Where does Brand Equity Fit In with ROI?
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Brand equity is a frequently used terms to describe market based assets – be it reputation, good will or customer
satisfaction. It may even be the most valuable asset in a company and yet, although auditors value all tangible
assets of the company right down to paperclips, brand equity is ignored on the balance sheet because it is an
intangible asset. It supports the company because it stores what marketing has achieved but has not yet reached the
profi t and loss account. Despite this, it can and should be measured.
The concept was fi rst popularised in 1991 by Professor David Acker in which he described it as ‘a set of assets and
liabilities linked to a brand, its name and symbol, that add to or subtract from the value provided by a product
or service to a fi rm and/or that forms customers’. He divided it into the fi ve components of brand loyalty: name
awareness, perceived quality, brand associations in addition to perceived quality, and a bundle of intellectual
properties such as patents, trademarks and channel relationships.
Professors Srivastava and Professor Shocker defi ned it as ‘a set of associations and behaviours on the part of a
brand’s customers, channel members and patent corporation that permits the brand to earn greater volume
or greater margins than it could without the brand name and that gives a strong sustainable and differential
advantage’.
Professor Kevin Lane Keller defi ned it as ‘the differential effect that brand knowledge has on customer response to
the brand’.
And fi nally, accountants may defi ne it as the accumulated intangible asset from past marketing which has not yet
been taken into profit.
There are different schools of thought on brand equity. Some, such as Professor Andrew Ehrenberg of South Bank
Business School and also Paul Feldwick of Omnicom, are condemning of brand equity claiming that it does not exist.
Ehrenberg contends that market share is a perfectly acceptable measure of a market based asset. Felwick contends
that you can value brands as assets without having to assume that something called brand equity exists. I suspect in
both cases, terminology may be a confusing factor as many fi nd it very diffi cult to defi ne brand equity and perhaps
this is the root of the problem and the phrases maybe could be put another way. Ambler contends that this type
of thinking suggests that there is confusion between measures of assets and the assets themselves. He gives the
example of Tide - the washing powder brand of Procter & Gamble. The brand ‘Tide’ that the customer buys is a
different thing from the asset the company retains. There are essentially two things here. Consumers buy brands
and, therefore, increase the value of the brand owner’s asset, brand equity. Johnson and Johnson paid close to $17
Billion for Pfi zer’s OTC brands in line with a combination of projected sales and brand equity estimates. Although
this is an intangible asset, it is a very real one as any brand involved in a brand equity dilution will tell you. Take the
example of Ratners, once a popular high street brand until one day when the CEO called their products ‘cheap tat’
and the company fell apart and went into liquidation shortly thereafter.
There seems to be widespread confusion between the asset itself and what the asset is worth. So we need to ensure
that we distinguish the asset itself – brand equity, however intangible – from the measures like valuation and market
share that quantify it.
We need to find a way to combine measures of brand performance beyond current sales and market share. What
customers feel (based on a combination of emotional and rational factors) about the brand will impact future
performance. The fi gure below shows one view of what brand equity is.
It can be seen that the impact of the environment, the competitors and our marketing mix infl uenced the Doctor’s
behaviour. However, in the second doctor picture (him in the future) you can see that even without the marketing mix,
there is carry over infl uence on behaviour from before - in addition to current environment and competitor activity that
is infl uencing behaviour still.
The Eularis Analytics System measures this and shows how much market share impact individual components of the mix
are having based on what has got into the head (without them realizing it) of the Physician and what that will translate
into in market share terms. By fully understanding the perceptions of the target audience, by not only collecting that
data but also by validating the data against sales and market share, the Eularis System measures this. Effectively,
this unique approach combines brand equity with hard fi nancial measures and predictive maths in a very rigorous and
structured way making it a perfect way to justify the brand equity.
The secret to integrating marketing strategy, marketing investments and corporate value growth is to have a real
understanding of the connection between what is infl uencing target customers and how this impacts on both you and
your competitors’ sales and profits. By really understanding actual prescriber behaviour and using this knowledge in
conjunction with financial and economic data, you will have a richer understanding of customer economics and how to
infl uence it. Actually infl uencing behaviour increases exponentially when these components are effectively integrated.
For an illustration of how this fi ts together, please see the figure on the following page.
For more information on this topic, please contact the author,
Dr. Andrée K Bates at:
Eularis
Tel: +44 (0)20 7403 5378
Fax: +44 (0)20 7900 2086
http://www.eularis.com
Email: abates@eularis.com
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