Managing Brand Equity

Consistency is the key to successfully building and managing brand equity. Having a long-term outlook and projecting a consistent image of your brand to the customer will maximize the results of building brand equity. It is critical for managers to realize that brand equity can have positive as well as negative effects on a product or company. In the end, it is the customer that truly defines what brand equity means.

Managing Brand Equity

If management feels it is necessary to change the direction of a brand or change a product it must be careful not to change too quickly. There are many examples of companies that have changed a product or brand too much or too quickly. On these occasions, consumers met changes with adverse reactions. The most famous example is Coca-Cola. They changed the formula of their flagship product Coke, and consumers reacted so poorly to the new product that the old formula was reintroduced and the new formula eventually was discontinued. The consumer through the product experiences brand equity. The product has certain attributes or characteristics that deliver the equity to the consumer. If any of these attributes are changed or eliminated, the equity delivered to the consumer is also changed.

Managing brand equity is a continual process with long-term implications. Unfortunately, many brand managers are forced to focus on short-term goals such as market share and profits. Many programs that are implemented to boost short-term sales or market share may be detrimental to the long-term viability of the brand. For example, Proctor & Gamble has started to test market a program to move away from using coupons to a system of every day low prices. This is, in part, because consumers may become loyal to the coupon or promotion and not to the product itself. Constant promotional programs erode margins and eventually brand loyalty. Ultimately, brand equity is damaged.

In 1988, Graham Phillips, Chairman of Ogilvy and Mather Worldwide, said, “I doubt that many would welcome a commodity marketplace in which one competed solely on price, promotion and trade deals, all of which can be easily duplicated by competition. This would lead to ever decreasing profits, decay, and eventual bankruptcy. About the only aspect of the marketing mix that cannot be duplicated is a strong brand image.” This quote clearly demonstrates the importance of managing brand equity. In many categories, brand equity is the only point of differentiation between products.

Many people may think that building and maintaining brand equity is solely the responsibility of brand managers, but it is actually a cross-functional team effort. Financial managers are important because they can fully analyze the costs of maintaining and building brand equity. For example, launching a new brand is extremely consuming in terms of money and time. It may be more cost effective to extend a current brand than introduce a new brand. Marketing research is critical for many obvious reasons. It develops most, if not all, of the research and data that companies will use for deciding strategic issues. Marketing research can also help determine how brand equity is actually measured.

Managing brand equity requires taking a broad, long-term perspective of brands. A broad view of brand equity is critically important, especially when firms are selling multiple products and multiple brands in multiple markets. In such cases, brand hierarchies must be created that define common and distinct brand elements among various nested products. New product and brand extension strategies also must be designed to determine optimal brand and product portfolios. Finally, these brands and products must be effectively managed over geographic boundaries and target market segments by creating brand awareness and a positive brand image in each market in which the brand is sold.

Steps in Managing Brand Equity

  1. Define the brand hierarchy in terms of the number of levels to use and the relative prominence that brands at different levels will receive when combined to brand any one product.
  2. Create global associations relevant to as many brands nested at the level below in the hierarchy as possible but sharply differentiate brands at the same level of the hierarchy.
  3. Introduce brand extensions that complement the product mix of the firm, leverage parent brand associations, and enhance parent brand equity.
  4. Clearly establish the roles of brands in the brand portfolio, adding, deleting, and modifying brands as necessary.
  5. Reinforce brand equity over time through marketing actions that consistently convey the meaning of the brand in terms of what products the brand represents, what benefits it supplies, what needs it satisfies, and why it is superior to competitive brands.
  6. Enhance brand equity over time through innovation in product design, manufacturing and merchandising and continued relevance in user and usage imagery.
  7. Identify differences in consumer behavior in different market segments and adjust the branding program accordingly on a cost-benefit basis.

Issues in Managing Brand Equity

The introduction of the brand equity concept raises a host of practical issues about the management of a brand. An overview of some of these issues is given below.

  • The bases of brand equity: On what should the brand equity be based? What associations should form the basis of the positioning? How important is awareness? Among which segments? Can barriers be created to make it more difficult for competitors to dislodge loyal customers?
  • Creating brand equity: How is brand equity created? What are the driving determinants? What is the role in any given context of the name, the channel, the advertising, the spokesperson, and the package, and how do they interrelate? As a practical matter, decisions on such elements need to be made as brand equity is created or changed.
  • Managing brand equity: How should a brand be managed over time? What actions will meaningfully affect the elements of equity-in particular the associations and perceived loyalty? What is the “decay rate” if supporting activities (such as advertising) are withdrawn? Often a reduction of advertising results in no detectable drop in sales. Is there damage to the equity if a reduction is prolonged? How can the impact of a promotion or another marketing program be determined?
  • Forecasting the erosion of equity: How can erosion of brand equity, and other future problems, be forecast? The danger is that by the time that damage to the brand is recognized, it is too late. The cost of correcting a problem can be extremely high relative to the cost of maintaining equity. The forecasting issue is especially crucial in durables like au ­tomobiles, where the time needed to replace a product can be as long as five years. If a decline can be detected two years before the brand’s damage becomes obvious, then the remedy can be timelier. A disaster such as the Tyienol tampering case has the advantage that the threat to brand equity, and the need to take action, are both obvious. More commonly, a brand is eroded so slowly that it is difficult to generate a sense of urgency.
  • The extension decision: To what products should the brand be extended? How far can the brand be extended before brand equity is affected? Of particular concern is the vertical brand extension: Can an upscale version of the brand be marketed? If so, will there be spillover impact upon the brand name? Do the Earnest and Julio Gallo varietals help the basic Gallo line? What about the temptation to exploit the brand by putting the name on a down scale product? How can the extent of damage to brand equity be predicted? Will the new associations of an extension be helpful or harmful?
  • Creating new names: The investment in a new brand name (an alternative to a brand extension) will generate a name with a new set of associations which can provide a platform for another growth stream. What are the trade-offs between these alternatives? Under what cir ­cumstances should the one be preferred over the other? How many brand names can a business support?
  • Complex families of names and sub-names: How should different levels of brand-name families be managed? What mix of advertising should Black& Decker place behind the Black& Decker name, the Space Saver name that indicates a product subgroup, or the Black& Decker Dust-buster? Should the recruiting effort of the U.S. government be centered on the individual military branches, or should the U.S. defense team be the focus? Delicate considerations of the vertical re ­lationships among brands and “sub-brands” have to be made.
  • Brand equity measurement: A basic question underlying all these issues is how to measure brand equity and the assets on which it is based. If it can be conceptualized in a given context precisely enough to measure and monitor it, the other problems become manageable. Clearly, there are several approaches to brand equity and its measure ­ment. The need is to determine which is the most appropriate and to select a measurement method.
  • Evaluating brand equity and its component assets: A pressing re ­lated issue is how to value a brand. Given that there is a market for brands, it is of enormous practical value to actually provide methods to estimate that value. Of even more importance is to place a value upon the underlying assets (such as awareness and perceived quality). The key to justifying investment in building such assets is to be able to estimate the value of such activities. Although some progress has been made, this area remains a significant challenge for marketing professionals.

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