CREATIVE SOLUTIONS

Value Creation and Why Brand Equity Matters

CREATIVE SOLUtiONs

Value Creation and Why Brand Equity Matters

Brand equity is the only element of the Brand Value Equation that creates sustainable competitive advantage.
A colleague recently asked me a two-part question: What is brand equity and how do you measure it? I answered the first part of this question by defining brand equity as the perceived value of a brands image attributes, such as trust, self-image reinforcement and social responsibility. Expressing this another way, I also explained that brand equity essentially connects the dots between what a brand stands for and how this translates financially in the form of goodwill on a firms balance sheet. This line entry can represent anywhere from 30% to 60% and more of a firms total asset value. As John Stewart, former CEO at Quaker, once stated, If this business were split up, I would give you all the land and bricks and mortar, and I would take the brands and trademarks, and I would fare better than you. Answering the second part of this question was a bit more challenging. I went on to state that there is no universal way to measure brand equity and that most existing models are exceedingly complex. Young & Rubicams BrandAsset Valuator, for example, has been measuring brand health since 1993 and uses four key constructs: differentiation, relevance, esteem and perception. These constructs are calculated based on over 50 individual perception measures using a survey that queries approximately 500,000 consumers in 49 countries covering 38,000 brands. By comparison, Interbrand, a division of Omnicom, uses a very different model that merges three separate analyses: financial analysis, market analysis and brand analysis. The latter involves subjective scoring based on seven different measures brand leadership, marketplace longevity, market growth and stability, global reach, long-term trends, consistency and support, and trademark protection. Fortunately, I just stumbled across Value Creation The Power of Brand Equity, by William Neal and Ron Strauss. This book proposes a much simpler model for defining and measuring brand equity. I wish I had known about this earlier when I tried to answer my colleagues questions! As the title suggests, this approach vividly illustrates how brand equity can be used as a powerful strategic tool for creating longterm economic value. The two authors have named their approach the Brand Value Equation. It starts with a basic definition of brand value: Brand Value = Benefits Costs Benefits can then be parsed into two bundles tangible benefits and intangible (or emotional) benefits. Thus, Brand Value = Tangible Benefits + Intangible Benefits Costs Recognizing that there are different sources of tangible benefits, the value equation can further be expanded as follows: Brand Value = (Product Benefits + Service Benefits + Channel Benefits) + Intangible Benefits Costs The intangible benefits in this equation are all communicated to the consumer by the brand name. They may be also referred to as the brand promise what the customer/consumer believes the brand stands for and the brands equity. Brand equity encompasses a gestalt of intangible values with associated perceptions of benefits that go beyond the offering. These intrinsic equities can include such things as trust, brand purpose, perceived quality, shared interest and values, passion, selfimage reinforcement, social responsibility, brand innovation, communication consistency, previous experiences with the brand and various other meanings. In this model, brand equity is a subset of brand value. Thus, the Brand Value Equation now becomes: Brand Value = (Product Benefits + Service Benefits + Channel Benefits) + Brand Equity Costs
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VALUE CREATION AND WHY BRAND EQUITY MATTERS

In essence, the Brand Value Equation provides a strategic framework for understanding total brand value. It singles out brand equity (which includes the intangible perceptual and emotional benefits representing what the brand stands for) and presents this in context with the tangible performance characteristics that can usually be replicated by competitors (e.g., price, the product and service offering and channel distribution). The key assumptions are that buyers assessment of total brand value drives choice, and buyers always seek to optimize value in any given purchase situation.

your category, you can diagnose relative strengths and weaknesses, and pinpoint where to invest to strengthen perceived value for each market segment in which you compete. Additionally, its worth noting that when the tangible benefits of competitors offerings are perceived as being similar, the tie-breaker becomes the brand with the most compelling emotional benefits or brand equity. Return on investment It presents four levers that can be manipulated to enhance buyers perceptions of value, therefore driving choice and increasing market share price, product/service performance, channel performance and brand equity. Analysis of the importance of weights coupled with a realistic competitive assessment indicates where you can get the most increase in comparable brand value for a given investment in a brands performance. Any change in attribute performance can be priced out, allowing a rigorous cost-benefit analysis to be undertaken. Measurability and attribution It provides a quantitative measure of brand equity that can be converted into a currency value and therefore allows you to measure its value and attribution to total brand value. To summarize, the Brand Value Equation:

BRAND VALUe

CHOICe

PRICe

PRODUCT & SeRvICe beNeFITS

CHANNeL beNeFITS

bRAND eQUITY

There are at least four strategic implications that can be deduced from the Brand Value Equation: Value drives choice Brands that have high perceived value are usually included in a buyers consideration set and the brand that has the highest total brand value ultimately wins. Furthermore, if a brands combined tangible and intangible equities are consistently higher than other brands in a given category, that brand usually enjoys the highest market share and highest customer loyalty in terms of repurchase and recommendation. Competitive advantage It provides a strategic construct for achieving competitive advantage. By deriving the utility (value) of different performance levels for each individual attribute as perceived by customers for your brand, as well as for the other competing products and services within

Greatly simplifies the definition of brand equity and its role as a driver of total brand value Offers a holistic view of brand value creation and is a useful management tool for identifying the most effective combination of lever(s) that can be manipulated to enhance buyers perceptions, drive choice and improve ROI Enables quantifiable measurement of brand equity and attribution A final important strategic consideration for CEOs, marketing and financial executives is that brand equity is the ONLY element in the Brand Value Equation that can be leveraged to create sustainable competitive advantage. Your only truly defensible asset is brand equity. Competitors can beat your prices, they can usually duplicate or exceed any of your product/service performance advantages and they can almost always compete successfully in your
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channels. Your brand equity uniquely belongs to you. Only your actions can depreciate or destroy brand equity by failing to keep your brand promise or by engaging in questionable business practices or socially irresponsible actions. Therefore, in addition to increasing shareholder value, brand equity is, or at least should be, a critical measure of a firms ability to create long-term economic value.

Keywords: brand value equation, total brand value, measure brand equity, measure brand value, self-image reinforcement, self image reinforcement, brand purpose, brand innovation

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