Measuring Sources of Brand Equity
The indirect approach to measuring customer-based brand equity attempts to assess potential sources for customer-based brand equity by measuring brand knowledge structures, i.e., consumers’ brand awareness and brand associations. The indirect approach is useful in identifying what aspects of the brand knowledge may potentially cause the differential response that creates customer-based brand equity. Because any one measure typically only captures one particular aspect of brand knowledge, multiple measures need to be employed to account for the multi-dimensional nature of brand knowledge. Brand awareness can be assessed through a variety of aided and unaided memory measures that can be applied to test brand recall and recognition. The strength, favorability, and uniqueness of brand associations can be assessed through a variety of qualitative and quantitative techniques Measuring outcomes of brand equity. The direct approach to measuring customer-based brand equity, on the other hand, attempts to more directly assess the impact of brand knowledge on consumer response to different elements of the marketing program for the firm. The direct approach is useful in assessing the possible outcomes and benefits that arise from the differential response that makes up customer-based brand equity. The two main ways to measure the outcomes and benefits of brand equity are comparative methods and holistic methods, as follows. Comparative methods are a means to better assess the effects of consumer perceptions and preferences on specific aspects of the marketing program. Comparative methods involve experiments that examine consumer attitudes and behaviors towards a brand and its marketing activity that arise from having a high level of awareness and strong, favorable, and unique associations.
- Brand-based comparative approaches typically involve experiments where one group of consumers responds to an element of the marketing program or some marketing activity (e.g., the product) when it is attributed to the brand and another group of identically matched consumers responds to that same element when it is attributed to a competitive or fictitiously named version of the product or service.
- Marketing-based comparative approaches typically involve experiments where consumers respond to changes in elements of the marketing program or marketing activity for the target brand or competitive brand (e.g., different prices for a brand).
Comparing responses of different groups of consumers (with the former approach) or different responses from the same consumers (with the latter approach) provide insight into how brand knowledge affects response to marketing activity. Holistic methods, on the other hand, are an attempt to place an overall value for the brand in either abstract utility terms or concrete financial terms. Thus, holistic methods attempt to “net out” various considerations to determine the unique contribution of the brand. The residual approach attempts to examine the value of the brand by subtracting out consumers’ preferences for the brand based on physical product attributes alone from their overall brand preferences. The valuation approach attempts to extend such analyses to place a financial value on the brand for accounting purposes, mergers and acquisitions, or other such reasons. For example, Inter brand has developed a two-step method of calculating brand value: 1) identifying the “true” brand earnings and cash flow and 2) capitalizing the earnings by applying a multiple to historic earnings as a discount rate to future cash flow. Both steps involve a number of different calculations, e.g., the discount rate that is applied to brand earnings is based on an assessment of brand strength as a result of a detailed review of factors related to the brand, its positioning, the market in which it operates, competition, past performance, future plans, risks to the brand, etc.
To identify and monitor sources of brand equity, it is necessary to design and implement a brand equity measurement system.
A brand equity measurement system is a set of activities and procedures that is designed to provide timely, accurate, and actionable information and guidelines for marketers so that they can make the best possible tactical decisions in the short-run and strategic decisions in the long-run. Designing and implementing such a system involves four steps, as described in detail below: 1) Conducting brand audits, 2) analyzing brand positioning and brand planning, 3) employing brand tracking studies, and 4) creating a brand equity management system.
1. Conducting Brand Audits
A brand audit is a comprehensive examination of a brand involving activities to assess the health of the brand, uncover its sources of equity, and suggest ways to improve and leverage that equity. The brand audit can be used to set strategic direction for the brand. Are the current sources of brand equity satisfactory? Do certain brand associations need to be strengthened? Does the brand lack uniqueness? What brand opportunities exist and what potential challenges exist for brand equity? As a result of this strategic analysis, a marketing program can be put into place to maximize long-term brand equity. A brand audit should be conducted whenever important shifts in strategic direction are contemplated. Moreover, conducting brand audits on a regular basis (e.g., annually) allows marketers to keep their “fingers on the pulse” of their brands so that they can be more proactively and responsively managed. As such, they are particularly useful background for managers as they set up their marketing plans.
A brand audit requires understanding sources of brand equity from the perspective of both the firm and the consumer. From the perspective of the firm, it is necessary to understand exactly what products and services are currently being offered to consumers and how they are being marketed and branded. From the perspective of the consumer, it is necessary to dig deeply into the minds of consumers and tap their perceptions and beliefs to uncover the true meaning of brands and products. Specifically, the brand audit consists of two activities:
- Brand inventory: The purpose of the brand inventory is to provide a complete, up-to-date profile of how all the products and services sold by a company are marketed and branded. For each product, the relevant brand elements must be identified, as well as the supporting marketing program. This information should be summarized visually and verbally. Although primarily a descriptive exercise, some useful analysis can be conducted as to the consistency of branding and marketing efforts.
- Brand exploratory: The brand exploratory is research activity designed to identify potential sources of brand equity. The brand exploratory provides detailed information as to what consumers think of and feel about the brand. Although reviewing past studies and interviewing relevant personnel inside or outside the company provides some insights, additional research is often required. To allow a broader range of issues to be covered and also to permit those issues to be pursued in-depth, the brand exploratory often employs qualitative research techniques. To provide a more specific assessment of the sources of brand equity, a follow-up quantitative phase is often necessary.