Brand equity is a phrase used in the marketing industry refers to the perceived worth of a brand in and of itself—i.e., the social value of a well-known brand name. It is based on the idea that the owner of a well-known brand name can generate more revenue simply from brand recognition, as consumers perceive the products of well-known brands as better than those of lesser-known brands.In other words, brand equity refers to "the branding of a product name on an attention-deficit public."
In the research literature, brand equity has been studied from two different perspectives: cognitive psychology and information economics. According to cognitive psychology, brand equity lies in consumer’s awareness of brand features and associations, which drive attribute perceptions. According to information economics, a strong brand name works as a credible signal of product quality for imperfectly informed buyers and generates price premiums as a form of return to branding investments. It has been empirically demonstrated that brand equity plays an important role in the determination of price structure and, in particular, firms are able to charge price premiums that derive from brand equity after controlling for observed product differentiation.
While most brand equity research has taken place in consumer markets, the concept of brand equity is also important for understanding competitive dynamics and price structures of business-to-business markets. In industrial markets competition is often based on differences in product performance. It has been suggested however that firms may charge premiums that cannot be solely explained in terms of technological superiority and performance-related advantages. Such price premiums reflect the brand equity of reputable manufacturers.Three brand equity drivers were selected by researchers from numerous factors that have impact on a brand: brand awareness, brand perspective, and brand attachment.
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 quantitative and 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.
Some marketing researchers have concluded that brands are one of the most valuable assets a company has,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. 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.Brand equity is created through strategic investments in communication channels and market education and appreciates through economic growth in profit margins, market share, prestige value, and critical associations. 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. 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.
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 identifies—a 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.
Social media has changed the traditional communication between brands and consumers and enabled consumer to make positive as well as negative influence on brand equity.
Brand Equity is best managed with the development of Brand Equity Goals, which are then used to track progress and performance.
There are many ways to measure a brand. Some measurements approaches are at the firm level, some at the product level and still others are at the consumer level.
Firm Level: Firm level approaches measure the brand as a financial asset. In short, a calculation is made regarding how much the brand is worth as an intangible asset. For example, if you were to take the value of the firm, as derived by its market capitalization—and then subtract tangible assets and "measurable" intangible assets—the residual would be the brand equity.Measuring brand equity in this way is often referred to as brand valuation. The modeling is closely related to brand equity, and a number of models and approaches have been developed by different consultancies. Brand valuation models typically combine a brand equity measure (e.g.: the proportion of sales contributed by "brand") with commercial metrics such as revenue or economic profit.
Product Level: The classic product level brand measurement example is to compare the price of a no-name or private label product to an "equivalent" branded product. The difference in price, assuming all things equal, is due to the brand.More recently a revenue premium approach has been advocated. Marketing mix modeling can isolate "base" and "incremental" sales, and it is sometimes argued that base sales approximate to a measure of brand equity. More sophisticated marketing mix models have a floating base that can capture changes in underlying brand equity for a product over time.
Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. This approach seeks to measure the awareness (recall and recognition) and brand image (the overall associations that the brand has). Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes, attitudes, and intentions about a brand.Brands with high levels of awareness and strong, favorable and unique associations are high equity brands.
All of these calculations are, at best, approximations. A more complete understanding of the brand can occur if multiple measures are used.
Brand equity is the positive effect of the brand on the difference between the prices that the consumer accepts to pay when the brand is known compared to the value of the benefit received.
There are two schools of thought regarding the existence of negative brand equity. One perspective states brand equity cannot be negative, hypothesizing only positive brand equity is created by marketing activities such as advertising, PR, and promotion. A second perspective is that negative equity can exist, due to catastrophic events to the brand, such as a wide product recall or continued negative press attention (Blackwater or Halliburton, for example).
Colloquially, the term "negative brand equity" may be used to describe a product or service where a brand has a negligible effect on a product level when compared to a no-name or private label product.
The greater a company's brand equity, the greater the probability that the company will use a family branding strategy rather than an individual branding strategy. This is because family branding allows them to leverage the equity accumulated in the core brand. Aspects of brand equity include: brand loyalty, awareness, associationand perception of quality.
One of Oldsmobile best known brands was "Cutlass". First used in 1961, by the 1980s it was confusingly used on three different platforms, with the Oldsmobile Cutlass Ciera becoming Oldsmobile's best selling model which at different times would be sold alongside the smaller Cutlass Calais, and a newer Cutlass Supreme. The Aurora-inspired Intrigue introduced in 1988 retired the aging Cutlass nameplate with the intention to recast Oldsmobile into a future as in import fighter and its stodgy past as existing model names which had served in the past including Cutlass were phased out. But sales would continue to decline, as Cutlass briefly re-appeared as a rebadged Malibu in 1997. To reduce costs at General Motors by consolidating a profusion of divisions, the Oldsmobile division was entirely phased out in 2004.
Rival GM division Chevrolet re-entered the midsize market when the company resurrected the Malibu nameplate in 1997 (and later the Impala in 2000 as their answer to imports e.g. the Honda Accord and Toyota Camry including its stretched platform Avalon) which had been dormant since 1983 when the company phased out its remaining RWD midsize G platform. As of the 2018 model year, both nameplates are still in production. The Malibu, originally part of the mid-size Chevelle lineup until 1977 as the top trim level, GM promoted its trim level to full model status (at the time the Chevelle nameplate was retired (and has remained dormant since because of its association with the musclecar era) its trim level had brand recognition and better known), a practice first demonstrated in 1969 when the Chevy II lineup was rebadged (the Nova was the top trim level; it was one of the finalists for the official model name dating back to 1962 but Chevrolet management wanted its car nameplates beginning with a "C" - the promotion of the Nova from trim level to official model status broke the tradition of using C-word names by Chevrolet with its automobile and truck product lineup on a selective basis.
The Lincoln-Mercury division of the Ford Motor Company best known brand throughout the late 1960s to 2002 was the Mercury Cougar - first used as a twin to the Ford Mustang and later a personal luxury coupe sharing its platform with its midsize Torino lineup until 1977 when its entire midsize lineup (at the time branded as the Montego) was rebadged as part of the Cougar lineup which went viral (from a base coupe to a station wagon) until the early 1980s when L-M repositioned its midsized lineup by rebadging the Cougar under the Marquis nameplate.
In the early 2000s in North America, the Ford Motor Company made a strategic decision to brand all new or redesigned cars with names starting with "F." This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer with the letter "E." The Toronto Star quoted an analyst who warned that changing the name of the well known Windstar to the Freestar would cause confusion and discard brand equity built up, while a marketing manager believed that a name change would highlight the new redesign. The aging Taurus, which became one of the most significant cars in American auto history, would be abandoned in favor of three entirely new names, all starting with "F," the Five Hundred, Freestar, and Fusion. By 2007, the Freestar was discontinued without a replacement. The Five Hundred name was thrown out and Taurus was brought back for the next generation of that car in a surprise move by Alan Mulally.
In practice, brand equity is difficult to measure. Because brands are crucial assets, however, both marketers and academic researchers have devised means to contemplate their value.Some of these techniques are described below.
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.
Marketing executive Bill Moran has derived an index of brand equity as the product of three factors:
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:
CoreBrand—a research, brand strategy, communication, and design firm—utilizes 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 company’s size in market cap and revenue to determine a base expected level of Familiarity and Favorability for the brand’s 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:
According to this analysis, the corporate brand is responsible for 5-7% of stock performance on average.
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 brand—that is, their willingness to pay a premium for it.
Note: These customer satisfaction methodologies have not been independently validated by the Marketing Accountability Standards Board (MASB) according to MMAP (Marketing Metric Audit Protocol).
While event study offer evidence that brand equity positively affects financial performance, many studies focus on customer mindset metrics to offer this relationship (Berger, Eechambadi, George, Lehmann, Rizley & Venkatesan, 2006; Buil, Martinez & de Chernatony, 2013).
Event method is applied to determine the stakeholder interest or value assessed in a brand before, during or after an event. As exemplified by Agrawal & Kamakura’s (1995) piece, The economic worth of celebrity endorsers, the authors demonstrate how an announcement of brand association of a product and celebrity creates a movement in stock value; whereby, shareholder interest is influenced by the endorsement as evidenced from the time-series data.
A similar time-series data analysis offered by Lane & Jacobson (1995) also measured stock market reactions to announcements associated with a particular brand, which factored customer attitudes and the familiarity of the brand to determine financial outcomes. The result was that the stock market response was favorable to brand announcements when consumers were familiar with the brand and held the brand in high esteem. The same applied to low familiarity and low esteem brands, which as Keller (2002) explains, was "because there was little to risk and much to gain…"(p. 157).
The findings of Agrawal & Kamakura (1995) and Lane & Jacobson (1995) was succeeded by another event study approach to brand equity analysis that focused on event sponsorships (Roy & Bettina Cornwell, 2003). This approach determined that lesser known brands may benefit from event sponsorships as a brand-building exercise but customers may have associations with the event sponsors or brand associations that could determine affective attitudes. Ultimately, high equity counterparts will yield stronger results due to their market familiarity.
Simon & Sullivan (1993) suggested long-term analysis of events, as determined by financial returns and market performance, better captures the effect of customer mindset brand equity. In the restaurant sector, for example, returns of branding are contemporaneous. The high-tech sector showed no contemporaneous effects and brand equity is realized in the future with significant delay. The distribution/retail sector included both contemporaneous and positive future profitability. Berger et al., (2006) acknowledge the long-term approach for considering customer lifetime value relevant to the shareholder value or financial performance of a brand. This perspective contributed to concepts like "brand awareness", which Huang & Sarigöllü (2012) apply to the commonly used marketing matrix to determine stock market performance.
One of the challenges in managing brands is the many changes that occur in the marketing environment. The marketing environment evolves and changes, often in very significant ways. Shifts in consumer behavior, competitive strategies, government regulations, and other aspects of the marketing environment can profoundly affect the fortunes of a brand. Besides these external forces, the firm itself may engage in a variety of activities and changes in strategic focus or direction that may necessitate adjustments in the way that its brands are being marketed. Consequently, effective brand management requires proactive strategies designed to at least maintain - if not actually enhance - brand equity in the face of these different forces.
As a company's major enduring asset, a brand needs to be carefully managed so its value does not depreciate. Marketers can reinforce brand equity by consistently conveying the brand's meaning in terms of
(1) what product it represents, what core benefits it supplies, and what needs it satisfies
(2) how the brand makes product superior and which strong, favorable, and unique brand associations should exist in consumers' minds.
Both of these issues - brand meaning in terms of products, benefits, and needs as well as brand meaning in terms of product differentiation - depend on the firm's general approach to product development, branding strategies, and other strategic concerns.
Any new development in the marketing environment can affect a brand's fortune. Nevertheless, a number of brands have managed to make impressive comebacks in recent years. Often, the first thing to do in revitalizing a brand is to understand what the sources of brand equity were to begin with. Are positive associations losing their strength or uniqueness? Have negative associations become linked to the brand? Then decide whether to retain the same positioning or create a new one, and if so, which new one.
Without question, the most important consideration in reinforcing brands is the consistency of the marketing support that the brand receives - both in terms of the amount and nature of marketing support. Brand consistency is critical to maintaining the strength and favorability of brand associations. Brands that receive inadequate support, in terms of such things as shrinking research and development or marketing communication budgets, run the risk of becoming technologically disadvantaged or even obsolete. Consistency does not mean, however, that marketers should avoid making any changes in the marketing program. On the contrary, the opposite can be quite true - being consistent in managing brand equity may require numerous tactical shifts and changes in order to maintain the proper strategic thrust and direction of the brand. There are many ways that brand awareness and brand image can be created, maintained, or improved through carefully designed marketing programs. The tactics that may be most effective for a particular brand at any one time can certainly vary from those that may be most effective for the brand at another time. As a consequence, prices may move up or down, product features may be added or dropped, ad campaigns may employ different creative strategies and slogans, and different brand extensions may be introduced or withdrawn over time in order to create the same desired knowledge structures in consumers' minds.
A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan so that goals may be achieved. While a marketing plan contains a list of actions, without a sound strategic foundation, it is of little use to a business.
Market segmentation is a process of dividing a heterogeneous market into relatively more homogenous segments based on certain parameters like geographic, demographic, psychographic, and behavioural. It is the activity of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers based on some type of shared characteristics.
Marketing management is the organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of a firm's marketing resources and activities.
In marketing, brand management begins with an analysis on how a brand is currently perceived in the market, proceeds to planning how the brand should be perceived if it is to achieve its objectives and continues with ensuring that the brand is perceived as planned and secures its objectives. Developing a good relationship with target markets is essential for brand management. Tangible elements of brand management include the product itself; its look, price, and packaging, etc. The intangible elements are the experiences that the target markets share with the brand, and also the relationships they have with the brand. A brand manager would oversee all aspects of the consumer's brand association as well as relationships with members of the supply chain.
Marketing strategy is a long-term, forward-looking approach and an overall game plan of any organization or any business with the fundamental goal of achieving a sustainable competitive advantage by understanding the needs and wants of customers.
Brand loyalty is the positive feelings towards a brand and dedication to purchase the same product or service repeatedly, regardless of a competitor's actions or changes in the environment. It can also be demonstrated with other behaviors such as positive word-of-mouth advocacy. Corporate Brand loyalty is where an individual buys products from the same manufacturer repeatedly and without wavering rather than from other suppliers. Loyalty implies dedication and should not be confused with habit with its less than emotional engagement and commitment. Businesses whose financial and ethical values, for example ESG responsibilities, rest in large part on their brand loyalty are said to use the loyalty business model.
A target audience is the intended audience or readership of a publication, advertisement, or other message catered specifically to said the intended audience. In marketing and advertising, it is a particular group of consumers within the predetermined target market, identified as the targets or recipients for a particular advertisement or message. Businesses that have a wide target market will focus on a specific target audience for certain messages to send, such as The Body Shops Mother's Day advertisements, which were aimed at the children and spouses of women, rather than the whole market which would have included the women themselves.
Brand extension or brand stretching is a marketing strategy in which a firm marketing a product with a well-developed image uses the same brand name in a different product category. The new product is called a spin-off.
In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment.
A market analysis studies the attractiveness and the dynamics of a special market within a special industry. It is part of the industry analysis and thus in turn of the global environmental analysis. Through all of these analyses, the strengths, weaknesses, opportunities and threats (SWOT) of a company can be identified. Finally, with the help of a SWOT analysis, adequate business strategies of a company will be defined. The market analysis is also known as a documented investigation of a market that is used to inform a firm's planning activities, particularly around decisions of inventory, purchase, work force expansion/contraction, facility expansion, purchases of capital equipment, promotional activities, and many other aspects of a company.
Global marketing is “marketing on a worldwide scale reconciling or taking global operational differences, similarities and opportunities in order to reach global objectives".
The following outline is provided as an overview of and topical guide to marketing:
Return on marketing investment (ROMI) is the contribution to profit attributable to marketing, divided by the marketing 'invested' or risked. ROMI is not like the other 'return-on-investment' (ROI) metrics because marketing is not the same kind of investment. Instead of money that is 'tied' up in plants and inventories, marketing funds are typically 'risked'. Marketing spending is typically expensed in the current period.
Marketing mix modeling (MMM) is statistical analysis such as multivariate regressions on sales and marketing time series data to estimate the impact of various marketing tactics on sales and then forecast the impact of future sets of tactics. It is often used to optimize advertising mix and promotional tactics with respect to sales revenue or profit.
Customer engagement is an interaction between an external consumer/customer and an organization through various online or offline channels For example, Hollebeek, Srivastava and Chen's S-D logic-informed definition of customer engagement is "a customer’s motivationally driven, volitional investment of operant resources, and operand resources into brand interactions," which applies to online and offline engagement
Premium pricing is the practice of keeping the price of one of the products or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. Premium refers to a segment of a company's brands, products, or services that carry tangible or imaginary surplus value in the upper mid- to high price range. The practice is intended to exploit the tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction. A premium pricing strategy involves setting the price of a product higher than similar products. This strategy is sometimes also called skim pricing because it is an attempt to “skim the cream” off the top of the market. It is used to maximize profit in areas where customers are happy to pay more, where there are no substitutes for the product, where there are barriers to entering the market or when the seller cannot save on costs by producing at a high volume.
Brand awareness is the extent to which customers are able to recall or recognize a brand under different conditions. Brand awareness is one of two dimensions from brand knowledge, an associative network memory model. Brand awareness is a key consideration in consumer behavior, advertising management, and brand management. The consumer's ability to recognize or recall a brand is central to purchasing decision-making. Purchasing cannot proceed unless a consumer is first aware of a product category and a brand within that category. Awareness does not necessarily mean that the consumer must be able to recall a specific brand name, but they must be able to recall enough distinguishing features for purchasing to proceed.
A target market is a group of customers within a business's serviceable available market at which a business aims its marketing efforts and resources. A target market is a subset of the total market for a product or service.
A brand is a name, term, design, symbol or any other feature that identifies one seller's good or service as distinct from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create and store value as brand equity for the object identified, to the benefit of the brand's customers, its owners and shareholders. Name brands are sometimes distinguished from generic or store brands.
Brand valuation is the process of estimating the total financial value of a brand. A conflict of interest exists if those who value a brand were also involved in its creation. The ISO 10668 standard specifies six key requirements for the process of valuing brands, which are transparency, validity, reliability, sufficiency, objectivity; and financial, behavioral, and legal parameters.
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