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It sounds simple: boost your brand equity, and watch profits soar. But many companies stumble in trying to manage their brands’ performance. Consider Levi-Strauss. In the mid-1990s, it launched a brand-equity measurement system that suggested the appeal of its flagship 501 jeans was slipping. But its response to that data was flawed: the company took too long, and spent too little, to mount a marketing campaign that would restore its brand equity. Worse, Levi-Strauss’s advertising messages to its target youth market missed their mark. Its market share shriveled. To strengthen your brand, Keller suggests using a brand report card—a tool showing how your brand stacks up on the 10 traits shared by the world’s strongest brands. For example, how well does your brand deliver benefits consumers truly desire? How strongly have you positioned it against rivals? How consistent are your marketing messages about your brand? Use the brand report card, and you identify the actions needed to maximize your brand equity. Your reward? Customers’ enduring devotion—and the profits that come with it. The Idea in Practice Grade Your BrandKeller recommends assessing your brand on the following attributes:
 Building and properly managing brand equity has become a priority for companies of all sizes, in all types of industries, in all types of markets. After all, from strong brand equity flow customer loyalty and profits. The rewards of having a strong brand are clear. A version of this article appeared in the January–February 2000 issue of Harvard Business Review.
“Everything is worth what its purchaser will pay for it.” Publilius Syrus, first century B.C. How do you define value? can you measure it? What are your products and services actually worth to customers? Remarkably few suppliers in business markets are able to answer those questions. And yet the ability to pinpoint the value of a product or service for one’s customer has never been more important. Customers—especially those whose costs are driven by what they purchase—increasingly look to purchasing as a way to increase profits and therefore pressure suppliers to reduce prices. To persuade customers to focus on total costs rather than simply on acquisition price, a supplier must have an accurate understanding of what its customers value, and would value. A version of this article appeared in the November-December 1998 issue of Harvard Business Review.
Brand equity refers to the importance of a brand in the customer’s eyes, while brand value is the financial significance the brand carries. Both brand equity and brand value are educated estimates of how much a brand is worth. What’s the Difference Between Brand Equity & Brand Value?Brand equity and brand value are similar, but not the same. Oftentimes, there is confusion around how each differs so let’s look at exactly what each means: Brand EquityBrand equity is a set of assets or liabilities in the form of brand visibility, brand associations and customer loyalty that add or subtract from value of a current or potential product or service driven by the brand. It is a key construct in the management of not only marketing, but also business strategy. In the late 1980s, brand equity helped create and support the explosive idea that brands are assets that drive business performance over time. That idea altered perceptions of what marketing does, who does it, and what role it plays in business strategy. Brand equity also altered the perception of brand value by demonstrating that a brand is not only a tactical aid to generate short-term sales, but also a strategic support to a business strategy that will add long-term value to the organization. Brand ValueBrand value, on the other hand, is the financial worth of the brand. To determine brand value, businesses need to estimate how much the brand is worth in the market – in other words, how much would someone purchasing the brand pay? It is important to note that a positive brand value does not automatically equal positive brand equity. How Should Brand Equity & Brand Value Be Measured?While measuring brand value is fairly straightforward, the process for brand equity is not quite so simple. Brand equity is a set of assets or liabilities in the form of brand visibility, brand associations and customer loyalty that add or subtract from value of a current or potential product or service driven by the brand. Here we’ll dive into each. Brand VisibilityThis means that the brand has awareness and credibility with respect to a particular customer need—it is relevant. If a customer is searching for a buying option and the brand does not come to mind, or if there is some reason that the brand is perceived to be unable to deliver adequately, the brand will not be relevant and not be considered. Brand AssociationsBrand associations involve anything that created a positive or negative relationship with or feelings toward the brand. It can be based on functional benefits but also a brand personality, organizational values, self-expressive benefits, emotional benefits or social benefits. Customer LoyaltyCustomer’s loyalty provides a flow of business for current and potential products from customers that believe in the value of the brand’s offerings and will not spend time evaluating options with lower prices. The inclusion of loyalty in the conceptualization of brand equity allows marketers to justify giving loyalty priority in the brand building budget. Driving Brand Value in the Short TermThe value of a brand represents its impact on the short-run and long-run flow of profits that it can generate. With respect to short-term profitability, the problem is that programs that are very good at driving short-run products – like price promotions – can damage brands. Looking at the ways a brand can help drive short-term financial performance can help mitigate this tendency:
Improving Brand Value in the Long-RunOne of the ongoing challenges of brand equity proponents is to demonstrate that there is long-term value in creating brand equity. The basic problems are that brand is only one driver of profits, completive actions intervene, and strategic decisions cannot wait for years. There are, however, some perspectives that can be employed to understand and measure the long-term value of brand equity: Brand Value Approach #1: Estimate the Brand’s Role in BusinessOne approach is to estimate the brand’s role in a business. The value of a business in a product-market such as the Ford Fiesta in the UK market is estimated based on discounting future earnings. The tangible and intangible assets are identified and the relative role of the brand is subjectively estimated by a group of knowledgeable people, taking into account the business model and any information about the brand in terms of its relative visibility, associations and customer loyalty. The value of the brand is then aggregated over products and markets countries to determine a value for brand. It can range from 10 percent for B2B brands to over 60 percent for brands like Jack Daniel’s or Coca-Cola. Brand Value Approach #2: Observe Investments in Brand EquityA second approach is to observe that, on average, investments in brand equity increase stock return, the ultimate measure of a long-term return on assets. Evidence comes from a series of studies I conducted with Professor Robert Jacobson of the University of Washington, using time series data which included information on accounting-based return-on-investment (ROI) and models that sorted out the direction of causation. The consistent finding was that the impact of increasing brand equity on stock return was nearly as great as that of an ROI change, about 70 percent as much. In contrast, advertising, also tested, had no impact on stock return except that which was captured by brand equity. Brand Value Approach #3: Reflect on Other Valuable BrandsA third approach is to look at case studies of brands that have created enormous value. Consider, for example, the power of the Apple personality and innovation reputation, BMW’s self-expressive benefits connected to the “ultimate driving machine,” and the ability of Whole Foods Market brand to define an entire subcategory. Or, the fact that from 1989 to 1997 two cars were made in the same plant using the same design and materials and marketing under two brand names, Toyota Corolla and Chevrolet (GEO) Prism. The Corolla brand was priced 10% higher, had less depreciation over time, and had sales many times more that the Prizm. And consumers and experts both gave it higher ratings. The same car! Only the brand was different. Brand Value Approach #4: Consider the Conceptual ModelIt’s important to consider to consider the conceptual model surrounding a business strategy. What is the business strategy? What is the strategic role of the brand in supporting that strategy? How critical is it? Is price competition the alternative to creating and leveraging brand equity? What impact will that have on profit streams going forward? Management guru Tom Peters said it well:
Final ThoughtsBrand equity continues to be a driver of much of marketing, indeed business strategy. For it to work, it needs to be understood conceptually and operationally. And it is important that it be tied to brand value in credible ways. Discover how Prophet helps companies establish a brand strategy that drives business growth. |
Brand value comes in two forms: the value to the ________ and the value to the ________.
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