It is time to structure and organise the many terms related to brands and their strength,and to the measurement of brand equity.Some restrict the use of the phrase ‘brand equity’ to contexts that measure this by its impact on consumer mental associations(Keller, 1992). Others mention behavior: for example this is included in Aaker’s early measures (1991), which also consider brand loyalty.
In his late writings Aaker includes market share, distribution and price premium in his 10 measures of brand equity (1996). The official Marketing Science definition of brand equity is ‘the set of associations and behavior on the part of a brand’s customers, channel members and parent corporation that permits the brand to earn greater volume or greater margins than it could without the brand name’ (Leuthesser, 1988).
This definition is very interesting and has been forgotten all too quickly. It is all-encompassing,reminding us that channel members are very important in brand equity. It also specifically ties margins to brand associations and customers’ behavior. Does it mean that unless there is a higher volume or a higher margin as a result of the creation of a brand,there is no brand value? This is not clear, for the word ‘margin’ seems to refer to gross margin only, whereas brand financial value is measured at the level of earnings before interest and tax (EBIT).
To dispel the existing confusion around the phrase brand equity (Feldwick, 1996), created by the abundance of definitions, concepts,measurement tools and comments by experts,it is important to show how the consumer and financial approaches are connected, and to use clear terms with limited boundaries (see Table below):Brand assets.These are the sources of influence of the brand (awareness/ saliency, image, type of relationship with consumers), and patents.Brand strengthat a specific point in time as result of these assets within a specific market and competitive environment.They are the ‘brand equity outcomes’ if one restricts the use of the phrase ‘brand equity’to brand assets alone. Brand strength is captured by behavioral competitive indicators:market share, market leadership,loyalty rates and price premium (if one follows a price premium strategy).Brand value is the ability of brands to deliver profits. A brand has no financial value unless it can deliver profits. To say that lack of profit is not a brand problem but a business problem is to separate the brand from the business, an intellectual temptation. Certainly brands can reanalyzed from the standpoint of sociology, psychology, semiotics, anthropology, philosophy and so on, but historically they were created for business purposes and are managed with a view to producing profit.
Only by separating brand assets, strength and value will one end the confusion of the brand equity domain (Feldwick, 1996 takes a similar position). Brand value is the profit potential of the brand assets, mediated by brand market strength.
In Table below, the arrows indicate not a direct but a conditional consequence.
From awareness to financial value
The same brand assets may produce different brand strength over time: this is a result of the amount of competitive or distributive pressure. The same assets can also have no value at all by this definition, if no business will ever succeed in making them deliver profits, through establishing a sufficient market share and price premium.
For instance if the cost of marketing to sustain this market share and price premium is too high and leaves no residual profit, the brand has no value. Thus the Virgin name proved of little value in the cola business: despite the assets of this brand, the Virgin organization did not succeed in establishing a durable and profitable business through selling Virgin Cola in the many countries where this was tried. The Mini was never profitable until the brand was bought by BMW.
Table above also shows an underlying time dimension behind these three concepts of assets, strength and value. Brand assets are learnt mental associations and affects. They are acquired through time, from direct or vicarious, material or symbolic interactions with the brand. Brand strength is a measure of the present status of the brand: it is mostly (market share, leadership, loyalty,rice premium).
Not all of this brand stature is due to the brand assets. Some brands establish leading market share without any noticeable brand awareness: their price is the primary driver of preference. There are also brands whose assets are superior to their market strength: that is, they have an image that is far stronger than their position in the market(this is the case with Michelin, for example).
The obverse can also be true, for example of many retailer own brands. Brand value is a projection into the future. Brand financial valuation aims to measure the brand’s worth, that is to say, the profits it will create in the future. To have value, brands must produce economic value added (EVA),and part of this EVA must be attributable to the brand itself, and not to other intangibles(such as patents, know-how or databases).
This will depend very much on the ability of the business model to face the future. For instance, Nokia lost ground at the Stock Exchange in April 2004. The market had judged that the future of the world’s number one mobile phone brand was dim. Every wherein the developed countries, almost everyone had a mobile phone.
How was the company still to make profits in this saturated market? If it tried to sell to emerging countries it would find that price was the first purchase criterion and delocalisation (that is, having the products manufactured in a country such as China or Singapore) compulsory. Up to that point, Nokia had based its growth on its production facilities in Finland. Nokia’s present brand stature might be high, but what about its value?
It is time now to move to the topic of tracking brand equity for management purposes. What should managers regularly measure?