CHAPTER 10: MEASURING OUTCOMES OF BRAND EQUITY:

CAPTURING MARKET PERFORMANCE

1. Learning Objectives:
After reading this chapter, you should be able to
1. Recognize the multidimensionality of brand equity and the importance of multiple methods to
measure it.
2. Contrast different comparative methods to assess brand equity.
3. Explain the basic logic of how conjoint analysis works.
4. Review different holistic methods for valuing brand equity.
5. Describe the relationship between branding and finance.

2. List of Contents: Chapter 10 Measuring Outcomes of Brand Equity:

Capturing Market Performance

1. Comparative Methods
1.1 Brand-Based Comparative Approaches
1.2 Marketing-based comparative approaches
1.3 Conjoint Analysis

2. Holistic Methods
2.1 Residual Approaches
2.2 Valuation Approaches

3. Description of Contents:

Measuring Brand Equity is a multi-dimensional concept. Many different measures are required
to calculate brand equity. The ultimate value of a brand depends on the underlying components
of brand knowledge and sources of brand equity.
1. Comparative Methods

Comparative Methods are research studies or experiments that examine consumer attitudes
and behavior toward a brand to directly estimate the benefits arising from having a high level of
awareness and strong, favorable, and unique brand associations. There are:

1. Brand-based comparative approaches

2. Marketing-based comparative approaches

3. Conjoint analysis

1.1 Brand-Based Approaches

 The marketing element under consideration is fixed.

 Consumer response is examined based on changes in brand identification.
 Application example: Blind testing
 Advantage: Isolates the value of the brand
 Disadvantage: The totality of what is learned depends on how many applications are
examined.

1.2 Marketing-Based Approaches

 The brand is held fixed and consumer response is examined based on changes in
marketing programs.

 Applications: Explore price premiums’ effect on switching, consumer evaluations of

marketing activities, brand extensions, etc.

 Advantage: Ease of implementation

 Disadvantage: Difficult to determine whether consumer responses are caused by brand

knowledge or generic product knowledge

1.3 Conjoint Analysis

 A survey-based multivariate technique that enables marketers to profile the consumer

decision process with respect to products and brands

 Helps researchers determine the trade-offs consumers make between brand attributes

 Applications: Assess advertising effectiveness and brand value; analyze brand/price

trade-off
  Advantage: Allows for different brands or different aspects of the product to be
analyzed simultaneously

 Disadvantage: May violate consumers’ expectations based on what they already

know about brands

2. Holistic Methods
This method attempts to place an overall value on the brand in either abstract utility terms or
concrete financial terms. Holistic methods attempt to “net out” various considerations to
determine the unique contribution of the brand.

 Holistic methods are:

o Residual approaches

o Valuation approaches

2.1 Residual Approaches

 Examine the value of the brand by subtracting consumers’ preferences based on physical
product attributes alone from their overall brand preferences.

 Advantage: Useful benchmark for interpreting brand equity, especially from a financially
oriented perspective.

 Disadvantage: Static view. Limited diagnostic value for strategic decision making.

2.2 Valuation Approaches

 Attempt to place a financial value on brand equity for accounting purposes, mergers and
acquisition or other such reasons.

 Useful in cases of mergers and acquisitions, brand licensing, fund raising, and brand
management decisions

 Valuation approaches:

o Accounting background

o Historical perspectives

o General approaches

o Interbrand’s brand valuation methodology

 Accounting Background

 Intangible assets are typically lumped under the heading of goodwill and include things
such as patents, trademarks, and licensing agreements, as well as “softer” considerations
such as the skill of the management and customer relations.

 In an acquisition, the goodwill item often includes a premium paid to gain control, which,
in certain instances, may even exceed the value of tangible and intangible assets.

 Historical Perspectives

 In Australia Rupert Murdoch’s News Corporation included a valuation of some of its

magazines on its balance sheets in 1984.

 British firms used brand values primarily to boost their balance sheets.

 In the United States, generally accepted accounting principles (blanket amortization

principles) mean that placing a brand on the balance sheet would require amortization of
that asset for up to 40 years. Such a charge would severely hamper firm profitability; as a
result, firms avoid such accounting maneuvers.

 General Approaches

In determining the value of a brand in an acquisition or merger, firms can choose from three
main approaches:

 Cost approach: Brand equity is the amount of money that would be required to
reproduce or replace the brand
 Market approach: The present value of the future economic benefits to be derived by
the owner of the asset
 Income approach: The discounted future cash flow from the future earnings stream
for the brand

 Interbrand’s Brand Valuation

 Assumes that brand value is the present worth of the benefits of future ownership
 Follows five valuation steps:
o Market segmentation
o Financial (role of branding) analysis
o Demand (brand strength) analysis
o Competitive benchmarking
o Brand value calculation
Case

Case 10.1: T- MOBILE

Deutsche Telecom invested much time and money in recent years in building its T-Mobile
mobile communication brand. In the United Kingdom, however, the company has leased or
shared its network lines with competitor Virgin Mobile. As a result, the audio quality of the
signal that a T-Mobile customer received in making a call should have been virtually identical to
the audio quality of the signal for a Virgin Mobile customer. After all, the same network was
being used to send the signal. Despite that fact, research showed that Virgin Mobile customers
rated their signal quality significantly higher than did T-Mobile customers. The strong Virgin
brand image appeared to cast a halo over its different service offerings, literally causing
consumers to change their impressions of product performance.

Source: Julian Clover, “Virgin Connects Mobile Network with Orange,” Broadband TV News,
10 October 2011; Chris Martin, “Virgin Media Mobile Customers Will Get Orange Network
Coverage,” The Inquirer, 7 October 2011; www.virginmobile.com.

Collected From: “Strategic Brand Management: Building, Measuring, and Managing Brand
Equity”, Kevin Lane Keller, 4th Edition, PEARSON

Case 10.2: COCA-COLA BRAND VALUATION

Despite the fact that expert analysts estimate the value of the Coca-Cola name in the billions of
dollars, due to accounting convention, it appears in the company’s books as only $25 million.
Based on accounting rules, Coca-Cola’s assets in 2004 had a book value of $31.3 billion, with
various intangibleassets assessed at $3.8 billion and a market cap of $100 billion. On June 7,
2007, Coca-Cola acquired Energy Brands, also known as glacéau, maker of enhanced water
brands such as vitaminwater, fruitwater, and smartwater, for approximately $4.1 billion. Because
these brands were acquired, different accounting rules apply to them. Based upon a preliminary
purchase price allocation, approximately $2.8 billion was allocated to trademarks, $2.2 billion to
goodwill, $200 million to customer relationships, and $900 million to deferred tax liabilities. At
the end of 2007, Coke had trademarks on its balance sheet with a book value of $5.135 billion.
Of this figure, about $2.8 billion is associated with Energy Brands.

Source: Andrew Ross Sorkin and Andrew Martin, “Coca-Cola Agrees to Buy Vitaminwater,”
New York Times, 26 May 2007; “Coca-Cola 2007 Annual Report,” www. thecoca-
colacompany.com.

Collected From: “Strategic Brand Management: Building, Measuring, and Managing Brand
Equity”, Kevin Lane Keller, 4th Edition, PEARSON
Questions:

1. Choose a product. Conduct a branded and unbranded experiment. What do you learn
about the equity of the brands in that product class?

2. Identify and discuss the advantages or disadvantages of the comparative methods?

3. Pick a brand and conduct an analysis similar to that done with the Planters brand. What
do you learn about its extendibility as a result?

4. How do you think Young & Rubicam’s BrandAsset Valuator relates to the Interbrand
methodology? What do you see as its main advantages and disadvantages?