A proposal for measuring Brand Equity

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A proposal for measuring Brand Equity

• Session 9

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What are we doing today

• Traditional measures of Brand Equity (Today)
• Keller and others
• New model financial measure of Brand Equity
  (MacInnis and Park)

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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?

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The dark side of brand equity

• While psychometric measures may be compared
• They dont translate to financial performance
  easily
• They are relative measures
• Different types dont compare with others
• Further, these measures do not generate a metric
  that links BE to financial performance

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Some (not so) surprising survey results

• Study
• More than 1000 CMOs (Chief Marketing Officers)
  representing gt400B revenue

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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

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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

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Other findings from the report

• Top 5 reasons for developing effective metrics
• Increased effectiveness of marketing organization
  and planning
• ROI tracking
• Justification for marketing programs, budgets,
  and value
• Improved marketing resource allocation
• Accountability to senior management and board

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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

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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

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Kellers 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

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So, What Do We Do?

• We measure Brand Equity with a combination of
  psychometric and financial components

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What are some traditional measures of Brand
Equity?

• Valuation based on Marketing and RD
• Aggregate cost of marketing, advertising, RD
• 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?

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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

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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

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Creating the brand multiple (lets try this again?)

• 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

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Step 1 Coke
Customer Base Potency Brand Awareness 10 Brand
Association 9 Perceived Quality 9 (28/30)10
9.33
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
Competitive Potency Brand Trend 7 Brand
Support 10 Brand Protection 10 Competitive
Strength 10 (37/40)10 9.25
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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
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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
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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

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In class project

• Spend the rest of the time generating Customer
  Based, Competitive and Global potency factors for
  your brand

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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

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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

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Step 1 Benefits by department

• Product development
• RD 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

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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

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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

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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

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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-dont start a brand audit
  without some goal in mind

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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

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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

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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

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Criteria for Personality (review)

• Does the personality reflect the brand?
• Will the personality be liked?
• Does it meet needs for customers self-expression?
• Consistent with expectations of the brand?
• Define the spirit with which you approach future
  actions?

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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?

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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

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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

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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)
• Dont let your external perception drive your
  Brand Identity!!!

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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

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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)

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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

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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)

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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

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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)

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Thank you very much!!