A proposal for measuring Brand Equity

A proposal for measuring Brand Equity Session 9 What are we doing today • Traditional measures of Brand Equity (Today) • Keller and others • New model financial measure of Brand Equity (MacInnis and Park) The “dark side” of brand equity • The trickiest issue related to BE is how it should be measured • We have talked about measuring: • • • • Awareness (free and cued recall) Recognition Various attitude measures IAT/ZMET • What is wrong with this? The “dark side” of brand equity • While psychometric measures may be compared • They don’t translate to financial performance easily • They are relative measures • Different types don’t compare with others • Further, these measures do not generate a metric that links BE to financial performance Some (not so) surprising survey results • Study • More than 1000 CMOs (Chief Marketing Officers) representing >$400B revenue Some (not so) surprising survey results • Some companies spent up to 25% of revenue on marketing, but cannot assess the value of this spending • UK ad agencies • Ranked themselves high on ability to provide “good work” (of course), but lowest on ability to measure outcomes • 40% of CMOs dissatisfied with ability to measure CMOs are aware of measurement failings • Lack of metrics • Prevent complete evaluation of program effectiveness • Makes evaluating branding campaign trade-offs impossible • Hurts executive support • Only 57% of finance directors believe that marketing investments help long-term corporate growth • 27% believed marketing was only a short-term tactical measure • 32% said marketing was first budget to cut in hard times Other findings from the report • Top 5 reasons for developing effective metrics: 1. Increased effectiveness of marketing organization and planning 2. ROI tracking 3. Justification for marketing programs, budgets, and value 4. Improved marketing resource allocation 5. Accountability to senior management and board Criteria for a good measure • Different people computing it should arrive at the same measure • Quantifiable and based on readily available data that can be monitored across brands and product categories • Meets definition of an element of a financial statement • A single number, to enable easy tracking and communication Criteria continued • Intuitive and credible to senior management • It is relevant to definition of BE as worth (revenue minus costs) • Calibrated to include market and competitive effects • Allows for comparisons across industries • Captures future potential in terms of future revenue stream and brand extendibility • Provides strategic guidance re: Brand Equity Keller’s “traditional” BE metrics • According to Keller, measuring BE comes down to 2 key areas: • How consumers shop for and use products and services • What customers know, think, and feel about various brands So, What Do We Do? • We measure Brand Equity with a combination of psychometric and financial components What are some traditional measures of Brand Equity? • Valuation based on Marketing and R&D • Aggregate cost of marketing, advertising, R&D • What do you like about this measure? • Valuation based on Premium Pricing • Extra revenue due to price differences • How might you observe this in the market? • How might you observe this with customer research? • Valuation based on Future Earnings Potential • Future earnings discounted to present day values • Finance types, how do we do this? What data could we use? What are some traditional measures of Brand Equity? • Interbrand measure – two components • Earnings attributed to the brand – Calculated as a two year weighted average of the earnings attributed to the brand • Brand Strength – 7 factors • • • • • • • • Market leadership Brand stability Current market prospect Brand extension possibilities Internationalization potential Adaptability over time Brand support Legal protection • Brand strength is correlated to some multiple, like P/E ratio, and then is linked to Brand Earnings via historical data A general measure of Brand Equity (Motameni and Shahrokhi 1996) – The Brand Multiple • Customer Based Potency • Brand image and loyalty • Competitive Potency • Brand trend, support, protection, competitive strength • Global Potency • • • • • • Market factors Promotion and personal factors Distribution factors Product factors Price factors Regulations Creating the brand multiple (lets try this again) 1. Decide values of each Brand Strength Factor (Customer, Competitive, and Global) for your brand versus your competitors • This data is captured using the methods on the front page of the handout Can be on any scale you want, just make sure it is consistent across factors In this example, we will use -10 to +10 • • Step 1: Coke Customer Base Potency Brand Awareness = 10 Brand Association = 9 Perceived Quality = 9 (28/30)10 = 9.33 Competitive Potency Global Potency Market Factors = 9 Promotional and PS Factors = 9 Distribution Factors = 10 Product Factors = 10 Price Factors = 8 Regulation Factors = 9 (55/60)10 = 9.16 Brand Trend = 7 Brand Support = 10 Brand Protection = 10 Competitive Strength = 10 (37/40)10 = 9.25 Step 2: create weights • Now, create weights for each factor • Customer Base = 1.0 • Competitive = 1.0 • Global Potency = 1.0 • Multiply these weights with the factors that you calculated earlier, sum, and create a percentage Customer Base 9.33 x 1.0 = 9.33 Competitive 9.25 x 1.0 = 9.25 Global 9.16 x 1.0 = 9.16 9.33 +9.25 + 9.16 = 27.75/30 = .925 Step 3: Calculate sales difference from generic equivalent • Can be calculated in myriad ways • Actual price data • I chose 15% premium, consistent with previous research • Multiply brand sales by 1 - .15 (.85) to get theoretical generic sales • Coke 2004 Net Earnings = 21.96 – 18.66 = 3.3 .92 x 3.3 = 3.03 3.03 X Assets (31.33b) = 95.117 So, how can we connect this to marketing expenditures? • Marketing expenditures drive Brand Equity Building (awareness, meaning, response, relationship • To the extent that we can increase our advantages over our competitors in the three factors, we: • Increase our brand multiple • Increase the difference between our return and the generic return • Both of these increase the GBE In class project Spend the rest of the time generating Customer Based, Competitive and Global potency factors for your brand Pulling it all together: The seven steps • • • • • • • Selling your company on the IBM Setting up a Brand team A successful Brand Audit Developing a Brand Audit report you can act on Brand tools to stimulate thinking Facilitating Brand meetings Testing final Brand tools Step 1: Selling your company on the IBM • Branding pays off with ROI • • • • • 66% of Americans buy based on brand 15-20% price premiums for leading brands Higher customer retention/lower employee TO Increase in share value, less volatility Customers go to store with 2-3 brands in mind • These are the data that you must use to convince others in the firm that the IBM is a worthwhile investment Step 1: Benefits by department • Product development • R&D not spent on products that are “off brand” • Service and support • The customer/brand relationship increases loyalty, decreases complaints • HR • Clear Brand drivers help match potential employees based on personality, values, and facilitates creation of relationship with firm and employee Step 1: Benefits by department • Marketing • Orients marketing strategy, communications, and execution based on Brand and organizational drivers • Facilitates analysis of effectiveness of current and future marketing communication efforts • Maximizes potential effects of communication campaigns – staying “on brand” has a cumulative effect on customer relationship Step 2: Who should be on the team? • Senior management, including CEO • Reps from each department • People closest to customers • Sales and marketing, support • One or two troublemakers/ naysayers / ”politicians” • This group probably requires an “intro to Brand management” seminar, to get everyone on the same page, and understanding the same language Step 3: Successful Brand audit • What you are doing now • The fundamental elements of your brand and org drivers already exist in the company, and the audit helps you define them • Focus both INSIDE and OUTSIDE the firm • Remember, we need good information so that we can compare what we know about our firm to what we know about our customers Step 4: A report you can act on • The report should outline • • • • • Boundaries to the brand Strengths and weaknesses Opportunities and threats Customer preferences Overlaps and gaps between customer and firm perceptions of the brand • Objectives are critical-don’t start a brand audit without some goal in mind Step 5: Create preliminary brand tools to stimulate team thinking • “First stabs” at Brand and org drivers • Consider how you have done this in your group – do you think that these are the final drivers, or could they be improved on? • Principle, personality, associations should be first focus, followed by org drivers • Preliminary drivers facilitate the creation of final drivers later on • Sub-group Step 5: Create preliminary brand tools to stimulate team thinking • Brain-storming: What have we done in our group meetings? • Looked for key benefits/differentiators • See where customer and firm beliefs/perceptions match up or differ • Translate these into your brand drivers • Customer info is just as important as internal info Criteria for an effective principle (review) • • • • • • True Useful for focusing actions Close to the buying decision Emotional resonance Not to narrow or broad Ownability, clarity, brevity Criteria for Personality (review) • Does the personality reflect the brand? • Will the personality be liked? • Does it meet needs for customers selfexpression? • Consistent with expectations of the brand? • Define the spirit with which you approach future actions? Criteria for associations (review) • “In your face” obvious • Memorable? • Association tie back to the brand principle and personality? • Tie back to the company or product? Step 6: Facilitating Brand meetings • Initial contact and scheduling • Memos should be explicit • First group meeting • Start by putting up the sub-group findings, and going from there • Discussion should center around modifying initial principles, associations, and personality, not rejection Step 7: Testing final brand tools • Run each tool by your criteria lists • “Sleep on it” for a few days • Test the tools with others in the company or with your most-valued customers • Begin planning for employee education • Hands-on workshops, not memos and documents A few pitfalls to avoid… • The Brand Image trap • Brand Image: how your customers and others perceive the Brand • Different from your Identity (internal to the firm, defined by your Brand and Org drivers) • Don’t let your external perception drive your Brand Identity!!! A few pitfalls to avoid… • The External perspective trap • Failure to realize the role that the integrated brand plays in driving activities within the firm. • Results from the belief that the Brand is primarily external in nature, and should be managed for customers • Brand must be managed both inside and outside the firm A few pitfalls to avoid… • The Product-Attribute fixation trap • Most common of all – the Brand is the attributes of the product • Based on the erroneous notion that customers only care about attributes (we have seen how the brand can affect behavior) Summary of Class • What is a Brand? • How is it represented in memory • Social knowledge structure • How it affects perception and cognition • How it is related to the self-concept • Brand equity • Brand is “value added” to the product or service • Brain space Summary of Class • How do we maximize Brand equity? • We used the Integrated Branding Model (IBM) • The IBM breaks down the Brand into components • The Brand in the environment (Portfolio) • The Brand inside the firm (Drivers) • The Brand outside the firm (Marketing Research) Summary of Class • Drivers and criteria • Organizational (Mission, Story, Values) • Brand (Principle, Personality, Associations) • These are translated into communications by the marketing department, and lived by the employees of the firm • Discussion of IMC • Based on Brand audit • Every element is designed to maximize the creation of Brand Equity What managerial tools have you received? • Framework for organizing your Brand within your firm • Integrated Branding Model (Organizational and Brand Drivers • Integrated Marketing Communications • How to perform a Brand Audit, linked to the IBM • Marketing Research Tools related to Branding • IAT • ZMET • Brand Personality (Aaker) Thank you very much!!