Professional Documents
Culture Documents
KEY F INDINGS
v Research indicates that companies engage in brand equity research to enhance company value and build
long-lasting customer loyalty. Furthermore, researchers may gauge the bottom-line benefits of brand equity
investments by assessing stock performance correlation, brand valuation, and price premiums.
v Experts agree that brand equity consists of assets and liabilities associated with brand names and symbols.
Companies seeking to build brands typically measure equity using qualitative consumer-driven factors, while
companies seeking to understand current brand profitability may focus on quantitative data-driven factors.
v Leading companies combine the complementary consumer- and data-driven approaches and integrate regular
financial valuation with consumer perceptions of the brand to reach a more holistic view of brand equity.
Progressive companies seeking to utilize their brand as an effective business driver increasingly utilize brand equity
research to help them understand which brand attributes impact comp any performance. Through brand equity
research, companies can identify the brand drivers that build long-lasting customer loyalty and enhance company
value. Research departments can justify resource expenditures on brand equity studies by citing the following
bottom-line benefits of a brand equity focus.1
Brand Valuation—As the intangible aspects of the brand remain key contributors to company
Coca-Cola$67
Microsoft B
assets, many organizations include the brand’s financial value in their calculations. Utilizing
IBM $61
GE B research to uncover the financial value of its brands can boost the market value of a company by
Intel
an average of 70% of its tangible net asset value.2
Price Premium Analysis—By strengthening the key brand drivers identified through brand equity
research, companies may develop the ability to charge a premium for their products, and thereby
realize significant financial gains. Research finds that 72% of customers are willing to pay a 20%
premium for their brand of choice over the closest competitor. Additionally, in certain industries,
increasing customer loyalty by 2% impacts the bottom-line in the same way as a 10% reduction in
costs.3,4
1
Thomas Madden, Frank Fenle, and Susan Fournier, “Brands Matter: An Empirical Investigation of Brand-Building Activities
and the Creation of Shareholder Value,” NYSE Composite Index (May 2002).
2
Tom Duncan and Sandra Moriarty, Driving Brand Value, New York: McGraw Hill (1997).
3
S. M. Davis, “Brand Asset Management for the 21st Century,” Kuczmarski & Associates (1995).
4
R. Passikoff, “Brand Keys Customer Loyalty Index,” www.brandkeys.com (accessed 7 July 2005).
5
Kevin Keller, Strategic Brand Management: Building, Measuring, and Managing Brand Equity, Prentice Hall: New Jersey
(1997).
6
Author Unknown, “Communicating Your Brand,” IR Guide (October 2000).
As each company’s brand equity drivers remain specific to its customer base and brand promise, no single
comprehensive industry-wide definition of brand equity exists. In a broad sense, most experts consider brand equity
to be the set of assets —and liabilities—associated with brand names and symbols.7 More specifically, many experts
define brand equity utilizing one of two complementary approaches, as illustrated below.
Consumer-Driven Data-Driven
Approach Approach
focuses on focuses on
Brand-Building Brand Profitability
by measuring by measuring
Brand Awareness, Market Share, Time in
Familiarity, Image, Market, Annual
Loyalty Marketing Spend
(Pages 2-5) (Pages 6-9)
Researchers following the consumer-driven approach to define brand equity remain primarily concerned with brand-
building and seek to directly affect brand image and customer loyalty. Conversely, those following the data-driven
approach gauge return on investment and the profitability of marketing initiatives to determine a brand’s financial
value.
The following two sections elaborate on the distinctions between the consumer- and data-driven approaches by
presenting definitions and research practices from the brand management industry. The final section outlines an
economic approach to equity valuation, which combines consumer- and data-driven factors to obtain a more holistic
view of brand equity.
The consumer-driven approach defines brand equity according to levels of consumer engagement, beginning with a
foundation in brand awareness and working up toward the sought-after level of brand loyalty. As i llustrated in
Figure I below, this consumer-driven perspective emphasizes the sequential and cumulative nature of brand equity.
To identify and evaluate the consumer-driven factors of brand equity, researchers may follow the process detailed in
Figure II below.
Companies often utilize brand management specialists to conduct and analyze brand equity studies. For this reason,
vendors maintain the most comprehensive insights into the measurement process. The profiles on the following
pages highlight two leading vendors—Brand Keys and Ipsos-ASI—that offer unique qualitative brand equity
measurement methodologies.
11
Board research.
12
Harry Vardis, “Linking a Brand’s Equity to its Identity,” Research Review (February 1998).
13
Author Unknown, “Measuring Brand Value,” www.sdr-consulting.com/branding3.html (accessed 7 July 2005).
Brand Keys emphasizes a clinical psychological approach that combines emotional values and rational ratings of
attributes to evaluate the brand’s engagement with consumers. Researchers begin with a record of existing and
potential customers, structured into segments by the client. Working with a sample of 75 to 100 customers for each
segment, Brand Keys conducts interviews online, by e-mail, cellular phone, or other methods to ensure a private and
comfortable interview environment for the brand’s customers.
Direct questions, in the form of rational ratings, ask respondents to compare the importance of more than 20
category attributes and values specific to the brand, such as style, packaging, or price. Indirect questions regarding
emotional values reveal what factors drive the respondent’s behavior. The box below highlights a sample Brand
Keys question that aims to evaluate the respondent’s emotional association with the brand.
Tend to plan things in advance or Tend to do things on the spur of the moment
Prefer dealing with facts or Prefer dealing with theories
Believe that schedules usually help or Believe that schedules usually hinder
*Example category
Utilizing benchmarks and its proprietary weighting analysis model, Brand Keys compares the client’s brand to
competitors’ and an “ideal” brand that would exceed all consumer expectations. This analysis enables the vendor to
identify the client’s drivers with the potential to serve as a strategic foundation for brand positioning.
Ipsos-ASI measures brand equity by assessing three brand drivers—attitudinal equity, consumer involvement, and
price and value perceptions. The vendor begins with a list of existing customers, structured into segments by the
client. Working with a sample of 300 to 1,000 respondents, Ipsos-ASI conducts one-on-one interviews online, by
telephone, mail, or in person.
The company’s proprietary Equity*Builder model allows the company to analyze the equity components found in
Figure III below. Although the company can measure these factors with a pre-determined questionnaire, clients may
also add customized questions to gauge specific areas of interest.
Familiarity
Popularity
Quality
Relevance
Attitudinal Equity
Uniqueness
Brand Sensitivity
Involvement Brand Equity
Brand Substitutability
Price Comparison
Price Evaluation Price and Value
Utilizing the company’s proprietary weighting analysis model, Ipsos-ASI compares the client’s brand to
competitors’ and creates index scores at the component- and aggregate-levels to highlight specific areas for
recognition or improvement. These valuations identify drivers that demonstrate potential to serve as a strategic
foundation for improved brand positioning.
14
Board research.
Researchers utilizing the data-driven approach to brand equity measurement translate intangible assets into financial
figures by assessing the risk associated with the brand’s ability to generate future earnings and calculating a single
numerical valuation. Market research departments recently increased focus on this approach due to international
accounting standards requiring companies to report intangible assets. While less complex quantitative models
simply account for the brand’s marketing and communications investments adjusted for inflation, more detailed
methods incorporate several measures of risk and future performance when calculating brand equity.15,16,17
Figure IV below lists several indicators that researchers typically include in their calculations of brand value. 18
Market Share
Recent Growth
Time in Market
15
Author Unknown, “Understanding Brand Equity and Brand Valuation,” www.intangiblebusiness.com/content 651
(accessed 1 August 2005).
16
Author Unknown, “How Much for that Brand in the Window?” www.jrcanda.com/art_valuation.html
(accessed 1 August 2005).
17
Alison Clements, “How Strong is Your Brand?” Retail Week (February 2005).
18
David Haigh, “Brand Valuation or Brand Evaluation? That is the Question,” Marketing Business (February 1997).
19
Clements, “How Strong is Your Brand?”
To determine the quantitative value of brand equity, researchers may follow the process detailed in Figure V below.
Customer segmentation ensures that the sample represents the target customers
and leads to actionable analysis, as brand influence differs depending on the
Segment existing market. Examples of segmentations typically used to measure brand equity
and potential include distribution channel, consumption pattern, and geography.
customers Researchers then calculate the sum of each segment’s individual value to
create a single brand valuation.
Researchers utilize financial analysis to isolate revenues earned from
intangibles and forecast future earnings. Intangible earnings include brand
Conduct financial revenues less operating costs, applicable taxes, and a charge for the capital
analysis to value employed. Common techniques researchers utilize include cash-flow and
brand contribution economic value added models.
As with the qualitative approach, researchers often outsource this process to brand management specialists, and
many insights into the measurement process remain proprietary to vendors. The profiles on the following pages
highlight two vendors—Interbrand and Brand Finance—that offer unique quantitative brand equity measurement
methodologies.
20
Board research.
Interbrand remains best known for its partnership with Business Week to publish the annual 100 Best Global
Brands, a report that ranks companies’ brands by value, applying Interbrand’s proprietary measurement
methodology. The vendor’s brand valuation process, outlined below, leads to a single number representing the
brand’s value as a tangible asset to the company.
I. Market segmentation
Obtain a client-provided list of customers divided by segment to ensure that the
data represent the target customers and lead to actionable analysis .
Market
Segmentation
1430 Broadway
B RAND FINANCE 17th Floor
Web Site: www.brandfinance.com New York, NY 10018
Phone: (646) 345-6782
Brand Finance’s approach to brand equity measurement focuses on the brand’s monetary contribution to business.
Relying primarily on discounted cash-flow analyses, the company conducts both point-in-time valuations to capture
the brand’s value at any given period and dynamic valuations to model the impact of proposed business decisions,
such as varying levels of marketing investment, brand extensions, or acquisitions. Brand Finance’s proprietary
measurement process follows the four steps outlined below.
I. Financial forecast
Utilize client-provided data to construct a model for forecasting future earnings.
While the consumer- and data-driven approaches each provide strong brand equity measurement tools for
researchers, the most progressive companies combine the two complementing views to create a synthesized
“economic” measure that may more effectively impact strategic decision-making. Qualitative methods gauge
consumer perceptions of brands, and as such provide only subjective results. Quantitative methods measure future
profits, and therefore problems may arise with uncertainty, due to forecasting error, or with separability, because
company valuation of brands and products typically remain linked together. As such, experts recommend creating a
comprehensive brand equity evaluation process that integrates consumer perceptions of the brand into financial
valuation, as illustrated in Figure VII below.
21
Board research.
NOTE TO MEMBERS
This project was researched and written to fulfill the research request of several members of the Corporate Executive Board and as a result may
not satisfy the information needs of all member companies. The Corporate Executive Board encourages members who have additional questions
about this topic to contact their research manager for further discussion. The views expressed herein by third-party sources do not necessarily
reflect the policies of the organizations they represent.