Brand Evaluation Systems

Three Brand Measurement Strategies Brand Equity – brand assets (or liabilities) linked to a brand’s name and symbol that add to (or subtract from) a product or services* Brand Valuation – Assigning a dollar value to the brand The Brand Report Card “Brand Leadership”, Aaker and Joachimsthaler

Essentials of Brand Measurement Use a consumer response model Use pretests and posttests Use multiple measures Understand and implement proper research Establish communications objectives Brand Measurement Brand Measurement

Brand Equity Dimensions & Constructs AwarenessPerceived Quality Association/ Differen- tiation LoyaltyMarket Behavior Brand Awareness Perceived Quality Perceived Value Price Premium Market Share LeadershipBrand Personality SatisfactionPrice Indices Organizational Associations Distribution Indices Aakers, David “Measuring Brand Equity Across Products and Markets”

Brand Equity Assessment Criteria Tap the full scope of brand equity Focus on sustainable advantages not easily duplicated by competitors Reflect the constructs that truly drive the market; are associated with future sales & profits – Movement on a measure will move price levels, sales or profits Measures should be sensitive – when equity changes the measures reflect those changes Applicable across brands, product categories & markets –Tested proven measures provide structure for developing a set of individual brand measures

Brand Awareness The level of brand recognition that consumers have of a particular brand and its specific product category Reflects the salience of the brand Awareness levels –Recognition: Has heard of the brand – Recall: Brands that can be named –Top-of Mind: The first-named brand –Brand Dominance: The only brand recalled –Brand Knowledge: Knowing what the brand stands for –Brand Opinion: A value judgment of the brand

Perceived Quality Special associations that occur in many contexts; empirically shown to affect ROI Associated with price elasticities and brand usage Associated with specific function benefit variables Measured as a scale in comparison to alternative brands –High vs. average vs. inferior –The best vs. one of the best vs. one of the worst vs. the worst –Consistent vs. inconsistent quality

Brand Association - Value Focuses on the brand value proposition Brand value involves –a functional benefit –is usually basic to most brands in its class Brand value can be measured by –Provides good value for the money –Whether there are reasons to buy a brand over competitors

Brand Loyalty A consumer’s commitment to repurchase or otherwise continue using the brand When consumers like and consistently buy a specific brand in a product category Creates a barrier to entry Brand equity’s core dimension

Market Behavior Precautions Market Share Price/Distribution Indices

After The Break Divide into your teams Apply Aakers Brand Equity Measurement System to Apple six months after the antenna crisis (as you best recall) Provide an analysis for each dimension … and give your rational for your directional score

Pros and Cons of Brand Measurement Measure the wrong things Evaluate alternative strategies Avoid costly mistakes Increase efficiency in general Disagreement on what to test Research problems Cost of measurement Determine if objectives are achieved Time Advantages Disadvantages

Brand Awareness Precautions Awareness is not equally important across categories –Recognition is important for new companies –Recall and top-of-mind important to mature categories/companies On its own provides an incomplete picture

Perceived Quality Precautions Perceived quality involves a competitor frame of reference Need to compare “apples to apples” … sub- compacts vs. luxury brands Segmentation issues … perception varies across customers vs. switchers vs. competitive loyalists It may not be the key driver It may not be sensitive to relevant events

Brand Value Precaution Is brand value different from perceived quality? Perceived quality/price? Brand value may relates more to functional benefits and utility Perceived quality may have a higher association with prestige

Brand Loyalty Precautions Defined with respect to only one set of competitors Might miss an emerging competitor or an emerging variable Does not apply to non-customers Do not measure brand equity beyond the customer base

Market Behavior Precautions Market Share –More elements than brand go into market share –Often responsive to short-term strategies Price/Distribution Indices –Different channels –Complex competitive set

Where to From Here? Develop a set of 4-8 constructs from the five dimension Establish a weighting system to accommodate relative importance Match the weighing system to perceived values of the target market

Keller’s Brand Report Card The simplest of the three Measures “brand equity” as a creative asset Identifies 10 traits shared by strong brands Grades performance of each trait Objective is to identify –Areas for improvement –Strengths

Keller’s 10 Brand Traits TraitDefinition Example Superior Customer Benefits An attractive wholeStarbucks Coffee Bar Community RelevantTangible +Imagery + Feelings + Relations Gillette Advance Razors Price=Value (Perceived) Quality, features, cost … & price P&G EDP Mercedes Proper PositioningParity & DifferentiationHarley – Performance plus image ConsistentContinuity + FreshnessGEICO? Rational Brand PortfolioHierarchy creates equity value GM: Chevy – Buick - Cadillac IMCAds, web, events, prCoke-a-Cola Mgt. understands the meanings Grasp the experience; holistic decisions Bic=disposable Bic For Men cologn? Adequate SupportShell – the ‘80s leader Monitors Equity SourcesActive audits & trackingPeriod Equity Reports

Brand Valuation

“IF THIS BUSINESS WERE SPLIT UP, I WOULD GIVE YOU THE LAND AND BRICKS AND MORTAR, AND I WOULD TAKE THE BRANDS AND THE TRADEMARKS AND WOULD FARE BETTER THAN YOU JOHN STUART, CHAIRMAN OF QUAKER (CA.1900)

History Driven by the increase in premium above stock market values in ‘80s consumer company acquisitions Since the 1990’s the need to establish a dollar valuation for Intellectual Capital Assets has the development of valuation methodologies These methods are nearing formal recognition by the Financial Accounting Standards Board (FASB) Headed for inclusion in the standard repertoire of the Generally Accepted Accounting Principles (GAA)

Brand Valuation Today The average brand accounts for more than 1/3 of shareholder value McDonald’s brand accounts for more than 70% of shareholder value Coca-Cola brand accounts for 51% of the Coca-Cola Company’s stock market price Samsung spends 7.5% on R&D and 5% on communications BusinessWeek, Interbrand,/JP Morgan 2002

Four Brand Valuation Approaches ApproachStrengthsWeakness Cost From an accounting/ financial perspective Complies with standard acct. practices Is conservative Assumes the asset declines in value Not well-suited to intangible values Overlooks new brand contributions No future replacement cost allowance Market What the brand could be sold for Addressed through market capitalization (Market Cap – Book Value = Brand value Assumes future brand benefits Difficult to separate from Goodwill Overly simplified

Four Brand Valuation Approaches ApproachStrengthsWeakness Income Identifies Brand after-tax operating income Assumes the brand’s ability to generate after tax income Premium price over unbranded competitors Does not take into account other IP (mgt., patents, etc.) Brand Strength Assessment The most comprehensive Works from a set of factors Measures future results Includes an “attitude” variable

So Which is Better? All have their strengths & weakness Increasingly, the trend is toward Brand Strength Assessments because of its comprehensiveness

Brand Strength Assessment Approach Assigns a financial value to brand equity. Brand Value measures the current and future earnings due to the brand asset of a company; the net present value of expected future earnings.

Two Brand Valuation Methodologies Customer Brand Valuation Focuses on customers as a the target audiences A key role of brand component is customer satisfaction Shareholder Brand Valuation Focuses on the investment community as the target market A key “role of brand” component is share price