Brand equity measurement systems

One of the existing measurement systems are conducted by Keller & Lehmann (2001).

This measurement system categorizes brand equity into customer-mindset, product market and financial market. (Keller & Lehmann, 2001.) The first category, customer-mindset concentrates on consumer-based aspects and measuring them. The product market and financial market are analysing the outcomes of net benefit derived from brand equity.

Customer mindset measures the awareness, attitudes, associations, attachments, and loyalties that customers have toward a brand and which have been considerably examined in the academic research (Keller, 2003, p. 392). These measures analyse brand equity from various different viewpoints and they facilitate evaluating brand’s potential in the future. (Ailawadi et al. 2003.) Still, basing on consumer surveys, they are not computable nor offer objective measure of brand performance. In addition, these measures make it hard for companies to utilize this information to financial purposes, which is often the ultimate target (Kiley, 1998, p. 36–40; Schultz, 1997).

In essence, product-market measure is founded on the idea that the benefit of brand equity is perceived in brand’s performance in the marketplace (Ailawadi, et al. 2003).

The most common measure for this is price premium meaning brand’s ability to charge a higher price compared to unbranded equivalent charges (Aaker, 1991; Aaker, 1996;

Agarwal & Rao 1996; Sethuraman, 2000; Sethuraman & Cole, 1997). Price premium could be measured simply by asking consumers how much more they would pay for a branded product in relation to private label/unbranded product (Aaker, 1991; Aaker, 1996; Agarwal & Rao 1996; Sethuraman, 2000; Sethuraman & Cole, 1997). Moreover, conducting conjoint analysis on brand name as an attribute may address price premium reliably as well as measuring market share or relative price (Chaudhuri & Holbrook, 2001). When considering financial measures related price premium, measuring the difference between profits gained when utilizing a brand and profits without the brand name is a useful means to obtain more information about brand’s financial benefits (Dubin, 1998).

The linkage between market share and brand equity could be illustrated using market share/brand equity matrix (see figure 5 on page 52) (Lindberg-Repo et al. 2009, p. 91-92). According to ACNielsen (2005) market share is one parameter for estimating brand performance. Figure 5 illustrates the connection between these two variates. Needless to say, ideal position in the matrix would be the upper box on the right (high brand equity and strong market share) but there are several external factors that affect this relationship between these two variates. For instance, struggles in the distribution channels or poorly planned shelf space and display may cause positioning to shift towards lower-left box (weak brand equity and low market share). (Lindberg-Repo et al., 2009, p. 91-92.) Furthermore, weak brand equity with strong market share may seem good positioning at first but in the long run it is vital to harness brand’s full potential in use and prepare for changing environment properly in order to not lose strong market share.

These measures give more thorough and holistic results than many single customer mindset measures due to their ability to reflect the culmination of several different mechanisms, which address value given by brand name and its relation to the dollar value. (Ailawadi et al., 2003.) Moreover, these measures address incremental benefit obtained due to the brand name. However, measures basing on conjoint analysis require complicated and time-consuming statistical modelling and some of the measures lean strongly on customer judgements, which are not always realistic perceptions of the purchase habits or purchase intentions (Simonson & Tversky 1992; Steenkamp &

Wittink, 1994). Moreover, sudden price cuts may cause bias in results of some price premium measures. (Ailawadi et al., 2003.) If the market share is a result of a price cut, it could estimate brand equity too high. It could be stated that price premium may understand and measure strong brands or weak brands well enough but cannot address underlying reason for that situation. Furthermore, some brands do not command price premium although they still have brand equity.

LOW BRAND EQUITY HIGH WEAK BRAND EQUITY & STRONG

MARKET SHARE

Vulnerable position- build brand equity

WEAK BRAND EQUITY & LOW MARKET SHARE

Growth opportunity

HIGH BRAND EQUITY & STRONG MARKET SHARE

Brands possessing strength

HIGH BRAND EQUITY & LOW MARKET SHARE

Equity under leveraged-Explore in-store conditions

LOW MARKET SHARE HIGH

Figure 5 Brand Equity vs. Market Share (adjusted from ACNielsen, 2005)

Financial market measures consider the value of brand as a financial asset. These measures include for instance purchase price at the time a brand is sold or acquired (Mahajan et al., 1994) and discounted cash flow valuation of licensing fees and royalties.

(Ailawadi et al., 2003.) For instance, the Interbrand consultancy examines product-market and financial product-market measures to adjust a brand’s current profits for growth potential in the future. In effect, one major advantage for financial market measures compared to customer mindset and product market outcomes is that they also quantify brand’s potential for future, not only for current situation. Still, quantifying the returns of marketing activities financially is one of the biggest challenges facing marketing and brand managers in today’s business environment (Mizik & Jacobson, 2008). In effect, financial estimations may be biased by subjective judgement and they are subjected to strong volatility, stock market value serves as an example of this. (Ailawadi et al., 2003.) Besides marketing activities, there are various external factors affecting stock market value, which diminishes its relevance purely for marketing purposes.

Steenkamp (2017, p. 244) addresses brand equity in the global context. This global brand equity triangle comprises three dimensions: sales-based brand equity, profit- based equity and customer-based brand equity. (Steenkamp, 2017, p. 244.) Sales-based view includes price premium and volume premium. Sales equity is usually measured by comparing the price premium of a brand over the unbranded alternative. Strong brands can increase share and margin premium and thus enhance incremental cash flow but also negotiate lower distribution costs due to strong position in the market (Srivastava, 2006; Lindberg-Repo et al., 2009, p. 93). Profit-based brand equity measures brand’s contribution to firm profitability. (Steenkamp, 2017, p. 244.) This considers financial metrics such as return on capital, profit growth and profit contribution. Profit contribution differs in terms of different types of brands (the 4V model, figure 1). For instance, a low-priced value brand needs to consider costs of goods and operations in order to stay competitive. The third dimension, customer-based brand equity considers awareness elements such as brand recall and brand recognition, attitude elements such as differentiation, relevance, energy, esteem and knowledge and action elements considering purchase, loyalty, willingness to pay and word of mouth.