Brand equity

Brand equity, in marketing, is the worth of a brand in and of itself – i.e., the social value of a well-known brand name. 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 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.

The brand equity concept

It has been said that brand equity is "the branding of a product name on an attention-deficit public."

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.

Purpose

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.

Brand Equity is best managed with the development of brand equity goals, which are then used to track progress and performance.

Construction

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. More recently a revenue premium approach has been advocated. and perception of quality.

Automobile Industry

One of Oldsmobile's 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.

Conjoint Analysis

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.

Brand re-genesis

Changes in the marketing environment can affect a brand's performance. Brand revitalization typically begins with an assessment of the existing sources of brand equity, including whether positive associations have weakened or lost distinctiveness, or whether negative associations have developed. This analysis informs the decision of whether to retain the existing brand positioning or adopt a new one.

Maintaining brand consistency

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.