Feb 07 2008
Brand Equity
I am constantly surprised by the lack of information available about branding. Brands have been around since the beginning of time, and people have understood the branding process for years. At the same time, there is little information commonly available about how to build, or even judge, a strong brand.
I’ve been studying the idea of brand equity lately, and I find it amazing that there is no solid metric. Some people estimate the premium people are willing to pay on branded products and use the percentage as their BE score. Others use a subjective measure voluntarily stated by interviewed customers. Still others use complicated equations relating profits to actual expenses to determine their figures. None of these correlate with one another, and sometimes even contradict both their competiting calculation methods and common sense.
Therefore I would like to pose a question. Answer in as many or as few words as you need to be completely understood. What does the term “brand equity” mean to you? How do you calculate BE within your organization? How high on your list is BE when it comes to making day-to-day decisions in your firm?
Please respond by Sunday so we can discuss your comments in Monday’s post.
8 Responses to “Brand Equity”
Hi Eric,
Thanks for inviting me to read and respond. Unfortunately I have nothing to contribute to this topic.
Keep me updated and I’ll provide useful feedback one of these days.
Gary
The only “metric” that I know of that measures brand equity would be the line item titled “goodwill” in the valuation of a business. However, this is at best a general approximation that is agreed upon by the various stake holders.
You are right about the lack of information regarding the concept of brand and brand equity. I recently read a book titled “Branding for Profit” which discusses this fuzzy thinking about brand. I think many business execs and marketing professionals only have a loose concept of the definition or may be using the term too broadly.
In the book, the authors make the a good argument that “Brand is a function of audience, product, and message, but NOT your company”. Essentially, the authors make the point that brand equity is really a value set by the nature of the product, not the company. Thus the value is in constant flux based on consumer perceptions, changing market conditions, competitor offerings, and the marketing message that accompanies the product.
Further, I think trying to nail down a firm value would be difficult considering brand equity’s fragile nature. Nike and Martha Stewart would be a good examples of companies that had their brand equity evaporate overnight in the wake of scandal. The product didn’t change at all. But consumers went from loving the brand to despising it with new knowledge to affect their purchasing choices. With increased corporate transparency and an ever increasing sophistication in consumers I think brand equity will become even harder to define.
Great question Eric! Brand Equity is one of those things that cannot be easily measured in the way other tangible or physical assets can. One definition of brand that we learned in B-School is “a brand is a promise that the brand will deliver.” If you think of a brand as a promise, the implication is that the value of a brand is built on the power of relationship.
If we think of other places where relationship is the benchmark for value, we can see the danger and opportunities inherent to a brand. Think of some of your own relationships — marriage, best friends, parent/child, etc. While we like to think these are ties that immutably bind us together, we know the reality is quite different.
Relationships are fragile. Many things can break them apart: infidelity, new relationship with other, life circumstances,time, even death.
If you want to put a dollar figure on that, I guess you will need to do so for a specific moment in time. That would base valuation on basic economic principles of supply and demand. If a brand is in high demand, then it would sell for a premium because the supply for that specific brand is limited.
Thanks again for getting us to think about this important topic.
Sean Harry
Career Management Solutions
http://www.orcms.com/blog
Eric,
Please pardon my ignorance, I don’t know what “metric” means. To me it means the system of measurements used in European countries. Can you explain what the 2008 definition is?
Here are my two cents: brand loyalty is often established by an emotional connection…so how do you measure brand equity? People could prefer a brand because it’s what their mother used, even though a similar product might have better quality. Great marketing, trendiness, association with a public figure or band can sell a mediocre product, but how do you know if an affinity for a trendy brand will stick through decades? How do you measure an emotional response?
Icons or products that are built to last survive scandal and emerge revitalized and refreshed. I am not sure Martha Stewart’s image has been trashed…she may have lost money, but many people respect her for taking her punishment. Accenture/Arthur Anderson Corporation seems to have rebounded from the ashes after a strategic name change. Tylenol was recalled in the 80’s when a criminal tampered with some bottles. Again, in the early 90’s there was unfavorable press concerning its interaction with alcohol, but Tylenol remains unscathed.
What’s my point? I don’t know if there is a way to measure “brand equity”, except in terms of sales. Brand equity is a constantly changing dynamic.
Hi Molly:
It’s good to see you here. You make a good point. By throwing out examples of brands that lost their brand equity, I did not mean to imply that brand equity cannot be earned back by the company offering that brand. I guess the point is that it must be earned back, or rebuilt. But the process of rebuilding brand is costly and slower than losing brand equity.
If you took a snapshot in history of each of the examples we both used in our responses, you’d find that not only did the brand equity evaporate for each, but the stock value plummeted also. In some cases, the brand was abandoned altogether. For instance, the Arthur Anderson brand was abandoned and will forever be linked to criminal conduct, as that company’s practices have been immortalized in accounting textbooks the world over. Emerging as “Accenture”, the Arthur Anderson brand was abandoned.
Martha Stewart and Nike were able to rebuild brand equity, but it was a costly process and one that they continue to invest in annually. Both brands did this by contracting public relations powerhouses, focusing their own marketing on the issues relating to their scandal, and in the case of Nike, spending heavily on global NPO’s. They are both far from being “unscathed” by the loss of their brand equity. You will see the affects in their P&L’s and current marketing initiatives.
The method of rebound really underscores my point that brand equity is constantly changing in the minds of consumers. It can be quickly damaged or even destroyed, but it is slow to build and even slower to rebuild.
Great conversation here!
Molly, business leaders (managers, etc.) use the term “metric” to talk about measurements. Another word might be “benchmarks” — although that also has some other connotations. . .
I hope this helps.
Sean
Branding is best when it is natural. It flows from the heart, product, service and represents the best. Valuation depends on the evaluator. For Greyhound many years ago it was extremely valuable to both the company and the riders. It was the way to get home from so many locations. Today it is but a whisper with very little value. There is probably a generation today that doesn’t even know what it was.
Good branding in my opinion, flows well, feels natural and sometimes even has a cute ring to it. Be more interested in great products or services, the very best and branding will occur from that.
From “Brand Strategy Insider”, I thought this article summed up this topic nicely:
The Language of Branding: ‘Brand Equity’
Brand Equity is the commercial value of all associations and expectations (positive and negative) that people have of an organization and its products and services due to all experiences of, communications with, and perceptions of the brand over time. This value can be measured in several ways: as the economic value of the brand asset itself, the price premium (to the end consumer or the trade) that the brand commands, the long term consumer loyalty the brand evokes, or the market share gains it results in, among many others. From an economist’s perspective, brand equity is the power of the brand to shift the consumer demand curve of a product or service (to achieve a price premium or a market share gain).
To use a metaphor, brand equity is like a pond. People may not know how long the pond has been around or when it first filled with water, but they know that it supports life, from fish and frogs to ducks and deer. It also may be a source of recreation, irrigation and possibly even human drinking water. Clearly it is a valuable resource. But many people take the pond for granted. It seems as if nothing can diminish its supply of water, but yet we sometimes notice that it rises with the spring rains or lowers after a long draught or excessive overuse for irrigation. Brand equity is a reservoir of goodwill. Brand building activities consistently pursued over time will ensure that the reservoir remains full while neglecting those activities or taking actions that might deplete those reserves will reduce the reservoir, imperceptibly at first, but soon all too noticeably until it is too late and all that is left is mud.
This illustrates one of the most difficult problems in brand management. While brand equity is critically important to a company’s success, because of its reservoir-like nature, it is often taken for granted, overly drawn upon, and not adequately replenished, especially in times of crisis and to meet short-term needs.