadside assistance package, and
warranty service reminders.
These service attributes should be viewed as separate components of the value equation, thus we expand our equation
one more time.


Brand Value = (Product Benefits + Service Benefits +

Channel Benefits + Intangible Benefits) Costs

And, of course, if we are talking about a primarily services

category, such as banking services or real estate services, this
is the appropriate value equation.
8 Summer 2008

In contrast to the tangible benefits weve just been discussing, the intangible benefits of this relationship are less well
understood because they are more complex and more difficult
to measure. But understanding this component of the value
equation is the key to understanding why my friend paid
$4,500 more for a Honda Passport, compared to an identical
Isuzu Rodeo.
In reality, the intangible benefits in the value equation are
all communicated to the customer and the consumer by the
brand name. It is the brand promisewhat the customer/consumer believes the brand stands for. It has been described as
an implied contract between the producer and user.
The value of that set of intangible benefits is the brands
equity. Brand equity encompasses a gestalt of intrinsic values,
or benefits, that complement the tangible benefits delivered by
a particular product or service. These intrinsic equities may include such things as the image imparted to the purchaser, trust
in the producer, long-term reputation for reliability, customer
support, social responsibility, previous experiences with the
brand, and so forth.
In this model, brand equity is a subset of total brand value.
Thus, our value equation now becomes:


Brand Value = (Product Benefits + Service Benefits +

Channel Benefits + Brand Equity) Costs

In the marketplace, this concept of brand equity allows

Honda to charge a price premium over Isuzu because the
Honda name conveys more value to most consumers than
does the Isuzu brand name. That price differential allows
Honda to reinforce their brand equity through improved
product quality, higher levels of customer service, investments
in socially responsible programs, and more effective promotion. It also gives Honda pricing powerthe power to trade
off margin against share. Even at a $4,500 price premium,
Honda Passport outsold the Isuzu Rodeo by a ratio of more
than 3-to-1 in the U.S. market in the mid 1990s.
Of interest to the marketing research community is that
this model provides a direct method for measuring both total
brand value and brand equity. Those who have studied brand
equity will recognize that this model is at considerable variance with most of the earlier definitions and descriptions of
brand equity, with the notable exception of the various publications by V. (Seenu) Srinivasan and colleagues.

Elements of Brand Equity

Our research has shown that there are two major components to brand equity. The first component is a set of beliefs
about how the branded product or service will perform
how well the brand will fulfill its promise. We call these the
perceived performance attributes, or trust attributes. For
example, in automobiles, these trust attributes might include
the following:
reputation for reliability
economy
safety

 performance
customer support

The best way to keep them separate is to think of the trust

attributes as dealing directly with perceived performance of
the product or service and the image attributes as dealing with
These are distinct from, and distinctly different than, the
the desires of the purchaser or user to express and reinforce
objective, tangible attributes like warranty, gas mileage, numhis self-image. Both trust attribute sets and image attribute
ber and types of airbags, braking distance, horsepower, and
sets are based on the consumers values, for good or ill, either
so forth. The trust attributes deal with consumer beliefs and
consciously or subconsciously.
values (defined as beliefs, principles, and ideals), not necessarLets discuss the last element of the value equation, cost. In
ily product performance facts.
some product categories, especially in b-to-b and in consumer
The second set of components in brand equity is the brand
durables, cost may also have several elementsinitial purimage attributes. These are the attributes that determine
chase price, operating costs, and maintenance costs. These
whether the brands image, or public persona, aligns with
should be included in the value equation if they apply to your
the purchasers personal image and are also related to their
product or service category.
values. Sticking with our automobile example, these image
One special case of price in high-ticket items is financing.
attributes may include:
The importance and impact of the initial price of a product
may be moderated by stating the price in terms of a down
prestigious
payment and monthly payments over a specific period of time.
luxurious
Thus, instead of saying the initial price of our Honda Passport
was $25,000, we may say $25,000 or a $999 down payment
utilitarian
and $464 per month for five years. Or it could be stated as
sporty
a lease rate of $329 per month for 36 months. If your brand
fun to drive
is operating in a category where price is a major factor, these
flashy
options for stating price must be included.
We can graphically summarize the brand value equation
Its not always easy to separate these two classes of brand
in Exhibit 1. This set of weights and utilities may be viewed
equity attributes. For example, safety is typically a trust attrias the individual purchasers value equation. It provides
bute. But a brand image of safety may also reinforce what the
a preference structure for guiding the customer in making a
buyer wants to say to others about himselfI purchased this
choice between a competing set of offerings. That is, given a
brand because Im concerned about my safety and the safety
set of competing brands in a category and their performance
of my passengers. One of my values is safety.
levels and price, if we know a purchasers value equation, we
Economy is another confounded attribute. The buyer may
can predict with high reliability which of those brands they
perceive that the vehicle is economical to operate and mainare likely to purchase.
tain, but the buyer may also desire to communicate to his
Marketing researchers will recognize that there are several
friends and the public at large, that he is a frugal person.
approaches for deriving these weights and utilities. In our
book we offer our own approach that uses
a two-stage trade-off experiment. Once the
utility for a brands equity is derived, that is
further decomposed into its component parts
Exhibit 1 The brand value equation
using a ridge regression, a kruskal regression
procedure, or some other key driver model
that overcomes the problems with intercorrelations within the independent attribute set. The
Brand
Choice
beta coefficients or weights from the regression
value
(or loadings from similar models) reveal the
level of contribution each attribute is making
to explain each brands utility (derived brand
equity.)
W
W
W
W
Product
Channel
Benefit
Price

Price
wi Purchase price
wi Operating costs
wi Maintanance costs

Product?/
service
benefits
wi Attribute 1
wi Attribute 2
wi Attribute 3

etc.

Strategic Implications

Channel
benefits

Brand equity

wi Attribute 1

wi Image 1

wi Attribute 2

wi Image 2

wi Attribute 3

wi Image 3

etc.

etc.

At this point, lets stand back and consider

the strategic implications of knowing these
weights and utilities for your customers and
potential customers.
First, value drives choice. Once your brand
is in the potential purchasers consideration set,
in most circumstances the brand with the highest overall value will typically be chosen.
marketing research 9

This has tremendous implications on the measurement

of brand loyalty. Suffice it to say that the elements of this
model, properly crafted for the product/service category in
which your brand competes, encompasses and explains why
purchasers choose, or do not choose, your brand. The brand
value equation can explain why my friend purchased the Honda Passport rather than the Isuzu Rodeo, despite the $4,500
price premium.
The next implication is that the brand value equation
model offers a strategic framework for successfully competing
in the marketplace. By deriving the utility (value) of different performance levels of each individual attribute for both
your customers and the customers of competing brands in a
product/service category, you can determine your strengths
and weaknesses for any group of customers or prospects. This
process will pinpoint where you should invest in improving
perceived value for each market segment in which you compete. In the automobile example, my friend ascribed value to
certain attribute performance levels for which he was willing
to pay, both tangible and intangible. For example, the prestige
of driving the Honda, rather than the Isuzu, was worth some
portion of the $4,500 premium he paid. The brand value
model will help Honda management (or a competitor) better
understand what that portion is worth.
Another strategic implication is
that corporate management has four
separate levers that can be manipulated to improve brand valueprice,
product/service performance, channel performance, and brand equity.
The importance of weights assigned
as part of the competitive assessment indicates where management will get the most increase in brand value for a given investment in the brands performance. Any change in attribute
performance, whether tangible or intangible, can be priced
out, so that a rigorous cost-benefit analysis can be undertaken. In our automobile example, this gives managers of each
brand insight into which tangible and intangible attributes to
invest in, along with pricing strategies to achieve the best outcomes. It gives management insight in how their employees,
channels, and partners are doing in satisfying the customers
expectations regarding the various tangible and intangible attributes and associated value promised by the brand.

better understand how to maximize margins and volumes by

understanding the intangible product, service, and channel
benefits that their customers most value, which ones to feature
in advertising and other promotional efforts, and the importance to customer loyalty when the organization successfully
delivers those attributes.
Furthermore the value equation provides management with
a quantitative measure of brand equity. And that measure can
be converted into a currency value at the unit level.
In todays hypercompetitive marketplace, brand equity is
the only element of the brand value equation that can be used
for long-term competitive advantage. Competitors can beat
your prices, they can usually duplicate or exceed any of your
product/service performance advantages, and they can normally successfully compete in your channels. Your only truly
defensible asset is your brand equity. It is not easily defeated
by competitor actions, only your own. Failing to keep the
brand promise, engaging in questionable business practices,
or engaging in socially irresponsible actions can depreciate or
even destroy brand equityyour key business asset.
Promotion of a brand can address price, tangible brand/
channel attributes, or brand equity. Brand equity is communicated using consistent visual cues and consistent messages,
allowing the consumer to quickly and efficiently distinguish

Your only true defensible

asset is your brand equity.

Brand Equity Implications

Yet another implication, and perhaps the most important,

is that this model allows you to better understand the role
and contribution of brand equity in determining total brand
value. If your brand competes in a category where at least
some brands enjoy high brand equity, then you can identify
and better understand what specific image and trust attributes
are associated with customers underlying values and which
are most contributing to overall brand value. If your brand
competes in a category where there are weak brand equities,
you can explore the opportunities and likely outcomes of
making higher investments in brand equity. Again, for our
automotive example, this means that Honda managers would
10 Summer 2008

between brands and their intrinsic product or service attributes and underlying values. As a purchaser considers the tangible product or service features in concert with brand equity
and price, he arrives at a set of products in a category that
he will consider for purchasethe consideration set. Thus, a
brands equity is somewhat dependent on effective communications to the target market(s), and brand equity can often
be improved with more effective communications. However,
communications alone cannot overcome a reputation for poor
product quality or service, social irresponsibility, or a lack of
trust. And communications certainly cannot overcome the ongoing poor performance of an organization in not delivering
on the brand promise by not creating the total brand experience that the customer is anticipating. Brand equity is heavily
dependent on the reality of the brand experience.
A brands equity therefore becomes part of the trade-off exercise a consumer considers as he first selects his consideration
set, then decides which product to purchase. That is, purchasers actively trade off both the perceived tangible benefits and
the perceived intrinsic benefits delivered by products in their
consideration set, against price, to arrive at their value hierarchy and ultimately their purchase decision.
This trade-off is not always a cognitive process. In categories where there is low involvement and regular repurchase,
such as consumer packaged goods, the purchasers will often
conduct an initial evaluation of the competing brands in the

category, make a selection, and stick with that brand as long

as it meets their performance and image expectations. Only
when something goes wrong, or their requirements change, or
when a competitive offering redefines the consideration set,
will they make a cognitive re-evaluation of their choices.
Brand loyalty is primarily a function of perceived brand
value. Brands that have high perceived value are almost
always included in a purchasers consideration set. If a brands
combined tangible and intangible equities are consistently
higher than any other brand in the category, that brand will
have the highest loyalty in terms of purchase, repurchase, and
recommendation. Competing brands can only improve their
loyalty against the brand equity leader by lowering price in
the short term, improving their products performance on
tangible features in the mid term, or improving their brands
intangible benefits (or equity) in the long term.
However, how good a job the brand does or does not do
in meeting expectations after the purchase will affect individual performance attribute weights on future purchases. It
will also influence the purchasers hierarchy of brands and
their next choice. Therefore, the experience with the brand
after purchase affects the attribute weightings, brand value
perceptions, and future choice. Exceeding expectations in the
areas where a purchaser places high importance (thus higher
utility) reinforces brand equity. Disappointing performance

will decrease brand equity. This has profound implications

for employees throughout the organization as well as for
other stakeholders, such as suppliers, strategic partners in
a network, and the impact of word of mouth from those
writing on social media sites about their experiences with
your brand.

What We Learned

One huge advantage of this modeling approach is that

we calculate the utilities and importance weights at the
respondent level. Thus, we can break out and compare
results by known user groups such as your customers versus
a competitors customers; heavy users versus light users; or
by any other classification scheme, assuming you have an
adequate sample size in each group.
The brand value model and its accompanying computerized market simulator provide the following detailed
information.
1. An estimate of overall brand equity for each brand in
the study and the average per unit price premium that
equity is worth at the market level or within defined
market segments. Given accurate volume estimates,
the per-unit price premium can be projected to a total
value of the brand in any particular category.

marketing research 11

2. Brand equity, price, and product/service feature values

derived for each respondent can be used to segment the
marketplace into benefit groups such as price-sensitive,
service-sensitive, brand-loyal for an individual brand,
brand-combination loyal, and attribute importance
groups. Within each segment, the equity of each brand in
the category is calculated.
3. Market simulations can be run to estimate share of choice,
given each brands equity derived from the model, coupled
with a known or contemplated product feature profile and
a particular price. Thus, the user can observe the effects on
share of choice for price changes and changes in tangible
product attribute levels for any brand or brand combination. A series of simulations whereby only price is varied
allows the user to develop estimates of price elasticity and
cross-elasticities for a brand at the total market level or
within any market segment.
4. In a similar fashion, the model can be used to test and
evaluate the extension of a known brand name into a new
product/service category and to evaluate the equity transfer of the brand name into the new category.
5. Longitudinally, the user can observe the effects on brand
value, brand equity, and share of choice due to changes in
the marketing mix or a brand repositioning for any brand
or combination of brandsyours or your competitors.
6. Given additional ratings of brands on the more intrinsic
features of a brands image (e.g., trust, quality of advertising, contribution to the community, social responsibility,
protecting the environment, etc.), the model can directly
relate brand equity values to particular activities of the
firm.
More broadly speaking, corporate financial officers can use
this tool to provide a very accurate estimate of the asset value
of brand names or trademarks. This may be very useful for
Managements Discussion and Analysis in annual financial
statements.
The model can also be used to assess the value of brand
names and trademarks in an acquisition situation where the
true value of a firm may be understated because the value of
brands and trademarks are not adequately reflected on the
balance sheet.
We explore the implications further in our book when we
discuss how the financial community can apply this type of
economic analysis for valuation of brands. The advantages of
the modeling approach, using external surveys, follow:
1. The model is not dependent on internal financial data.
2. After the initial design and a baseline study, it is relatively
fast and easy to replicate the process over time using these
proven research methods.
3. The survey and model derivation can be executed at any
time in the business cycle. That is, it is not dependent on
internal cyclical accounting changes.
12 Summer 2008

4. It takes into account all major relevant brands in a defined

product/service category.
5. It measures brand equity relative to other current and
potential brands in the category, including unbranded or
store-brand items when they exist in the category.
6. It can be used to measure the transfer of a brands equity
into another category.
7. It recognizes that value of any one brands equity can be
defeated in the marketplace by competitor pricing strategies, at least in the short run.
8. It allows calculation of total brand value and brand
equity over alternative pricing scenarios and volume
scenarios for total market or within defined
subsegments.
9. Results can be projected to estimate the total value of a
brand name under alternative sales projections. Thus,
this modeling approach can be used to evaluate the total
dollar value of a brand name for purposes of evaluation
and acquisition.
10. If self-explicated ratings of the components of brand equity are acquired from the same respondents, brand equity
can be further decomposed into specific equity-building
activities.
11. The results can be used as part of a closed-loop process
to create more effective definitions of subsegments as part
of an overall brand quality management and continuous
improvement initiative.
Although marketing researchers have been using and
improving trade-off procedures for more than three decades,
these have primarily been applied to tactical product and
service optimization and forecasting issues. We argue that
similar techniques can, and should, be applied to the key
strategic issue of brand asset values by deeply understanding
total brand value and brand equitythe strategic assets of the
owning organization. And those techniques can be directly
linked to the financial value of brands and the financial
performance of the firm. We further argue that tracking and
reporting the active measurement and management of brand
equity leads to a new managerial focusone that focuses on
corporate values and the effective management of intangible
assets. We call it values-based leadership.
This article has been reprinted from the book Value
Creation: The Power of Brand Equity (2008, Texere, an
imprint of Cengage Learning/South-Western). For more
information visit www.valuecreationbook.com. l
William Neal is founder and senior partner at SDR Consulting. He may be reached at wdneal@sdr-consulting.com.
Ron Strauss is founder and president of BrandZone. He may
be reached at rstrauss@brand-zone.com.