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									Chapter 10
Measuring outcomes of brand equity


Bradley Kingston
Vassili Zachariou
How to market yourself
Utilize public relations resources
Advertise – remind and persuade
Result = Brand Equity
Outline of Presentation
 REVIEW

 CONTEXT

 MEASUREMENT APPROACHES – 2 main ways to measure the benefits or outcomes of brand equity

  Comparative methods

       Brand-based comparative approaches

       Marketing-based comparative approaches

       Conjoint analysis


  Holistic methods

       Residual approach

       Valuation approach

 QUESTIONS
Review
Brand Equity (BE):

the Brand Knowledge Structure (BKS) that permits a branded product
to earn incremental, premium profits over and above those earned by a
product without a brand name.

Strategic Brand Management:

design and implementation of marketing programs and activities to
build, measure, and manage brand equity.

Process (Step 3): CH 10= Measuring and interpreting brand performance
Review
CH 2: product with positive BE, enjoys 7 NB customer-related benefits:
          1)   Perceived differently + different interpretations of product performance.
          2)   Loyalty + less vulnerable to competitive marketing actions.
          3)   Command larger margins + more inelastic responses to price increases + elastic responses to price decreases.
          4)   Greater trade cooperation + support.
          5)   Increase marketing communications effectiveness.
          6)   Yield licensing opportunities
          7)   Support brand extensions


CH 9:     We can measure these individual components (qualitative and quantitative
          techniques). However, to provide more direct estimates, we still must assess their
          resulting value in some way.



CH 10:    Examines measurement procedures to assess                     the effects of brand knowledge
          structures on these and other measures that capture market performance for the brand.
Context
 TREND affecting modern marketers:
   Need to quantify activities in financial terms

Branding and Finance 10.0 (pg 427)


    Research (Stock Market Reactions)
         • Stock market reacts to BE for companies and products
  (Aaker & Jacobson, 1989-92)
         • Stock market return has positively related to changes in ROI.
         • Strong relationship btw BE and stock return.
         • Changes in brand attitude were associated contemporaneously with stock return and led
            accounting financial performance.
  (Lane and Jacobson, 1995)
         • Stock market participants response to brand extension announcements depend
            interactively on brand attitude and familiarity
Context
 Accounting Evolution – WHY?

  “(Investors need) better information about
  intangible assets because those assets are an
  increasingly important economic resource for
  many entities and are an increasing proportion
  of the assets acquired in many business
  combinations”. – FAS 141, 2001.
Context
 • Changes in International Accounting
   Standards and Statements (2001-2005):
       •   SFAS 141/142 (US)
       •   IFRS 3/38 (Rest of World)
       •   Historic Cost to Fair Value
       •   How Fair Value is Measured


Branding and Finance 10.0 (pg 428) – Accounting Perspectives on Brands (Roger Sinclair)

 • The new standards require accountants to account for the
   costs of the intangibles that make up goodwill portion.

 • They must describe the premium price paid over net asset
   value (Assets – Liabilities).

 • Identify and value as many intangibles as the standards
   permit. E.g. trademarks, tradenames, service marks, etc.
Context
• Intangible Assets must be valued at Fair Value at
  the time of purchase.
  FV = the price that would be received for the asset… in a current transaction
  between market participants in the reference market (FASB, 2005).



• Pending Issue: Internally generated brand assets
  SFAS 142 and IAS 38 (Intangible Assets).
  Addressed and resolved: next two years.
Comparative Methods
Comparative methods approximate specific benefits of brand equity.

Use experiments that examine consumer attitudes and behaviour toward a
brand, to more directly assess the benefits arising from having a high level
of awareness and strong, favourable, and unique brand associations.


        Brand-based comparative approaches                (BBCA)

        Marketing-based comparative approaches            (MBCA)

        Conjoint analysis                                 (CA)
Comparative Methods
 Brand-based comparative approaches:
 Experiments in which one group of consumers responds to an element of
 the marketing program when it is attributed to the brand and another
 group responds to that same element when it is attributed to a
 competitive or fictitiously named brand.


   This approach holds marketing program fixed
   Examines consumer response based on brand identification
Comparative Methods - BBCA
Competitive brands can be useful benchmarks.

• Consumers may make inferences to supply any missing information based
  on their knowledge of particular brand (most preferred or leading brand).

• Examine how consumers evaluate a proposed new ad campaign, new
  promotion offerings, or a new product when it is also attributed to one or
  more major competitors.



• Example:                                  &
Comparative Methods - BBCA
Applications
• Product purchase or consumption research for new or existing
  products
• Only if – brand identification can be hidden.

• Blind taste testing: Consumers examine or use a product with or without
  brand identification.


• General evaluations: dramatically different perceptions depending on
  presence/absence of brand
BBCA – blind taste testing
    Pepsi Taste Test commercial [1983]

                            • 1980’s, generally, Pepsi was voted as
                              having better, sweeter taste.

                            • 1985 – “New Coke” debacle



                            • 2008: the60secondmarketer.com
                            Andy Goldsmith, Vice President, Creative and Brand Strategy,
                               American Cancer Society

                                1. Science is updating the classic "taste test."
                                2. Your brain connects brand imagery with
                                   brand preference, resulting in increased
                                   sales.
BBCA: Taste testing with technology
•   Research, Baylor College of Medicine.
•   Using functional Magnetic Resonance Imaging (fMRI) technology to monitor brain activity
•   Blind taste test among 67 subjects, preference (Coke and Pepsi) split down the middle.

•   Brain scans showed that the ventrolateral prefrontal cortex lights up when either brand was
    consumed. Since that part of the brain responds to rewards, and people were being asked to drink
    sugar water, no surprise.

•   But when researchers then told people which cola they were drinking, interesting results.

•   In those “branded” taste tests, while still hooked up to the fMRI, Coke was preferred by


    75%                            25%

•   Why?   BRAND IMAGERY.
•   Turns out that when people knew they were drinking Coke, things like the "dorsolateral prefrontal
    cortex" and the hippocampus both got excited. So Coke is more likely to light up the brain parts
    related to things like memory and cognitive control. In most cases Pepsi did not have the same
    effect.
Comparative Methods - BBCA
• Holds all aspects of the marketing program fixed for the brand = isolates the value of
  the brand in a very real sense

• Understanding exactly how knowledge of the brand affects consumer responses to prices,
  advertising and so for this extremely useful in developing strategies in these different areas.

NOTE: Cases - difficult for consumers to examine/experience some element of the marketing
      program without being aware of the brand – we can use detailed concepts statements
      of that element instead.

     •   Consumers judge proposed new product introduced as brand extension or by an
         unnamed firm in that product market.
     •   Ask about acceptable price ranges and store locations for the brand named product or
         hypothetical unnamed version.

Concern
    • Simulations and concept statements may highlight the particular product
        characteristics enough to make them more salient than they would otherwise be,
        distorting results.
Comparative Methods
 Marketing-based comparative approaches:
     Experiments in which consumers respond to changes in elements of the
     marketing program for the brand or competitive brands.

     Hold the brand fixed
     Examines consumer response based to changes in the marketing program

Applications
•   Researching price premium and increase strategy to reveal brand-switching
    and loyalty patterns.
•   Assess price sensitivity and thresholds for different brands - example Intel
Comparative Methods - MBCA
Applications (cont.)
• Assessing consumer response to different advertising
  strategies, executions, or media plans through multiple
  test markets.

• Explore potential brand extensions through consumer
  evaluations of potential extensions candidates.


       Example:
Kulula.com brand extensions
Comparative Methods - MBCA
Advantages
• Ease of implementation.
• Compare virtually any proposed set of marketing actions for the brand.


Drawbacks
• Difficult to tell whether consumer responses to changes in marketing stimuli are
  caused by brand knowledge or by more generic product knowledge.
• I.e. it may be that for any brand in the product category, consumers are willing to pay
  certain prices, accept a particular brand extension, etc.

• Suggested solution:
  Determine whether the response is specific to the brand by:
  Conducting similar tests of consumer response with competitive brands.
Comparative Methods
Conjoint analysis:
 A survey-based multivariate technique that enables marketers to profile
 the consumer buying decision process with respect to products and
 brands.


  Ask consumers to express their preferences or to choose among a
   number of carefully designed product profiles.
 Goal:
  Determine the trade-offs consumers are making between various brand
   attributes, and thus the importance they are attaching to them.
Comparative Methods - CA
• Each profile consumers see is made up of a set of attribute
  levels chosen on the basis of experimental design
  principles to satisfy certain mathematical properties.

• The value consumers attach to each attribute level, as
  statistically derived by the conjoint formula, is called a
  part worth.

• We use the part worths in various ways to estimate how
  consumers would value a new combination of the attribute
  levels.

• For example one attribute is the brand name.
• The part worth for the “brand name” attribute reflects its
  value.
Comparative Methods - CA
Applications
• Brand/price tradeoff methodology (simplified version of
  conjoint analysis) with 2 variables – brand and price.

  Consumers make a series of stimulated purchase choices
  between different combinations of brands and prices. Each
  chose between buying a preferred brand and paying less. In
  this way consumers reveal how much their brand loyalty is
  worth.

• Each choice triggers an increase in price of the selected brand,
  forcing the consumer to choose between buying a preferred
  brand and paying less. In this way, consumers reveal how
  much their brand loyalty is worth and, conversely, which
  brands they would relinquish for a lower price.
CA – Brand/price trade-off
Which jeans would you buy:
R200               R500
R300
R400
R500
R600
R1000
R1500
CA – Brand/price trade-off
CA – Brand/price trade-off
Comparative Methods - CA
Advantage
• Allows marketer to study different brands and different aspects of the
  product or marketing program simultaneously):
   Product composition, price, distribution outlets, etc

• Uncover information about consumer’s responses to different marketing
  activities for both the focal and competing brands.

Disadvantage
• Marketing profiles may violate consumer’s expectations based on what they
  already know about brands.

• Thus care must be taken not to evaluate unrealistic product profiles or
  scenarios.

• Can also be difficult to specify and interpret brand attribute levels.
Holistic Methods
• Holistic methods place an overall value on the
  brand in either an abstract utility terms or in
  concrete financial terms

• Therefore holistic methods attempt to assess the
  unique contribution of the brand to
  (over all product equity)
Two Approaches
• 1. The residual approach which examines the value of
 the brand by subtracting consumers preference for the
 brand (based on physical product attributes alone) from
 the over all brand preference.

• Overall brand preference
  – consumer preference
  = residual value
Critique for Residual Approach

• Residual approaches provide a useful
  benchmark for interpreting brand equity,
  especially when approximations of brand equity
  or financially orientated perspectives are
  required.
• The disadvantage of residual approaches is that
  they are most appropriate for brands with a lot
  of product related attribute associations.
• E.G. Natasha Chapter 9 Nokia
Valuation Approaches
• The valuation approach places a financial value on brand
  equity for accounting purposes

• Putting a specific value on brands may be useful for
1. Mergers and acquisitions
2. Branding licensing : internally for tax reasons, and to
   third parties
3. Fund raising: e.g. looking for more sponsorship can
   have a brand like coca cola as a backer.
4. Brand management decisions: such as preparing
   financial reports
Historical Perspective

• Grand Metropolitan

• Grand Met used two different methods,

1. If a company consisted of one brand, it was said that
   the brand value was 75% of the purchase price.
2. Whereas if the company consisted of many brands, a
   multiple of an income figure was used.
Accounting firms in favour of valuing brands say
that it is a way to

1. Strengthen the presentation of a companies accounts
2. Record hidden assets so as to reveal them to the
   companies shareholders
3. Enhance a companies shareholder funds so as to
   improve its earnings ratios
4. Provide a basis for management and investors to
   measure a companies performance
5. And reveal brand strengths so that management can
   formulate appropriate brand strategies
General Approaches

• When firms need to determine the value of a
  brand in an acquisition or merger, they can
  choose from three main approaches.

1. Cost approach
2. Market approach
3. Income approach
The Cost Approach

• The cost approach maintains that brand equity is the
  amount of money that would be required to reproduce or
  replace the brand which include all costs for research
  and development, test marketing, advertising and so on.

• One criticism however is that this approach, rewards
  past performance in a way that may play no role in
  future profitability.
• E.G. Gizmondo & Kellogg's
The Market Approach

• According to the market approach, we can think of brand
  equity as the present value of the future economic
  benefits to be derived by the owner of the asset.

• In other words, brand equity is the amount an active
  market would allow for the asset to be exchanged
  between a willing buyer and seller.

• McDonalds vs. Gillette vs. BMW
The Income Approach

• Argues that brand equity is the future discounted cash
  flow from the future earnings stream for the brand.

• Three such income approaches are as follows.

1. Capitalizing royalty earnings from a brand name
2. Capitalizing the premium profits that are earned by a branded
   product (by comparing its performance against an unbranded
   product)
3. Capitalizing the actual profitability of a brand after allowing for
   the costs of maintaining it and the effects of taxation.
What is a Brand Worth

• Brand Metrics
• The model is based on the accounting definition of an
  asset.
• “Resources under control of an enterprise that
  will generate future economic benefits for the
  enterprise” Applies to brands as well

• The researchers conventionalized brand equity as
  “incremental cash flows that accrue to a branded
  as compared to a non branded product”
What is a Brand Worth Cont…
• Economic Profit; is the amount after tax operating profit
  a company earns that exceeds the cost of the capital the
  company has employed in operating the business.

• The Band Metrics approach therefore starts with a calculation of the
  economic profit
• The excess profit over and above the cost of capital is attributed to
  resources that must be identified
• Among these are the brand and its customers
• Actuarial sciences techniques are then used to determine how much
  of this profit is attributed to brands
What is a Brand Worth Cont…
• The resource recognition procedure (RRP)
 1. Firstly the group generates a list of possible resources that
    might drive economic profit.
 2. By means of voting and ranking, the list is reduced usually to
    about 5-8 items.
 3. The members then allocate 100% across the list, thereafter the
    scores are averaged to give a weighting to each item.
 4. Finally each member allocates a score from 0 and 10 to indicate
    the extent to which brand equity influences each resource.
What is a Brand Worth Cont…
• The mean, weighted scores are then summed to
  produce a percentage that, when applied to the
  economic profit, produces the brand premium
  profit, which is the portion attributed to the
  brand.
Simon and Sullivan’s Brand Equity Value

• Assume that the market value of a firm is based on the
  earning power of both tangible and intangible assets
• They also make the assumption that the financial
  markets valuation of the firm incorporates the expected
  value of future cash flows and returns
• A study conducted by Simon and Sullivan during the
  1980’s whereby tracing the brand equity of Pepsi and
  Coca Cola showed that the introduction of diet Coke,
  increased the equity of Coca Cola and decreased the
  equity of Pepsi
Interbrands Brand Valuation
Methodology
• Interbrand approached the problem of brand valuation,
  by assuming that the value of a brand, just like the value
  of any other economic asset, was the present worth of
  the benefits of future ownership
• I.e. what the brand value is today, of the earnings or cash
  flow that the brand can be expected to generate in the
  future.
• Interbrand largely follows a methodology based on an
  income approach.
Interbrands Brand Valuation
Methodology
• To capture the complex value creation of a brand,
  Interbrand recommends the following 5 valuation steps.


1.   Market segmentation
2.   Financial analysis (role of branding)
3.   Demand analysis (brand strength)
4.   Competitive benchmarking
5.   Brand value calculation
Summary
Comparative methods:

Use experiments that examine consumer attitudes and behaviour toward a brand, to
more directly assess the benefits arising from having a high level of awareness and
strong, favourable, and unique brand associations.

    Brand-based comparative approaches: Experiments in which one group of consumers responds to an element of the
     marketing program when it is attributed to the brand and another group responds to that same element when it is
     attributed to a competitive or fictitiously named brand.

    Marketing-based comparative approaches: Experiments in which consumers respond to changes in elements of the
     marketing program for the brand or competitive brands.

    Conjoint analysis: A survey-based multivariate technique that enables marketers to profile the consumer buying
     decision process with respect to products and brands.


Holistic methods:

Attempt to place an overall value on the brand in either abstract utility terms or
concrete financial terms. Thus, holistic methods attempt to "net out" various
considerations to determine the unique contribution of the brand.
    Residual approach: Examines the value of the brand by subtracting out from overall brand preferences consumers'
     preferences for the brand based on physical product attributes alone.

    Valuation approach: Places a financial value on the brand for accounting purposes, mergers and acquisitions, or other
     such reasons.
Conclusion
 NO single measure that fully captures BRAND EQUITY.

 Brand Equity is multidimensional concept.
  Depends - knowledge structures in consumer’s minds
          - actions firms take to capitalize on the potential offered
            by these knowledge structures

(CH 2) Customer Based Brand Equity:
         the differential effect that brand knowledge has on consumer response to the marketing of
         that brand.


CBBE model: emphasizes employing a range of research measures
            and methods to fully capture the multiple potential
            sources and outcomes of brand equity.

								
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