The economic press regularly gives figures on the financial value of brands. The Coca-Cola brand might have been worth US$67 billion, Microsoft US$60 billion, Mercedes US$22 billion, Marlboro US$21 billion, Louis Vuitton US$17 billion, Google and Dell US$12 billion and Zara US$4 billion in 2006. These figures are estimations: that of the future ability of the brands to generate a profit surplus entirely based on their name – that is, on all the values with which the name is associated in the mind of the public worldwide.
Other study institutes therefore regularly publish the measurements of the associations consumers make with the names of these brands. For example TNS measures the recognition of brands, their evocative power, their perceived quality, their rate of declared use and the stated desire to buy the brand again in future. Brandz measures the rate of presence in the customer’s mind, the perceived feeling that the brand is relevant (to the customer), that it is effective, that it offers advantages, and finally a sense of attachment to it. Others measure empathy scores, familiarity, perceived difference and stature scores.
Brands have never been examined in such detail, nor have so many different measurements been published. It is true that the news for certain brands is not good: something seems to have been damaged recently between the public and the major brands.
Let us examine the recent retrospective data published by TNS (in 2006) based on 300 brands of all sectors (see Table below). TNS measures both attitudes (familiarity with the brand, evocative power, and perceived quality) and declarative behaviours (past and future use).
Evolution of brand indicators over 10 years
What do we notice here? The basic contract of brands has been eroded between 1997 and 2005: the perception of genuinely superior quality has decreased, whereas the richness of evocation has remained stable. In fact, the most notable absence in these types of study, which focus only on major brands, is the distributor brand. Now manufactured by the same companies as are responsible for traditional major brands, they have reduced the quality gap first objectively, and then, with time and experience, subjectively.
We can also note that the ratio of intention to repurchase the brand is deteriorating: in 1997 it was 64 per cent (18/28), but it was no more than 50 per cent (11/22) in 2005. It is as if the link between customers and the brands they use was stretching, or as if they have become ‘shoppers’, and have learnt to optimise their choices in-store. After all, what use is there in shopping in-store, if not to take advantage of the special offers and novelties of the moment? And now, in-store, the landscape has changed considerably: the shelf reflects the distributor’s strategy, and no longer purely that of the brand manufacturer.
According to Interbrand, a design agency also involved in estimating the financial value of brands, the leading global brand remains Coca-Cola. However, even this mythical figure is suffering from erosion of the strong link with its audience that once characterized it. The TNS figures in Table below bear witness to this.
Evolution of brand capital for Coca-Cola and Danone (in France, %)
In the case of Coca-Cola and Danone in particular, two star brands, there has been little erosion of the brand image itself. But on the other hand behaviour and intentions are both retreating: the strength of consumers’ conviction that they will buy the same again is weaker. This strengthens our diagnosis that brands are built in-store, and destroyed instore. What does having a good image matter, if customers are less likely to keep buying the brand as a result?
This question will be analysed later. It must also be recognised that these measures, while useful, only measure the health of brands among themselves, rather than their resistance to new competition. This is why so many managers are disappointed: there is nothing wrong with their brand equity indicators, but there is a problem with their behaviour panel indicators.
At this stage it is necessary to make a fundamental distinction between three aspects:Brand assets (awareness, image, consideration as a whole), also known as brand equity from a customer point of view.The strength of the brand, which integrates the distribution parameter: market share, price premium, numerical distribution of store presence, weighted distribution (by size and global category sales of each store), growth and so on.Brand equity in the strict sense of the term: that is, the current financial value of the flow of future profits attached to the brand itself (the potential future contribution linked to the name in the current distribution context). This flow is largely dependent on the brand’s weight in the purchasing decision: people may believe that Total is a superior quality brand, but may not take brand into account in their choice of service stations, basing their decision more on proximity or price.
If there is a link between these three facets, it is no longer a strict one: many brands that have genuine brand capital among clients have low brand strength. For example, Lafuma has a great reputation in France, but is nowhere to be found: this brand does not meet the objectives of the dominant distributor in its sector, Decathlon. Why are Nestlé dairy products throwing in the towel in France and selling their factories to Lactalis? Because the price premium of the Nestlé brand does not enable it to sell enough yoghurts and ultra-fresh products:
without sufficient volume there can be no marketing communications, and distributors are no longer interested. Of course it would be possible to lower prices, but then the profitability would suffer, since it is rare to gain in volume and cumulative margin what is lost through dropping the price. Nestlé prefers to step back from the market and put its free capital to more profitable uses.
The current emphasis on measuring brand equity from the customer’s point of view alone has its limits: it neglects the true playing field, which is distribution, and its own decision-making factors such as its actors (the shoppers). It is fine to measure preferential choices in interviews, but in-store the distributor’s brand is omnipresent and weighs more on decisions than it does in interviews. Moreover, the shopper is sensitive to price differences shown on the labels.
From brand values to brand value
Financial brand equity, the expected future revenues due to the brand itself, will certainly depend on the brand’s assets (ability to make itself desired, even preferred), but will also depend also on its ability to transform this desire into an effective choice on the shelves, with a price differential, a premium (brand strength). This is illustrated in Figure below.
In the wine sector, many are questioning the real financial value of wine brands: in fact, they may have a good image, but on the shelf customers will be tempted by novelties, incited to do so by distributors who promote new and unknown brands, perhaps of New World wines. In addition, once customers have been introduced to wine via one brand, they like to discover others. Is this not a market governed by disloyalty, linked to the pleasure of discovery?
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