BRAND EQUITY

Brand Management by YLR Moorthy, IIMB, Vikas Publishing House, 2010 Brand Management by Harsh V Verma FMS Delhi, Excel Books 2010

Definitions of Brand Equity

Brand equity can be thought of as the additional cash flow achieved by associating a brand with the underlying product or service (Biel, 1992) Brand Equity consists of differential attributes underpinning a brand which gives increased value to the firms balance sheet.(Chernatony and McDonald) Brand Equity is a set of brand assets and liabilities linked to a brand, its name and symbol add to or subtract from the value provided by a product or service to a firm and/or to that firms customers.(Aaker, 1991) Brand Equity is the totality of brands perception, including the relative quality of products and services, financial performance , customer loyalty, satisfaction and overall esteem towards the brand. It is all about how consumers , customers, employees and all stakeholders feel about the brand.(Konapp, 2000)

Definitions of Brand Equity

Brand Equity is defined in terms of marketing effects uniquely attributable to the brands -for example, when certain outcomes result from the marketing of a product or service because of its brand name that would not occur if the same product or service did not have the name.(Keller, 1993) Broadly stated, Brand Equity refers to the residual assets resulting from the effects of past marketing activities associated with a brand (Rangaswamy et. Al., 1990) Brand Equity can be measured by incremental cash flow from associating the brand with the product.(Farquhar, 1989) Brand Equity is the added value that is attributable to the brand name itself which is not captured by the brands performance on functional attributes (Sikr, 1992)

Brand Equity Methods

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

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

 Price Based
Price Premium Method Market Share Equalisation Method

Customer-Based Brand Equity

The differential effect that brand knowledge has on consumer response to the marketing of that brand.
Keller, 1993

2.6

Customer-Based Brand Equity Pyramid

4. RELATIONSHIPS = RESONANCE What about you and me?

3. RESPONSE = JUDGMENTS FEELINGS

What about you?

2. MEANING = PERFORMANCE IMAGERY What are you?

SALIENCE
2.7

1. IDENTITY =

Who are you?

Sub-Dimensions of CBBE Pyramid

LOYALTY ATTACHMENT COMMUNITY ENGAGEMENT

QUALITY CREDIBILITY CONSIDERATION SUPERIORITY

WARMTH FUN EXCITEMENT SECURITY SOCIAL APPROVAL SELF-RESPECT

PRIMARY CHARACTERISTICS & SECONDARY FEATURES PRODUCT RELIABILITY, DURABILITY & SERVICEABILITY SERVICE EFFECTIVENESS, EFFICIENCY & EMPATHY STYLE AND DESIGN PRICE

USER PROFILES PURCHASE & USAGE SITUATIONS PERSONALITY & VALUES HISTORY, HERITAGE & EXPERIENCES

CATEGORY IDENTIFICATION NEEDS SATISFIED

Source of Brand Equity

Brand awareness Brand Image

Brand Knowledge Method

Scale can be developed for TOMR, aided, unaided recall, brand association. Brand recall Strength of Brand association Attitudes Image

Measure Brand Recall(score)

What brand comes to your mind when I say detergent powder? Which detergent brand comes to your mind when I say low Price? Which brand comes to your mind when I say white cream or blue detergent cake? The advertisement for which brand says doodh see safedi ? 10,6,4,2.

Similarly
Score for brand recognition, Score for favorability Score for strength of brand associations can be measured.

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

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

 Score needs extensive validation. Needs to be several groups as representative of population. Difficulty in getting inter-category comparison of equity.

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

Attribute-oriented approach
Take a brand PONDS List all its attributes Get ratings for each of these attributes on a 0-10 scale from consumers. Sum up the scores. Convert the scores to scale of 100. This represents the equity of brand scale. Brand equity is more than what the attributes bestow on the brand. This is the limitation.

Hypothetical exhibit
PONDS Freshness Fragrance Long-lasting Appearance Desirability Sum of scores Brand Equity (on a scale of 100) 8 7 9 8 8 40 80 CINTHOL 7 7 9 7 6 36 72 LIRIL 8 7 8 6 7 36 72 GOKUL 6 8 6 5 6 31 62

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

Exhibit overall preference and preference objectively

This is the score obtained when you ask the consumer how much does this brand score on 100 according to you? Yamaha RX, TVS Shaolin and Hero Honda Splendour Now consider objective parameters like
Fuel(e.g., 70 km /litre) Pick up (e.g., 70kmph in 10sec) Load it can carry (e.g., 100kg)

Ratings

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

SHAOLIN Fuel Efficiency 6 SPLENDOUR 9 YAMAHA 8

Pick Up
Load Carrying capacity Out of 30 Out of 100

6
7 19 63

6
6 21 70

7
6 21 70

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

Problems
Identification of subjective and objective parameters.

Cost based methods

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

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

Suppose Rs. 100million has been spent on the brand X till date
The value at which the brand can be sold should be Rs. 100 million.

Issues in historical cost

A prospective buyer is interested in the future cash flows from a brand. The fact that 100 million has been spent on brand X does not guarantee the realisation of even a fraction of that amount in future sales.

Thus the cost incurred in brands are no measure of the efficiency with which the money was spent.

Poorly spent finances hardly get converted into brand equity.

The R & D budgets of GM, Siemens, Philips, Xerox and IBM are much more than their respective Japanese competitors. Still successful models produced by Japanese far outnumber the ones produced by western counterparts.

Replacement cost
Consider Colgate, How much would it cost to create a brand with similar turnover, profitability, distribution reach, brand loyalty etc?

This cost is brand equity.

Replacement cost
Launch cost + Production and administrative costs incurred over the years + Brand premium acquired over the years due to brand loyalty + Distribution

Close Up
If Rs.200cr has been spent on production and marketing over the years to achieve the present turnover. Rs. 50cr accounts for distribution and loyalty. The brand value stands for Rs.255cr.

Million dollar question?

What is the guarantee that if a brand is created with a cost of Rs. 255 crores today it will obtain a market share of about 17% as Close Up?

Market Value Method

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

Business World 1994

PRESENT BRAND kelvinator Farex, Glucon-D Thumbs Up, Gold Spot Cibaca Transelektra TAKEN OVER BY Whirlpool Heinz Coca-Cola Colgate Godrej ( Rs. In million) PRICE 2500 2100 1800 1310 800

Discounting Cash Flow Method

Estimating the cash flows that would accrue to the brand in future Converting these to present value using the time value of money Useful only when the industrys and companys turnover are stable and predictable.

Brand Contribution
This method tries to identify the value that is added by the Brand to the product. It compares the profits earned by the brand with the profits earned by an unbranded or generic product in the same category.

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

Inter-Brand Method
The weighted average of the last three years profits of the brand is computed. Consider Brand X Year 1993 15 million profit- 1 weight Year 1994 20 million profit 2 weight Year 1995 30 million profit 3 weight Average Profit = (15 *1)+(20*2)+(30*3)/ 1+2+3 = 24.2 million

Step 2
Multiply this figure with a number to arrive at value of brand equity. The number is arrived at by multiplying the price/earning(P/E)of the company or industry in which the brand operates. This is further multiplied with brand strength to arrive at Brand Equity.

Brand strength =0.43(depends on number of variables)

FACTORS Leadership Stability IMPLICATION MAXIMUM SCORE SCORE FOR BRAND X 13 7 Is the brand leader in 25 market share? Brand loyalty and stable market share? Acceptance level internationally? Is the brand actively promoted and supported by company? Trademark protected? Stable? Long term future? 15

internationality Support

15 15

1 8

Protection Market Trend Total

5 5 20 100

2 2 10 43

Brand Equity by Inter-Brand Method

Weighted average of brand profits * P/E of industry * brand strength 24.2*15*0.43= 156.09 million

http://www.interbrand.com/en/kno wledge/best-global-brands/bestglobal-brands-2008/best-globalbrands-2010.aspx

Price-Based Methods
Price-Premium method Market share equalisation method

Price Premium Method

Comparing the difference between the retail price of a brand and that of a unbranded product in the same category. Difference will give an indication of brand equity.

Issues
Brands can be placed at varied price points.(premium and penetrative) Low priced brands Nirma and lifebouy may indicate low equity. Difficult to compare for brand extensions.

Market share equalisation method

Let us suppose there are totally hundred consumers of toothpastes in the country. We assume there are only 4 toothpastes in the market. We will ignore the differences in brand extensions. No. of people using the brand is close to brands market share.

Exhibit : find prices at which market share of each brand will be equal.
BRAND COLGATE CLOSE-UP PROMISE BABOOL PRICES 17.40 22.50 17.40 14.60 NO. OF PEOPLE USING 65 20 5 10

Prices at which the market share for each of these brands is equal.
BRAND COLGATE CLOSE-UP PROMISE BABOOL PRICES 24.50 23.00 17.40 14.60 NO. OF PEOPLE USING 25 25 25 25

 We have forced a situation where market shares are equal. This indicates a price premium that the brand commands. Prices give a straight indication of equity. Babool 146 Promise 175 Close Up 235 Colgate 245

 Inter-brand methodology adopted for Best Global Brand 2012.

Comparison with Method highlighted by YLR Moorty.

Description of 10 Best global Brands. Adoption of any of the model for calculating brand equity.
Price premium Market share equalisation Brand Knowledge Method: Awareness ,Image Attribute Oriented Approach: score on attributes Blind Test: Objective and subjective comparison Market Value Method Brand Contribution