Chapter 10 Measuring outcomes of brand equity

1
Chapter 10Measuring outcomes of brand equity

• Bradley Kingston
• Vassili Zachariou

2
How to market yourself
3
Utilize public relations resources
4
Advertise remind and persuade
5
Result Brand Equity
6
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

7
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

8
Review

• CH 2 product with positive BE, enjoys 7 NB
  customer-related benefits
• Perceived differently different interpretations
  of product performance.
• Loyalty less vulnerable to competitive
  marketing actions.
• Command larger margins more inelastic responses
  to price increases elastic responses to price
  decreases.
• Greater trade cooperation support.
• Increase marketing communications effectiveness.
• Yield licensing opportunities
• 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.

9
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

10
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.

11
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.

12
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.

13
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)

14
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

15
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

16
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

17
BBCA blind taste testing Pepsi Taste Test
commercial 1983

• 1980s, 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
• Science is updating the classic "taste test."
• Your brain connects brand imagery with brand
  preference, resulting in increased sales.

18
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.

19
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.

20
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

21
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

22
Kulula.com brand extensions
23
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.

24
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.

25
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.

26
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.

27
CA Brand/price trade-offWhich jeans would you
buy

• R200
• R300
• R400
• R500
• R600
• R1000
• R1500

• R500

28
CA Brand/price trade-off
29
CA Brand/price trade-off
30
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 consumers responses to
  different marketing activities for both the focal
  and competing brands.
• Disadvantage
• Marketing profiles may violate consumers
  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.

31
(No Transcript)
32
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)

33
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

34
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

35
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
• Mergers and acquisitions
• Branding licensing internally for tax reasons,
  and to third parties
• Fund raising e.g. looking for more sponsorship
  can have a brand like coca cola as a backer.
• Brand management decisions such as preparing
  financial reports

36
Historical Perspective

• Grand Metropolitan
• Grand Met used two different methods,
• If a company consisted of one brand, it was said
  that the brand value was 75 of the purchase
  price.
• Whereas if the company consisted of many brands,
  a multiple of an income figure was used.

37
Accounting firms in favour of valuing brands say
that it is a way to

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

38
General Approaches

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

39
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

40
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

41
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.
• Capitalizing royalty earnings from a brand name
• Capitalizing the premium profits that are earned
  by a branded product (by comparing its
  performance against an unbranded product)
• Capitalizing the actual profitability of a brand
  after allowing for the costs of maintaining it
  and the effects of taxation.

42
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

43
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

44
What is a Brand Worth Cont

• The resource recognition procedure (RRP)
• Firstly the group generates a list of possible
  resources that might drive economic profit.
• By means of voting and ranking, the list is
  reduced usually to about 5-8 items.
• The members then allocate 100 across the list,
  thereafter the scores are averaged to give a
  weighting to each item.
• Finally each member allocates a score from 0 and
  10 to indicate the extent to which brand equity
  influences each resource.

45
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.

46
Simon and Sullivans 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 1980s 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

47
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.

48
Interbrands Brand Valuation Methodology

• To capture the complex value creation of a brand,
  Interbrand recommends the following 5 valuation
  steps.
• Market segmentation
• Financial analysis (role of branding)
• Demand analysis (brand strength)
• Competitive benchmarking
• Brand value calculation

49
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.

50
Conclusion

• NO single measure that fully captures BRAND
  EQUITY.
• Brand Equity is multidimensional concept.
• Depends - knowledge structures in consumers
  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.