Building brand equity part II: driving brand value

Branding is increasingly discussed during strategic planning sessions and in boardrooms throughout the corporate world. This is because of the substantial impact a well-managed brand can have on the bottom line. But the power of branding has a wider implication than is often thought.

Ask a room full of people what the word ‘brand’ means, and you’ll be met with differing points of view. Some may argue that it is the logo and associated visual elements; others will say that it’s the bundle of trademark an associated intellectual property rights. Others still, may cite that it’s a holistic company or organisational brand.

The first two definitions are merely the representation of the brand, which make up the physical brand identity. The third encompasses most aspects of the brand (the definition most marketers would agree with) and when outwardly expressed, forms the ‘brand image’ or ‘brand persona’. This is the mental or emotional association consumers make with the brand.

From dating to betrothing the customer

It’s important to now differentiate between brand value and brand equity. When we talk about brand value, we are talking about how customers think and feel about what the business, product or service does. Companies may seek to influence brand equity, but when it really comes down to it, it’s the consumer who determines brand equity and its value.

Creating brand value in an effort to build brand equity is somewhat like going from dating, to building a life long, committed relationship. A person may trial a product simply on ‘face value’, that is, they may be initially attracted by the packaging, labeling, colours or shape of the product. In the case of a service, it may be their logo, advertising, or service promise.

After the product or service has been trialed, the customer then moves to the next stage of assessment, where other elements are under scrutiny – the product or service ‘experience’ which includes attributes such as as taste (for products), ambiance (service), pricing, functionality etc.

When customers have a number of brands in their ‘evoked set’ (those select few brands that spring to mind when you think of buying something in particular) they have reached the stage referred to as ‘mind share’. When customers display high degrees of loyalty to a brand, marketers can more easily measure this in terms of ‘life-time customer value’.

Brand equity is the value built up in a brand. It can include:

Financial Strong brands can command a price premium – the price people are willing to pay for a generic product. For example, a t-shirt may cost $5 to produce, but if people are willing to pay $50 if it featured a Nike logo, then this premium provides information about the value of the brand. Another example, Harley-Davidson, which is an extremely strong brand in the motorcycle market, can charge up to three times the price of a competitor’s product.
Brand extensions The value of a brand has a cascading effect onto brand extensions, and even new product lines. Apple has positioned itself as a customer-focused company for non-technical trendsetters. The company has consistently led the industry with products that are easy to use and well-designed. The iMac and iPod are excellent examples of establishing and growing a brand strategy through comprehensive pragmatic innovation.Proctor & Gamble is a success story in the fabric and home care business, and has built on its brand equity to produce the Swiffer as an extension (which has changed many people’s loathe of floor cleaning!).A strong brand also helps insulate the core brand from failure when it comes to introducing product line extensions. But, with something around 50 percent probability of product failure, it is not surprising that many companies seek growth opportunities through merger and acquisition of existing brands (eg. Cadbury-Schweppes).
Consumer based A strong brand, and positive experience with that brand, leads to a change in consumer’s attitude. This brand association, when positive, can increase awareness of the brand which in turn influences perceived quality, inferred attributes, and ultimately, brand loyalty. This is a really important aspect of brand building, because brand equity is not always positive in value. Unless you are fairly confident that your product or service meets or exceeds customer expectations, you risk eroding its value and ultimately, you’ll lose market share. Or even the whole business (think Arthur Andersen).

Measuring brand equity

Brand measurement has been traditionally done in a number of different ways and there is no shortage of approaches – the one you choose depends on what you need it for – taxation, buying or selling a company, merger or acquisition, litigation or strategic brand management. On the whole, though, they fall into two categories: research-based brand equity evaluations, and financially driven approaches.

Many corporate clients are already doing some form of brand measurement themselves. Their agencies and consultants are also providing that expertise where needed. Basic awareness and brand tracking research is being done at the corporate and ad agency level.

There is also another more ‘scientific’ method for measuring the brand. The value of a company’s brand equity can be calculated by comparing the expected future revenue from the branded product with the expected future revenue from an equivalent non-branded product. This calculation is at best an approximation.

This value can comprise both tangible, functional attributes (eg. twice the cleaning power or half the fat) and intangible, emotional attributes (eg. the brand for people with style and good taste) and ‘goodwill’ – brands, copyrights, patents, customer loyalty, distribution contracts, staff knowledge etc.

Companies invest tremendous sums of money in creating, building, and legally protecting brands. The lessons learned from successful companies with high value brands shows that brand equity does affect consumer purchasing behaviour.

By understanding the added value that brand equity can bring to your company and the fundamentals behind it, you could make a real difference at the boardroom strategy meeting.