Brand equity

From Wikipedia, the free encyclopedia

Brand equity a phrase used in the marketing industry which describes the value of having a wellknown brand name, based on the idea that the owner of a well-known brand name can generate
more money from products with that brand name than from products with a less well known name,
as consumers believe that a product with a well-known name is better than products with less wellknown names.[1][2][3][4]
Some marketing researchers have concluded that brands are one of the most valuable assets a
company has,[5] as brand equity is one of the factors which can increase the financial value of a
brand to the brand owner, although not the only one.[6] Elements that can be included in the valuation
of brand equity include (but not limited to): changing market share, profit margins, consumer
recognition of logos and other visual elements, brand language associations made by consumers,
consumers' perceptions of quality and other relevant brand values.
Consumers' knowledge about a brand also governs how manufacturers and advertisers market the
brand.[7][8] Brand equity is created through strategic investmentsin communication
channels and market education and appreciates through economic growth in profit margins, market
share, prestige value, and criticalassociations. Generally, these strategic investments appreciate
over time to deliver a return on investment. This is directly related to marketing ROI. Brand equity
can also appreciate without strategic direction. A Stockholm University study in 2011 documents the
case of Jerusalem's city brand.[9] The city organically developed a brand, which experienced
tremendous brand equity appreciation over the course of centuries through non-strategic activities. A
booming tourism industry in Jerusalem has been the most evident indicator of a strong ROI.
Brand equity is strategically crucial, but famously difficult to quantify. Many experts have developed
tools to analyze this asset, but there is no agreed way to measure it. As one of the serial challenges
that marketing professionals and academics find with the concept of brand equity, the disconnect
between quantitativeand qualitative equity values is difficult to reconcile. Quantitative brand equity
includes numerical values such as profit margins and market share, but fails to capture qualitative
elements such as prestige and associations of interest. Overall, most marketing practitioners take a
more qualitative approach to brand equity because of this challenge. In a survey of nearly 200 senior
marketing managers, only 26 percent responded that they found the "brand equity" metric very
useful.[10]
Contents
[hide]

1 Purpose

2 Construction

3 Methodologies

4 See also

5 References

Purpose[edit]
The purpose of brand equity metrics is to measure the value of a brand. A brand encompasses the
name, logo, image, and perceptions that identify a product, service, or provider in the minds

of customers. It takes shape in advertising, packaging, and other marketing communications, and
becomes a focus of the relationship with consumers. In time, a brand comes to embody a promise
about the goods it identifiesa promise about quality, performance, or other dimensions of value,
which can influence consumers' choices among competing products. When consumers trust a brand
and find it relevant, they may select the offerings associated with that brand over those
of competitors, even at a premium price. When a brand's promise extends beyond a particular
product, its owner may leverage it to enter new markets. For all these reasons, a brand can hold
tremendous value, which is known as brand equity.[10]
Brand Equity is best managed with the development of Brand Equity Goals, which are then used to
track progress and performance.[11]

Methodologies[edit]
Brand Equity Ten (Aaker)
Main article: Aaker Model
David Aaker, a marketing professor and brand consultant, highlights ten attributes of a brand that can be used
to assess its strength. These include Differentiation, Satisfaction or Loyalty, Perceived Quality, Leadership or
Popularity, Perceived Value, Brand Personality, Organizational Associations, Brand Awareness, Market Share,
and Market Price and Distribution Coverage. Aaker doesn't weight the attributes or combine them in an overall
score, as he believes any weighting would be arbitrary and would vary among brands and categories. Rather
he recommends tracking each attribute separately.[10]
Brand Equity Index (Moran)
Marketing executive Bill Moran has derived an index of brand equity as the product of three factors:

Effective Market Share is a weighted average. It represents the sum of a brand's market shares in all
segments in which it competes, weighted by each segment's proportion of that brand's total sales.

Relative Price is a ratio. It represents the price of goods sold under a given brand, divided by the
average price of comparable goods in the market.

Durability is a measure of customer retention or loyalty. It represents the percentage of a brand's

customers who will continue to buy goods under that brand in the following year.[10]

BrandAsset Valuator (Young & Rubicam)

Young & Rubicam, a marketing communications agency, has developed the BrandAsset Valuator, BAV, a tool to
diagnose the power and value of a brand. In using it, the agency surveys consumers' perspectives along four
dimensions:

Differentiation: The defining characteristics of the brand and its distinctiveness relative to competitors.

Relevance: The appropriateness and connection of the brand to a given consumer.

Esteem: Consumers' respect for and attraction to the brand.

Knowledge: Consumers' awareness of the brand and understanding of what it represents. [10]

Brand Valuation Model (Interbrand and Brand Finance)

Interbrand, a brand strategy agency, draws upon financial results and projections in its own model for
brand valuation. It reviews a company's financial statements, analyzes its market dynamics and the role of
brand in income generation, and separates those earnings attributable to tangible assets (capital, product,
packaging, and so on) from the residual that can be ascribed to a brand. It then forecasts future earnings
and discounts these on the basis of brand strength and risk. The agency estimates brand value on this
basis and tabulates a yearly list of the 100 most valuable global brands. [10]

The Royalty Relief approach of Brand Finance, an independent brand valuation consultancy, is based
on the assumption that if a company did not own the trademarks that it exploits, it would need to license
them from a third party brand owner instead. Ownership therefore relieves the company from paying a
license fee (the royalty) for the use of the third party trademarks. The royalty relief method involves
estimating likely future sales, applying an appropriate royalty rate to them and then discounting estimated
future, post-tax royalties, to arrive at a Net Present Value (NPV). This is held to represent the brand value.
[15]

The independent consultancy publishes yearly lists by industry sector and geographic region as well as

a top 500 global list.

Brand Contribution to Market Cap Method (CoreBrand)
CoreBranda research, brand strategy, communication, and design firmutilizes the Brand Contribution to
Market Cap method using the Corporate Branding Index database composed of Familiarity and Favorability
data as the quantitative basis of its system.
Familiarity and Favorability scores are analyzed in the context of a companys size in market cap and revenue
to determine a base expected level of Familiarity and Favorability for the brands value to be zero. Utilizing a
statistical regression analysis of the factors driving the cash flow multiple and thus share price, the variance in
Familiarity and Favorability above or below the base expected level is analyzed.
As a point in time analysis, this method is used for brand equity valuation of a company based on its current
Familiarity and Favorability, Revenue and Market Cap. The output of the analysis provides the end user with
two pieces of data:
1. The percentage of market cap that is attributable directly to its corporate brand (i.e., how hard the
brand is working to create value for the company);
2. The dollar value of the brand at a point in time, this is the asset value of the brand as a component of
the companys market valuation.
According to this analysis, the corporate brand is responsible for 5-7% of stock performance on average. [16]
Conjoint Analysis
Marketers use conjoint analysis to measure consumers' preference for various attributes of a product, service,
or provider, such as features, design, price, or location. By including brand and price as two of the attributes

under consideration, they can gain insight into consumers' valuation of a brandthat is, their willingness to pay
a premium for it.[10]

Valuation Approaches

The concept of value is one of the most difficult concepts to grasp. Value has
different meanings to different people and thus is not an objective concept.
The valuation approach used is effectively the objective of the valuation. The
objective of the valuation is determined by its use. Some of the more common
valuation approaches can be classified into five categories:
1. Cost-based approaches
2. Market-based approaches
3. Economic use or income-based approaches
4. Formulary approaches
5. Special situation approaches
Cost-based approaches consider the costs associated with creating the brand
or replacing the brand, including research and development of the product
concept, market testing, promotion, and product improvement. The
accumulated cost approach will determine the value of the brand as the sum
of accumulated costs expended on the brand to date. This method is the
easiest to perform, as all the data should be readily available. Unfortunately,
this historic valuation does not bear any resemblance to the economic value
(Aaker, 1991; Keller, 1998).
The replacement cost approach determines the cost that would be incurred to
replace the asset if it is destroyed (Aaker, 1991; Keller, 1998). An advantage
of this method is that it provides a better reflection of the true value of the
brand. A disadvantage of this approach is that the value does not bear a

relation to the open market value. One could over-capitalise, by over investing
in that asset which may not be recouped if the asset was sold.
Market-based approaches are based on the amount for which a brand can be
sold. The open market valuation is the highest value that a "willing buyer and
willing seller" is prepared to pay for the asset. This would exclude a strategic
buyer who may have other objectives (Reilly and Schweihs, 1999). This
valuation basis should be used when one wishes to sell the brand. Barwise et
al. (1989) suggest that the market value of an asset should reflect the possible
alternative uses; the value of future options as well as its value in existing
activities; and realism rather than conservatism. Modern financial theory
states that one should sell off assets if the value that a buyer is willing to pay
exceeds the discounted benefits of the brand (Brealey and Meyers, 1991).
Economic use approaches, also referred to as "in-use" or income-based
approaches, consider the valuation of future net earnings directly attributable
to the brand to determine the value of the brand in its current use (Keller,
1998; Reilly and Schweihs, 1999; Cravens and Guilding, 1999). This basis is
often appropriate when valuing an asset that is unlikely to be sold as a
flanking brand that is being used for strategic reasons. This method reflects
the future potential of a brand that the owner currently enjoys. This value is
useful when compared to the open market valuation as the owner can
determine the benefit foregone by pursuing the current course of action.
Formulary approaches consider multiple criteria to determine the value of a
brand. While similar in certain respects to income-based or economic use
approaches, they are included as a separate category due to their extensive
commercial usage by consulting and other organizations.
Special situation approaches recognize that brand valuation can be related to
particular circumstances that are not necessarily consistent with external or
internal valuations. A strategic buyer is often willing to pay a premium above
the market value (Bradley and Viswanathan, 2000). This may be a result of
synergies that they are able to develop which other buyers may not be able to
achieve. When an asset is valued, in the absence of a written offer from the
strategic buyer, it cannot be assumed that a buyer will appear and be
prepared to pay a premium price. Each case has to be evaluated on individual
merit, based on how much value the strategic buyer can extract from the
market as a result of this purchase, and how much of this value the seller will
be able to obtain from this strategic buyer.

The liquidation value is the value that the asset would fetch in a distress sale.
The value under a liquidation sale is normally substantially lower than in a
willing buyer and seller arrangement. The costs of liquidating the asset should
normally be deducted in determining the value of the asset.
When valuing an asset for special purposes, for example, income tax, the
method that the assessing authority requires should be used. The advantage
of this approach is that one is assured that all requirements are met. The
drawback of the above approach is that the value may bear little relevance to
economic reality or serve another useful purpose.
Available Approaches for Brand Valuation

Reilly and Schweihs (1999) identified the attributes that affect the value of
brands, but there are five main aspects that need to be considered when
calculating a brand's value. These are: what additional price premium the
product can command over a generic; how much additional market share can
be gained; what cost savings can result from an ability to exercise increased
control over the channel; what additional revenue can be gained through
licensing and brand extensions; and the additional marketing costs that need
to be incurred in providing the point of differentiation as a competitive strategy.
The approaches available for brand valuation can be grouped into the four
major categories, cost based; market-based; economic use; and formulary
approaches.
Some of the more common valuation models will now be discussed.

Assinment 2

Brand architecture
From Wikipedia, the free encyclopedia

Brand architecture is the structure of brands within an organizational entity. It is the way in which
the brands within a companys portfolio are related to, and differentiated from, one another. The
architecture should define the different leagues of branding within the organization; how the
corporate brand and sub-brands relate to and support each other; and how the sub-brands reflect or
reinforce the core purpose of the corporate brand to which they belong. Often, decisions about
Brand Architecture are concerned with how to manage a parent brand, and a family of sub-brands -

Managing brand architecture to maximize shareholder value can often include using brand
valuation model techniques.
Brand architecture may be defined as an integrated process of brand building through
establishing brand relationships among branding options in the competitive environment. The brand
architecture of an organization at any time is, in large measure, a legacy of past management
decisions as well as the competitive realities it faces in the marketplace. [1]
Contents
[hide]

1 Types of brand architecture

2 Strategic considerations

3 Job titles

4 See also

5 References

Types of brand architecture[edit]

There are three key levels of branding:

Corporate brand, umbrella brand, and family brand - Examples include Virgin
Group and Heinz. These are consumer-facing brands used across all the firm's activities, and
this name is how they are known to all their stakeholders consumers, employees,
shareholders, partners, suppliers and other parties. These brands may also be used in
conjunction with product descriptions or sub-brands: for example Heinz Cream of Tomato Soup,
or Virgin Trains.

Endorsed brands, and sub-brands - For example, Nestle KitKat, Cadbury Dairy
Milk, Sony PlayStation or Polo by Ralph Lauren. These brands include a parent brand - which
may be a corporate brand, an umbrella brand, or a family brand - as an endorsement to a subbrand or an individual, product brand. The endorsement should add credibility to the endorsed
sub-brand in the eyes of consumers.

Individual product brand - For example, Procter & Gambles Pampers or Unilever's Dove.
The individual brands are presented to consumers, and the parent company name is given little
or no prominence. Other stakeholders, like shareholders or partners, will know the producer by
its company name.

Procter & Gamble is quoted by many authors as the antithesis of a Corporate Brand (Asberg and
Uggla, Muzellec and Lambkin, Olins).[2] [3] "However, this situation changed in 2012. After more than
150 years of invisibility of the organization for consumer, the brand developed corporate brand
promise during the 2012 Olympic games. Commercials are aired on television around a message
thanking all the "moms". In addition, each of their products is associated with the brand "PG" in
advertisements for products.
A recent example of brand architecture in action [4] is the reorganization of the General Motors brand
portfolio to reflect its new strategy. Prior to bankruptcy, the company pursued a corporate-endorsed
hybrid brand architecture structure, where GM underpinned every brand. The practice of putting the

"GM Mark of Excellence" on every car, no matter what the brand, was discontinued in August, 2009.
[5]
In the run-up to the IPO, the company adopted a multiple brand corporate invisible brand
architecture structure.[4] The company's familiar square blue "badge" has been removed from the
Web site and advertising, in favor of a new, subtle all-text logo treatment. [6]

Brand Hierarchy
A brand hierarchy is a means of summarizing the branding strategy by
displaying the number and nature of common and distinctive brand
elements across the firms products, revealing the explicit ordering of
brand elements. By capturing the potential branding relationships among
the different products sold by the firm, a brand hierarchy is a useful
means of graphically portraying a firms branding strategy. Specifically,
a brand hierarchy is based on the realization that a product can be
branded in different ways depending on how many new and existing
brand elements are used and how they are combined for any one product.
Because certain brand elements are used to make more than one brand,
a hierarchy can be constructed to represent how (if at all) products are
nested with other products because of their common brand elements.
Some brand elements may be shared by many products (e.g., Ford); other
brand elements may be unique to certain products (e.g., F-series trucks).
As with any hierarchy, moving from the top level to the bottom level
typically involves more entries at each succeeding levelin this case,
more brands. There are different ways to define brand elements and
levels of the hierarchy. Perhaps the simplest representation of possible
brand elements and thus potential levels of a brand hierarchyfrom top
to bottommight be as follows:
1.

Corporate (or company) brand (e.g., General Motors)

2.

Range brand (e.g., Chevrolet)

3.

Individual brand (e.g.. Lumina)

4.

Modifier (designating item or model) (e.g., Ultra)

The highest level of the brand hierarchy technically always involves one
brandthe corporate or company brand. For legal reasons, the company
or corporate brand is almost always present somewhere on the product or
package, although it may be the case that the name of a company
subsidiary may appear instead of the corporate name. For example,
Fortune Brands owns many different companies, such as Titleist, Footjoy,
Jim Beam, Master Lock, and Moen, but does not use its corporate name in
any of its lines of business. For some firms, the corporate brand is
virtually the only brand used (e.g., as with General Electric and HewlettPackard). Some other firms combine their corporate brand name with
family brands or individual brands (e.g., conglomerate Siemens varied
electrical engineering and electronics business units are branded with
descriptive modifiers, such as Siemens Transportation Systems). Finally, in
some other cases, the company name is virtually invisible and, although
technically part of the hierarchy, receives virtually no attention in the
marketing program (e.g., Black & Decker does not use its name on its
high-end DeWalt professional power tools, and Hewlett-Packard created a
wholly owned subsidiary for its low-priced Apollo ink-jet printers).
At the next-lower level, a range / family brand is defined as a brand that is
used in more than one product category but is not necessarily the name
of the company or corporation itself. For example, ConAgras Healthy
Choice family brand is used to sell a wide spectrum of food products,
including frozen microwave entrees, packaged cheeses, packaged meats,
sauces, and ice cream. Other examples of family brands boasting over a
billion dollars in annual sales include PepsiCos Tropicana juices and
Gatorade thirst quencher, and Anheuser-Buschs Budweiser beer. Most
firms typically only support a handful of family brands. If the corporate
brand is applied to a range of products, then it functions as a family brand
too, and the two levels collapse to one for those products.

An individual/ product line brand is defined as a brand that has been

restricted to essentially one product category, although it may be used for
several different product types within the category. For example, in the
salty snack product class, Frito-Lay offers Fritos corn chips, Doritos
tortilla chips, Lays and Ruffles potato chips, and Rold Gold pretzels. Each
brand has a dominant position in its respective product category within
the broader salty snack product class. Basic product brands can be
refined through sub-branding.
A modifier is a means to designate a specific item or model type or a
particular version or configuration of the product. Thus, many of FritoLays snacks come in both full-flavor or low-fat Better For You forms.
Similarly, Land OLakes offers whipped, unsalted, and regular
versions of its butter. Yoplait yogurt comes as light, custard style, or
original flavors.
Different levels of the hierarchy may receive different emphasis in
developing

a branding

strategy.

For

example.

General

Motors

traditionally chose to downplay its corporate name in branding its cars,

although the name recently has played a more important role in its
supporting marketing activities. Such shifts in emphasis are an attempt by
the firm to harness the positive associations and mitigate against the
negative associations of different brands in different contexts, and there
are a number of ways to place more or less emphasis on the different
elements that combine to make up the brand.

Brand hierarchy
To help manage a visual identity system strategically, institutions of higher education
often call upon a brand architecture model. This model provides a brand hierarchy,
starting with the top-level brand for the institution as a whole, then addressing other
entities, from schools and colleges to support offices to affiliated organizations. The five
categories within the UWMadison brand hierarchy are:

Core brand
The core brand is the top tier of the brand hierarchy, and it represents the institution as
a whole. The visual identity for the core brand is the institutional logo, and it should be
used on any projects that encompass the full university, such as institutional websites,
television spots, annual reports, or strategic plans.

Core brand extension

A core brand extension is an overarching entity that advances the overall mission of the
university and aligns very closely with the core brand. At UWMadison, core brand
extensions are schools and colleges.

Secondary brand extension

A secondary brand extension is a UWMadison administrative office, support unit, or
academic department that supports the overall mission of the university.

Sub-brand
A sub-brand is an entity, such as the Wisconsin Alumni Association or a school/college
alumni group, that is linked to UWMadison's core brand for strategic and economic
reasons. Its visual identity may incorporate key elements of the core brand (such as
theW crest, or official typefaces or colors), but does so in a way that establishes a more
independent visual identity.

Independent brand
An independent brand is an entity that presents its connection to the UWMadisonbrand
in an understated manner for a variety of reasons. For example, an entity may exist
through an equal partnership among multiple universities. The entity may rely upon an
external funding source that must be prominently acknowledged. Or an entitys mission
may differ significantly from UWMadison's core missions. The Wisconsin Institutes of
Discovery is an example of an independent brand.