Brand equity is the brand’s most valuable asset. It stores what marketing has achieved but has not yet delivered as profit.
It is a measure of the value of possessing a specific brand name compared to a generic product of the the same type in the same category.
It is an assessment of a brand's physical assets plus a sum that represents the market value of its reputation and goodwill.
An accountant might define it as 'the sum of the future profit associated with the brand, discounted over time'.
Usually expressed as a monetary value,e.g. in 2013 Visa’s Brand Equity was valued at $56bn.
Brands as assets can impact heavily on the financial well being of a company. Indeed, Pirrie (2006) refers to the evidence that organisations with strong brands “consistently outperform their markets”.
According to Ehrenberg (1993), market share is the only appropriate measure of a brand’s equity or value and, as a result, all other measures taken individually are of less significance, and collectively they come together as market share.
However, this view excludes the composition of brands, the values that consumers place in them and the financial opportunities that arise with brand development and strength.
Lasser et al. (1995) identify two main perspectives of brand equity, namely:
- A financial perspective.
The financial view is based on a consideration of a brand’s value as a definable asset, based upon the net present values of discounted future cash flows (Farquahar, 1989).
- A marketing perspective.
The marketing perspective is grounded in the beliefs, images and core associations consumers have about particular brands.
Richards (1997) argues that there are both behavioural and attitudinal elements associated with brands and recognises that these vary between groups and represent fresh segmentation and targeting opportunities.
A further component of the marketing view is the degree of loyalty or retention a brand is able to sustain.
Measures of market penetration, involvement, attitudes and purchase intervals (frequency) are typical.
Feldwick (1996) used a three-part definition to bring these two approaches together. He suggests brand equity is a composite of:
- Brand value, based on a financial and accounting base;
- Brand strength, measuring the strength of a consumer’s attachment to a brand;
- Brand description, represented by the specific attitudes customers have towards a brand.
Brand future
In addition to these, Cooper and Simmons (1997) offer brand future as a further dimension.
This is a reflection of a brand’s ability to grow and remain unhindered by environmental challenges such as changing retail patterns, alterations in consumer buying methods and developments in technological and regulative fields.
As if to reduce the increasing complexity of these measures Pirrie (2006) argues that brand value needs to be based on the relationship between customer and brand owner and this has to be grounded on the value experienced by the customer and which is subsequently reflected on the company.
For consumers the brand value is about ‘reduction’; reducing search time and costs, reducing perceived quality assurance risks, and making brand associations by reducing social and ego risks.
For brand owners, the benefits are concerned with ‘enablement’. She refers to enabling brand extensions, premium pricing and loyalty.
Measuring brand equity
Attempts to measure brand equity have to date been varied and without a high level of consensus, although the spirit and ideals behind the concept are virtually the same.
The five approaches, shown above, set out some of the approaches adopted.
As a means of synthesising these approaches the following are considered the principal dimensions through which brand equity should be measured:
- Brand dominance.
A measure of its market strength and financial performance;
- Brand associations.
A measure of the beliefs held by buyers about what the brand represents and stands for;
- Brand prospects.
A measure of its capacity to grow and extend into new areas.
Brand equity is considered important because of the increasing interest in trying to measure the return on promotional investments.
This in turn aids the valuation of brands for balance sheet purposes. A brand with a strong equity is more likely to be able to preserve its customer franchise and so fend off competitor attacks.
From the BrandZ Top 100 model Farr (2006) determined that the top brands are characterised by four factors. They are all strong in terms of
- Innovation
- Great customer experience
- Clear values
- And strong sector leadership.
Kish et al. (2001) refer to the attempt by PepsiCo to build its model of brand equity, called Equitrak.
Developing brand equity is a strategy related issue and whether a financial, marketing or twin approach is adopted, the measurement activity can help focus management activity on brand development.
However, there is little agreement about what is measured and how and when it is measured.
Ambler and Vakratsas (1998) argue that organisations should not seek a single set of measures simply because of the varying circumstances and contextual factors that impinge on brand performance.
In reality the measures used by most firms share many common elements.
Four approaches to measuring brand equity
- Source: David Aaker
Factors measured:
- Awareness
- Brand associations
- Perceived quality and market leadership
- Loyalty
- Market performance measures
- Source: BrandDynamics, BrandZ (Millward Brown)
Factors measured:
- Source: Brand asset valuator (Young & Rubicam)
Factors measured:
- Source: Interbrand Global Top 100 (Omnicom)
Factors measured:
- Intangible future earnings
- The role of the brand
- Brand strength
Source: Adapted from Cooper and Simmons (1997) and Haigh (1997), Pirrie, (2006).