Understanding Brnd Equity 2009

8/6/2019 Understanding Brnd Equity 2009

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Integrated Marketing Communications

For

Executive MBA

2009-2010

Dubai Campus

Short paper

Understanding Brand Equity

Suketu S Kohli

Tel-9821915093


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The marketing battle will be a battle of brands, a competition for brand dominance.

Business and investors will recognize brands as the companys most valuable assets.

This is a critical concept. It is a vision about how to develop, strengthen, defend and

manage a business. It will be more important to own markets than to own factories. The

only way to own markets is to own market dominant brands.

There are indicators, which prove Lights words. Firms have been willing to pay huge

sums of money for brand names. Back in 1988, when U.K.-based GrandMet acquired

Pillsbury it was estimated that 88% of the price it paid consisted of "goodwill." In other

words, GrandMet paid just less of $1 billion to acquire the Pillsbury brand name and its

other branded properties (Green Giant, Old El Paso, Haagen-Dazs, and so on). The

value of brands in the nineties can also be envisaged by the money paid by firms that

have acquired consumer package goods with strong brand names. Procter and Gamble

paid 2.6 times Richardson-Vicks book value, Nabisco sold for 3.2 times book value,

and General Foods sold for 3.5 times book value (Business Week, 1995)1 There have

been other acquisitions which have similarly demonstrated that brands can command

very high prices. Volkswagen, for instance, paid $780 million for the assets of the Rolls-

Royce automobile corporation excluding the Rolls-Royce brand; the Rolls-Royce

trademark was subsequently purchased by Volkswagen's rival, BMW for $65 million,

and many analysts believe that BMW got the better deal(Chevron 2000)2. Recently the

Tatas have acquired the marquee brands land Rover and Jaguar for approximately 2.3

billion dollars.

1 Business Week(1995), New? Improved? The brand name mergers, October 1995), pp.108-10.2Jacques Chevron ,2000, Valuing Brands, on Paper and in Truth.Brandweek online, Issue: Jan 17, 2000(available at

www.findarticles.com:accessed 18/1/01)
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3.0 What is a Brand?

If we are discussing about brands and their equity it would be imperative at first to

comprehend briefly what exactly is a brand.

The brand starts as a product and a name. But much can be built on that name. In fact,

a brand name can be best described as the foundation stone for an elaborate edifice.

Branding shapes a wealth of perceptions, beliefs, attitudes and experiences to turn a

product and name into something, which the consumer relates (Interbrand 1996)3. A

brand exists in the mind of the consumer and offers emotional or self-expressive

benefits as opposed to the product or service, which offers functional benefits. Brands

have been often described as an image in the consumers minds (Boulding, 1956;

Martineau, 1959, Keller, 1993).

The American Marketing Association (1960) proposed the following company-oriented

definition of a brand as: A name, term, sign, symbol, or design, or a combination of

them, intended to identify the goods or services of one seller or group of sellers and to

differentiate them from those of competitors. A buyer can thus ask for the companys

product by name. Thus the brand signals to the customer the source of the product and

protects both the customer and the producer from competitors who would attempt to

provide products that would be identical (Aaker, 1991).

Marketing focus since the sixties has shifted from product attributes to consumer

benefits, which are rational or otherwise. Ambler (1992) takes a consumer-oriented

approach in defining a brand as: the promise of the bundles of attributes that someone

buys and that provide satisfaction the attributes that make up a brand may be real or

illusory, rational or emotional, tangible or invisible.

These brand attributes emanate from all elements of the marketing mix and all the

brands product lines. The attributes of a brand are created using the marketing mix,

3 The worlds greatest brands,1996,Edited by Nicholas Kochan,Macmillan Press,London


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and are subject to interpretation by the consumer. They are highly subjective. Brand

attributes are essentially what is created through brand image (Wood ,2000). 4

4.0 Defining Brand Equity

The marketer creates various permutations and combinations of the marketing mix

through mediums of mass media advertising, promotions, and public relations etc.

creating audio visual imagery and beliefs which leads to perceptions in the minds of the

consumers. These images and beliefs create an image for the brand. The complete

persona of the brand can be defined by the term Brand Equity. Many definitions of

Brand Equity are available in marketing literature.

Leuthesser (1988) offers a broad definition of brand equity as: the set of associations

and behavior on the part of a brands customers, channel members and parent

corporation that permits the brand to earn greater volume or greater margins than it

could without the brand name.

4.1 David Aakers Brand Equity Model:

Brand Equity is a set of brand assets and liabilities linked to a brand, its name and

symbol that add to or subtract from the value provided by a product or service to a firm

and/or to that firms customers. (Aaker, 1991)

Aaker (1991) categorizes the assets or elements that underlie brand equity as:

1) Brand Loyalty

2) Name awareness

3) Perceived quality

4) Brand Associations in addition to perceived quality5) Other proprietary brand-assets-patents, trademarks, channel relationships etc.

4Lisa Wood, 2000, Brands and brand equity: definition and management, Management Decision, Vol 38 Issue 9

Date 2000


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change, either in price or in product features. As brand loyalty increases, the

vulnerability of the customer base to competitive action is reduced. He links future sales

of a companys products to brand loyalty and says that brand loyalty of the customer

base is often the core of a brands equity.

Aaker (1991) cites examples of Harley Davidson riders who wear the Harley symbol as

a tattoo, the Macintosh users who will spend considerable effort to ensure that an

acquaintance does not buy IBM, or the owner of the Beetle in the 1960s who flaunted

the funkiness of the car. Aaker(1991) calls brands with such loyal customers as

charismatic brands.

According to Aaker(1991) brand loyalty is a strategic asset and creates value as shown

by the figure below.

Brand Loyalty

Reduced Marketing costs

Trade leverage

Attracting new customers

Brand awareness creation

Reassurance to new customers

Time to respond to competitive threats

As is often said, A good name is better than riches. The name awareness is the start

of creating equity for any brand. Aaker (1991) describes awareness as the ability of a

potential buyer to recognize or recall that a brand is a member of a certain product

category. He states that brand awareness involves a continuum ranging from an

uncertain feeling that the brand is recognized to a belief that it is the only one in its

product class. The awareness continuum starts from a consumer being unaware of a


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brand and goes on to the consumer recognizing a brand with an aided recall; the order

higher than recognition is recall wherein the consumer is able to recall the brand without

aid. The final level of awareness is the top of the mind recall. The first named brand in

an unaided recall task achieves top of the mind recall.

The third element, which adds to equity of a brand according to Aaker(1991), is the

perception of quality. He defines perceived quality as the customers perception of the

overall quality or superiority of a product or service with respect to its intended purpose,

relative to alternatives. He states that perceived quality is a perception of customers

and is different from actual or objective quality or other standard measures of product or

manufacturing quality. Perceived quality according to him cannot be necessarily be

objectively determined. Aaker(1991) states that perceived quality gives customers a

reason to buy a product, offers differentiation, helps position the product and also can

create a way of generating a price premium. The perceived quality according to him

also creates channel member interest and helps brand extension.

Aaker(1991) defines brand associations as Anything linked in memory to a brand. He

further defines brand image as a set of associations usually organized in some

meaningful way in a consumers mind. He goes on to say that when a consumer recalls

a brand he or she recalls one or more visual images for example, when McDonalds is

mentioned images of the Golden arches, Ronald McDonald, or hamburgers and fries

come into mind. He states that the associations of McDonalds may be organized in a

consumers mind in different clusters. There might be a kids cluster, a service cluster

and a food cluster. According to Aaker the underlying value of a brand name often is its

sets of associations its meaning to people.

The value of brand associations according to Aaker (1991) is as follows.

Help process/retrieve information

Differentiate/position

Associations Reason to buy

Create positive attitudes/feelings

Basis for extensions


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The final elements of brand equity according to Aaker(1991) are the other proprietary

assets, which include the brand name, symbol and slogan. As the famous Shakespeare

line goes: Whats in a name? That which we call a rose by any other name would smell

as sweet. Al Ries and Jack trout put it the other way on which they are widely quoted.

They say, Shakespeare was wrong. A rose by any other name would not smell as

sweet. Which is why the single most important decision in the marketing of perfume is

the name.

After understanding the various elements of brand equity as according to David

Aaker(1991) we take a look at what other writers have to say about brand equity and its

elements.

4.2 Literature Review on Brand Equity

Winters (1991) relates brand equity to added value by suggesting that brand equity

involves the value added to a product by consumers associations and perceptions of a

particular brand name.

Keller (1993) wrote of two stages of equity-development, labeledawareness level and

image level, that stem from consumers needs and wants and lead to a brand

evaluation within a product/service category, which, coupled with purchase, is the

manifestation of brand equity.

Sharma et al (1995) state that there are five important considerations to defining brand

equity. First, brand equity refers to consumer perceptions rather than any objective

indicators. Second, brand equity refers to a global value associated with a brand. Third,

the global value associated with the brand stems from the brand name and not only

from physical aspects of the brand. Fourth, brand equity is not absolute but relative to

competition. Finally, brand equity positively influences financial performance.


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In view of these characteristics, they operationalize brand equity as the enhancement

in the perceived utility and desirability a brand name confers on a product. It is the

consumers perception of the overall superiority of a product carrying that brand name

when compared to other brands5. Sharma et al (1995) have deconstructed brand equity

into five elements performance, social image, value/price, trustworthiness,

identification /attachment.

Martin and Brown, (1990) have conceptualized brand equity as having five dimensions

to brand equity, namely perceived quality, perceived value, image, trustworthiness, and

commitment. Feldwick (1996) simplifies the variety of approaches by providing a

classification of the different meanings of brand equity as

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: the total value of a brand asa separable asset when it is sold, or included on a balance sheet; a measure of the

strength of consumers attachment to a brand; a description of the associations and

beliefs the consumer has about the brand.

Ambler (1997) used the concept of trust as a part of brand equity. He says, trust is part

of the brand/consumer relationship and therefore brand equity. Ambler further says that

brands are, in the relational paradigm, anthropomorphized to the extent that people

have relationships with them. Ambler(1997) terms all members of the buyers/suppliers

network customers whether they are distribution channel members, end users or

influencers, i.e. those that do not buy or sell but whose brand attitudes affect those

that do. These so called customers are influenced by the relationship and thus have

trust towards the brand. This trust according to him adds to brand equity. Young and

Wilkinson (1989), in the context of Australian firms, found trust to correlate with the size

and power of firms: the larger being more trusted and trusting. This is consistent with

the use of trust as a proxy for brand equity.5 Walfried Lassar, Banwari Mittal, Arun Sharma,1995, Measuring customer-based brand equity, JOURNAL OF

CONSUMER MARKETING, Vol 12 Issue 4 Date 1995

6Lisa Wood, 2000, Brands and brand equity: definition and management, Management Decision, Vol 38 Issue 9

Date 2000


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Brand equity as Keller et al (1999)7 explain, is made of multiple dimensions of

consumer perception, awareness and image. Keller et al (1999) describe it as a chunk

of information that may be used by consumers to simplify choice decisions.

4.21 Shahrokhi and Motamenis brand equity model

Shahrokhi and Motameni (1998) term brand equity as brand strength and proposed a

global model to value brand equity. They have integrated three models to arrive at theglobal model. The three models they integrate are David Aakers(1991,1996), Simon

and Sullivans(1993) and the Interbrands model in conjunction with Financial world as

explained by Kapferer (1992) and Wentz and Martin(1989).

7Woon Bong Na,Roger Marshall, Kevin Lane Keller, 1999 Measuring brand power: validating a model foroptimizing brand equity,The Journal of Product & Brand Management, Vol 8 Issue 3 Date 1999


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They suggest that before valuing equity, identifying factors that lead to this brand equity

is of importance They classify factors that lead to brand strength/equity into threedifferent categories: customer base potency, competitive potency, and global potency8

Under customer base potency they include, brand image, awareness, loyalty and brand

extension possibilities. They also include brand association, which they say is the key

and differentiation component of brand equity. They state that associations usually

involve image dimensions unique to a brand. Under customer base potency they also

put down value perception of a brand, the organizational associations and the brand

differentiation as a bottom-line characteristic of a brand. Taking a cue from (Aaker,

1996): they say that perceived quality is one of the key dimensions of brand equity

Under competitive potency they put down,

Brand trend: Certain brands have survived the passage of time better than others by

undergoing continuous renewal to keep up with changes in needs and consumer

lifestyles.

Brand support: Those brands, which have enjoyed continuous support, are more

valuable than those, which have received some support without any long-term

consistency.

Brand protection: Since the brand has economic value, it attracts not only predators

but also counterfeiters. Brand legal protection seeks to protect the brand by registering

the name but other distinguishing features associated with brand, such as design,

packaging, and logo.

8Reza Motameni & Manuchehr Shahrokhi.,1998, Brand equity valuation: a global perspective,jOURNAL OFPRODUCT & BRAND MANAGEMENT, Vol 7 Issue 4 Date 1998


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According to Shahrokhi and Motameni (1998) the established status of a brand defines

the basic stability of the brand.

The final dimension of brand strength or equity as explained by Shahrokhi and

Motameni (1998) is globalpotency. That is a brand being presented across boundaries

has more equity than a national or local brand .

Deconstructing Brand Equity

From the above discussion and the various models of brand equity we can see that a

few terms (which are mentioned below), have occurred with consistency. There seems

to be a general consensus among all writers that brand image and perceptions of

value and quality are important components of brand equity. The associations carried

by the brand and the levels of trust the customers have towards the brand add to its

equity. The literature review also reflects that brand awareness and the consumers

attachment or loyalty to a brand leads to equity. A brand, which is supported well by

the organization and moves along with the times, creates equity for itself. Thus brand

trend, brand support and the established status of a brand can also be considered

components of equity. A brand present globally or across several geographical

boundaries is considered having greater equity. Thus international presence could

also be considered an element of equity. These terms could be termed as elements of

brand equity

5.0 What creates Brand Equity?

While implicit communication for a firm occurs through the various elements of the

marketing mix i.e. the Product, Place, Promotion and Price, most of an organizations

communication with the market place takes place using the promotional mix. The basic

tools of the promotional mix are advertising, direct marketing, sales promotion,

publicity/public relations and personal selling (Belch &Belch 1999)9.

9 Belch E.George & Belch A.Michael,1999,Advertising and Promotion:An integrated Marketing Communications

perspective,,McGraw Hill,Singapore9 pp14


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Advertising is the bestknown and most widely discussed forms of promotion, probably

because of its pervasiveness. It is also a very important tool, particularly for companies

whose products are targeted at mass audiences. Advertising can be used to create

images and symbolic appeals for a company or a brand. For example, since 1962

advertising for Marlboro cigarettes has used the cowboy and Marlboro country

advertising theme to create a masculine image for the brand. The campaign is one of

the most successful and recognizable in marketing history and has made Marlboro one

of the strongest brand franchises in the consumer market. The campaigns ability to

transcend geographic borders has helped make Marlboro the worlds most popular

brand of cigarette as well as one of the worlds best-selling packaged goods (Belch &

Belch1999). Thus from this example it is quite clear that advertising definitely is a

wonderful medium to create valuable equity for a brand.

Traditionally direct marketing has not been considered as an element of the promotional

mix. However because it has become an integral part of many organizations integrated

marketing communications programs that many authors like (Belch & Belch 1999) have

included it as a part of the promotional mix. Direct marketing as defined by (Belch &

Belch 1999) is Marketing in which organizations communicate directly with target

customers to generate a response and/or a transaction. The power of this tool can be

gauged by the success of Dell computers and Gateway in the computer industry that

have experienced tremendous growth by selling a full line of personal computers

through direct marketing. Needless to say both organizations have strong brand equity.

The next variable in the promotional mix is sales promotion, which is generally defined

as those marketing activities that provide extra value or incentives to the sales force,

distributors or the ultimate consumer and can stimulate immediate sales. Many

marketers argue that increase in sales promotions leads to erosion of brand equity as it

induces the consumer to purchase a product on the basis of price. Belch and Belch

(1999) list a number of factors that have led to the growth of sales promotion. Among

them are the growing power of retailers, declining brand loyalty, increased promotional

sensitivity, brand proliferation, and fragmentation of the consumer market, short-term

focus, increased accountability, competition and clutter. Though it is beyond the scope


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of this discussion to ascertain whether promotions do create or dilute brand equity,

sales promotions activities that communicate distinctive brand attributes and contribute

to the development of brand identity may help to create equity for a brand.

Another important component of an organizations promotional mix is publicity/public

relations. Publicity refers to non-personal communications regarding an organization,

product, service or idea not directly paid for or run under identified sponsorship. Public

relations is defined by (Belch & Belch 1999) as the management function which

evaluates public attitudes, identifies the policies and procedure of an individual or

organization with the public interest and executes a program of action to earn public

understanding and acceptance. Public relations uses publicity and a variety of other

tools-including special publications, participation in community activities, fund raising,

sponsoring of special events and various public affairs activities to enhance an

organizations image.

The final element of the promotional mix is personal selling. Personal Selling entails a

direct contact of the organizations representative with the buyer wherein the seller tries

to persuade the consumer to purchase the companys products. This is the final

moment of truth for the efforts the organization has put into developing equity for its

brand. The purchase made by the consumer is a direct manifestation of the brand

equity of a product.

Documents

Understanding Brnd Equity 2009