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Brand equity

When and how should brand equity be applied?

AccessibleStrategicTeam3 min read

Contents

Helps managers answer: To what extent is value driven by our brand?

A corporate or product brand can be a valuable legal and commercial asset. By shaping awareness, preference and loyalty, it may support future revenue and reduce the risk of customer defection. The positive or negative value added by that name and its associations is called brand equity.

When to use it

To answer: “To what extent does the brand drive value?”
To monitor a KPI within the marketing and sales perspective.
To define the required measures, collection method, frequency and source.
To compare performance with targets, competitors, benchmarks and trends.

Origins

Brand equity became prominent in the late 1980s and early 1990s as managers began treating brands explicitly as assets. David Aaker’s Managing Brand Equity (nineteen ninety-one) organised the concept around awareness, associations, perceived quality, loyalty and proprietary assets. Kevin Lane Keller’s nineteen ninety-three work formalised customer-based brand equity as the different response produced by brand knowledge. Financial valuation and customer-mindset measures address different phenomena and should not be collapsed into an unexplained total.

What it is

Perspective: Marketing and sales.

Key performance question: How much value does the brand create or destroy?

Brand equity is the incremental value attached to products and services because of the brand. It may appear as a price premium paid by consumers or trade partners, stronger long-term loyalty or market-share gains. Saatchi & Saatchi popularised “Lovemarks” for brands whose customers show unusually strong attachment, remain loyal, accept a premium and advocate without payment.

Investors monitor brand equity because a large share of corporate value may lie in intangible assets such as reputation, trademarks, know-how and brand rather than factories or machinery. Damage to customer perception can therefore reduce cash flow and company value. Measurement helps management maintain, build and leverage the asset, improving the return generated from brand investment.

How to use it

Measurement

Combine qualitative diagnosis with quantitative tracking.

Data collection method

Interviews and focus groups reveal which associations exist and whether they are strong, favourable and distinctive.

Quantitative tracking provides a firmer basis for decisions. Include awareness, usage, attitudes and perception. Measure both unaided recall and recognition, weighting their relevance according to how the category is purchased—for example, whether choice occurs at a shelf or before arrival.

Track product experience alongside non-product associations and overall attitude towards the company. This evidence identifies where marketing and operational changes can strengthen appeal, salience and uniqueness.

Formula

There is no universal formula. The calculation depends on whether the object is the firm, the product or the customer’s response.

Firm level: Treat the brand as a financial asset. One rough method subtracts tangible assets and separately measurable intangibles from enterprise value, although the residual contains more than brand. Interbrand instead estimates brand-related future profit and discounts it to present value using a judgemental rate reflecting risk, leadership, stability and global reach.

Product level: Compare the price of an equivalent private-label or unbranded offer with the branded product. When all meaningful attributes are genuinely equal, the premium provides one estimate of brand contribution.

Consumer level: Map awareness, recall, recognition and the network of tangible and intangible associations in the customer’s mind. Free association and projective techniques can reveal attitudes and intentions. High customer-based equity combines salience with strong, favourable and distinctive meaning.

Every approach is approximate. Use several complementary measures and keep their meanings separate.

Frequency

Track perception continuously or at a regular cadence, especially across large multi-product portfolios.

Source of the data

Use customers, prospects, channel partners and other relevant audiences whose perceptions are being measured.

Cost/effort in collecting the data

Cost rises with organisational and portfolio complexity. External research firms often conduct interviews, analysis and reporting. The work can be expensive, but its value should be judged against the decisions and financial exposure the brand represents.

Target setting/benchmarks

Set multi-year targets for specific equity drivers such as awareness, distinctive associations, delivery of the promise, loyalty and price premium. Tie initiatives to a coherent brand vision rather than targeting an opaque composite score.

As a historical benchmark, Interbrand’s 2010 global ranking listed the following top four:

1Coca-Cola: brand value (M)$70,452 2IBM:$64,727 3Microsoft:$60,895 4Google:$43,557

Source: www.interbrand.com

Example

Ford’s North American naming strategy illustrates the cost of discarding established recognition.

In the early 2000s, Ford decided that new or redesigned cars would use names beginning with “F,” echoing the earlier “E” convention for sport-utility vehicles after Explorer. Renaming Windstar as Freestar risked losing accumulated familiarity, although management believed a new name would signal redesign. Ford also replaced the historically significant Taurus with Five Hundred, Freestar and Fusion. By 2007, Freestar had been discontinued, Five Hundred was abandoned and chief executive Alan Mulally restored Taurus. Fewer than half of consumers recognised Five Hundred, while an overwhelming majority knew Ford Taurus.

Top practical tip

Use a small scorecard that connects customer knowledge and preference to behaviour: awareness, distinctive associations, consideration, loyalty, realised price premium and share. Interpret movement with product and channel evidence.

Top pitfall

Do not let brand equity excuse weak product quality or functionality. Even a powerful name provides little protection when a competitor makes the offer obsolete, and no single valuation method can isolate every source of intangible value.