Chapter 2 - Brand Equity

▪ Differential effect that the knowledge about a brand has on customers’ attitudes and behaviors towards the branded product.

▪ The added value that the brand endows to a product based on past marketing activities for that brand

▪ Memory consists of a network of nodes (= stored information or concepts) and connecting links (= strength of association between the nodes)

▪ Brand-related information is stored in consumers’ long-term memory where it is organized as an associative network

---consisting of a set of nodes (i.e., stored information or concepts)

---that are connected by links that vary in strength

▪ Networks need to be activated to induce brand-related behavior

---Activation happens when one or more nodes of the network are triggered by external or internal sources and then spreads from this node to other linked nodes

---The spreading process is determined by the strength and number of network linkages

= Ability to identify the brand

Existence of the “brand node”

Likelihood and ease with which a brand name will come to mind

Brand awareness is a prerequisite for building brand image.

= Perceptions about the brand that are reflected by the brand associations in consumer memory

Totality of network: brand node, attribute nodes, and all links Brand associations contain the meaning of the brand

▪ These associations constitute the meaning of the brand for consumers.

▪ Any potential encounter with a brand

— if marketing-initiated or not

— has the opportunity to build or change brand associations.

Brand recognition is the degree to which consumers can confirm prior exposure to the brand when provided with a brand element (e.g., name, logo, slogan, jingle) as a sensory cue.

Brand recall is the degree to which consumers can retrieve the brand from memory without a brand cue when given

o the product category,

o the perceived needs,

o or a purchase or usage situation.

▪ Learning advantage

---first step in creating CBBE is to create a brand node in consumer memory

---nature of that node affects how easily brand associations are learned and stored

▪ Consideration advantage

---Degree of brand awareness influences the brand’s likelihood of being a member of the consumer’s evoked set and thus

---can influence purchase decisions

▪ Choice advantage

o Brand awareness can affect decisions about brands even if no other brand associations exist (e.g., in low-involvement decisions)

o In such a low-involvement context, consumers often rely on heuristics to buy a familiar, well-established brands

Types of Brand Associations

Favorability of Brand Associations

Uniqueness of Brand Associations

Strength of Brand Associations

Attributes (Imagery-related, Performance-related)

Benefits (Functional, Experiential, Symbolic)

Attitudes

Brand attributes: Features that characterize the brand and are related to the brand’s performance (i.e., concrete, product-related associations) and/or appearance (i.e., abstract and imagery-related associations)

The personal value that a consumer associates with a brand and its usage

o Functional brand benefits: benefits which are of a utilitarian or practical kind

o Experiential brand benefits: satisfy more self-oriented, experiential and/or enjoyment-related needs, such as sensory pleasure or cognitive stimulation, i.e., what it feels like to use the brand

o Symbolic brand benefits: relate to needs for social approval and self-expression, i.e., benefits which influence consumers’ social status and social bonds between consumers

o positive,

o negative, or

o neutral thoughts/feelings about the brand

o How many associations are shared with competing brands?

o Relates to the USP of the brand

o Which compelling reason is offered for buying that particular brand?

▪ But: Shared associations are required to transport category membership

o Depends on how a piece of information enters consumer’s memory (i.e., how deeply a consumer thinks about the information)

o How the information is maintained as part of the brand’s image (storage, i.e., how strongly it is related to existing brand knowledge)

Analyzing brand awareness and brand image (i.e., brand value drivers)

Measuring future earnings that are

attributable to the brand (i.e., brand earnings) and discounting them to get a net

present value:

o Future brand revenues (Net price x volume) – future brand investments

o Considering the state of the brand today (e.g., its current products offered, markets served, its current customer base etc.)

o Considering brand strategic options, such as potential new products, and/or markets

Brand recall: let people on their own say brands they remember

Brand recognition: show people brand names,... and let them answer if they're familiar with the brand

o Brand relevance

Heuristic 1: Brand relevance in category close to 100%

➔ No isolation is necessary (i.e., earnings equal brand earnings)

Heuristic 2: Brand relevance in category in % × Revenues* × average profit margin in category = brand earnings

o Brand strength (CBBE)

Heuristic 3: Weighting with relative brand strength (measured via brand value drivers), e.g., Interbrand Best Global Brands approach

▪ Basic notion of the approach

---The brand owner licenses the brand to another company which has to pay a royalty rate for using the brand

---Resulting royalty stream is an approximation of those earnings that are attributable to the brand

---Brand value is reflected in the discounted future royalty stream

---Also referred to as “royalty relief” approach, as owning the brand “relieves” from paying a royalty rate for using it

▪ Necessary information: Revenue (net price × volume), royalty rate, discount rate

▪ Establishing the royalty rate:

---Determine the range of royalty rates within the industry

---High (low) brand strength results in royalty rate at the upper (lower) end of this range !!!

▪ Brand earnings (“isolation”): Revenue × royalty rate

▪ Brand value: Determine the future revenue stream, apply the royalty rate, and discount the estimated future royalty stream (net present value)

▪ Indirect estimation: Historic costs / past investments in the brand

---Can serve as a reference point

---But conceptual problems: Costs of creating a brand do not represent the brand’s current value

▪ Indirect estimation: Market value-based approaches

---Starting point: Market value of the company

---Brand value = residual after subtracting tangible and other non-brand intangible assets from market value of the firm (e.g., Simon & Sullivan 1993)

▪ Net present value-based approaches: E.g., explicit forecasting (market experts, econometric methods, etc.)

The brands that are seriously considered for purchase.

Unit price PL * (Volume brand - Volume PL) = sth negative

--> Sales that the brand misses compared to the PL