The Theoretical Separation of Brand Equity and Brand Value

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The Theoretical Separation of Brand Equity and
Brand Value
Bob Leone leone_7_at_cob.osu.edu The Ohio State Uni
versity

Randy Raggio raggio_at_cob.osu.edu The Ohio State U
niversity

• 2006 Winter AMA Marketing Educators Conference
• February 18, 2006

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Motivation

• In 1994, Honda introduced the
  Passport, an Isuzu Rodeo
  that cost 5,000 more than
  the Rodeo, without a roof
  rack, and a 1-year vs.
  5-year
  warranty
• The first author bought the Rodeo
• How does Honda recognize value from this action?
• How do we distinguish brand equity, customer
  equity and brand value?

Raggio/Leone 2006 Winter AMA
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Equity vs. Value

• Firms A and B bid on Brand 1

Brand 1
Firm A
Firm B
Valuation
Valuation
Consumer-Based Brand Equity

• Equity and Value are distinct constructs
• Value is idiosyncratic to the bidding firm
• Each firm attempts to objectively measure equity

Raggio/Leone 2006 Winter AMA
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Brand Valuation

• Follow the Money

A firms perspective
Aggregate up to
Outcomes have become the measure of brand equity
Individual-level Outcomes
Brand-level Outcomes
Impact
Shareholder Value
Brand Value Sale or replacement price of the bra
nd Estimates will vary with capabilities and reso
urces
Brand Value
Aggregate up to
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Moving Upstream

• What drives Individual-Level Outcomes?

Generates
The consumers perspective
Environment
Brand Knowledge


Leads to

Individual-level Outcomes
Brand A promise of benefits
Consumer-Based Brand Equity
Brand Equity Perception or desire that a br
and meets a salient
promise
Impacts
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Equity ? Outcomes
Marketing Actions - Product offering - Ad
vertising - Promotion, etc. Mktplace Info., e
tc.
Consideration Purchase WOM Loyalty Commitment
, etc.
Input
Individual-level Outcomes
Salience
Consumer-Based Brand Equity
Strength
Brand Equity Perception or desire that a brand m
eets a salient promise
Brand A promise of benefits
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Customer Equity

• Passport vs. Rodeo example
• The Rodeo lasted 11 years
• Next purchase
• Honda Odyssey
• Isuzu may have received value from my purchase,
  but motivation indicated more equity and a higher
  CLV for Honda
  
• Honda now needs to leverage existing equity to
  capture Customer Equity
  
• C.E. is the customer-based portion of brand
  value
  

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Separate Constructs
Consumer-Based Brand Equity
Environment
Brand Knowledge
Individual-level Outcomes
Build Equity (4 Ps)
Shareholder Value
Company-Based Brand Value
Brand-level Outcomes

• The goal is to build and leverage equity.

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So What?

• Confusing Equity and Value is like confusing the
  likelihood and loss functions
  
• Individuals may have threshold levels that must
  be passed before Brand Equity impacts behavior
  
• Promise of benefits is context-specific, so Brand
  Equity may exist within individuals, but may only
  be active when the promise is salient
  
• Leveraging opens for consideration other
  segments, markets, products/services
  
• (e.g., IBM, Scotts)

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Brand Equity Considerations

• Measures of brand equity should
• Not solely rely on purchase or other outcomes
• Minimize alternative explanations
• Consider non-customers and future potential
• Consider changing usage contexts and user groups
• Consider different corporate goals and objectives
  
  
• Not emphasize short-term, vulnerable effects
• Offer diagnostic ability

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Brand Value

• At a point in time, for a particular firm, there
  are two levels of brand value
  

Given fully-leveraged Brand Equity
Appropriable value
Brand Value
Gap is a function of a firms ability to lever
age Brand Equity
Current value
Given current strategy, management, etc.
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Brand Value

• Over time, both current and appropriable value
  can change

Sale of Cracker Jack to Frito-Lay
Appropriable value
Appropriable value
Chasing appropriable value
Chasing appropriable value
Current value
F-Ls system value
Borden max
Current value
PG
time
ADA approval of Crest
time
Borden
Frito-Lay
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What This Means

• Managerial goal is to build and leverage equity
  to generate (chase) value
  
• Brand Value also comes from sources not directly
  related to consumers (e.g., HR)
  
• Effective strategy is based on a comprehensive
  understanding of the relationship between equity
  and value
  
• Tactical decisions follow analysis of the drivers
  of equity and the linkage between equity and
  value
  
• Optimization methodologies (e.g., CRM) should
  always be considered in the context of the larger
  framework

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New Framework
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• Thank you!

Raggio/Leone 2006 Winter AMA