10.1

CHAPTER 10:CHAPTER 10: MEASURING OUTCOMES OF BRAND MEASURING OUTCOMES OF BRAND

EQUITY: CAPURING MARKET EQUITY: CAPURING MARKET PERFORMANCEPERFORMANCE

Kevin Lane KellerKevin Lane KellerTuck School of BusinessTuck School of Business

Dartmouth CollegeDartmouth College

10.2

Measuring Brand EquityMeasuring Brand Equity Multi-dimensional conceptMulti-dimensional concept Many different measures requiredMany different measures required The ultimate value of a brand The ultimate value of a brand

depends on the underlying depends on the underlying components of brand knowledge components of brand knowledge and sources of brand equityand sources of brand equity

10.3

Comparative MethodsComparative Methods Brand-based comparative approachesBrand-based comparative approaches Marketing-based comparative Marketing-based comparative

approachesapproaches Conjoint analysisConjoint analysis

10.4

Brand-Based ApproachesBrand-Based Approaches

The marketing element under The marketing element under consideration is fixed.consideration is fixed.

Consumer response is examined based on Consumer response is examined based on changes in brand identification.changes in brand identification.

Application example:Application example: Blind testing Blind testing Advantage:Advantage: Isolates the value of the brand Isolates the value of the brand Disadvantage:Disadvantage: The totality of what is The totality of what is

learned depends on how many learned depends on how many applications are examined.applications are examined.

10.5

Marketing-Based ApproachesMarketing-Based Approaches

The brand is held fixed and consumer The brand is held fixed and consumer response is examined based on changes in response is examined based on changes in marketing programs.marketing programs.

Applications:Applications: Explore price premiums’ effect Explore price premiums’ effect on switching, consumer evaluations of on switching, consumer evaluations of marketing activities, brand extensions, etc.marketing activities, brand extensions, etc.

Advantage:Advantage: Ease of implementation Ease of implementation Disadvantage:Disadvantage: Difficult to determine whether Difficult to determine whether

consumer responses are caused by brand consumer responses are caused by brand knowledge or generic product knowledgeknowledge or generic product knowledge

10.6

Conjoint AnalysisConjoint Analysis A survey-based multivariate technique that enables A survey-based multivariate technique that enables

marketers to profile the consumer decision process marketers to profile the consumer decision process with respect to products and brandswith respect to products and brands

Helps researchers determine the trade-offs Helps researchers determine the trade-offs consumers make between brand attributesconsumers make between brand attributes

Applications:Applications: Assess advertising effectiveness and Assess advertising effectiveness and brand value; analyze brand/price trade-offbrand value; analyze brand/price trade-off

Advantage:Advantage: Allows for different brands or different Allows for different brands or different aspects of the product to be analyzed aspects of the product to be analyzed simultaneouslysimultaneously

Disadvantage:Disadvantage: May violate consumers’ expectations May violate consumers’ expectations based on what they already know about brandsbased on what they already know about brands

10.7

Holistic MethodsHolistic Methods Attempt to place an overall value on Attempt to place an overall value on

the brand in either abstract utility the brand in either abstract utility terms or concrete financial termsterms or concrete financial terms

Net out various considerations to Net out various considerations to determine the unique contribution of determine the unique contribution of the brandthe brand

Holistic methods:Holistic methods: Residual approachesResidual approaches Valuation approachesValuation approaches

10.8

Residual ApproachesResidual Approaches

Examine the value of the brand by Examine the value of the brand by subtracting consumers’ preferences based subtracting consumers’ preferences based on physical product attributes alone from on physical product attributes alone from their overall brand preferencestheir overall brand preferences

Advantage:Advantage: Useful benchmark for Useful benchmark for interpreting brand equity, especially from interpreting brand equity, especially from a financially oriented perspectivea financially oriented perspective

Disadvantage:Disadvantage: Static view. Limited Static view. Limited diagnostic value for strategic decision diagnostic value for strategic decision makingmaking

10.9

Valuation ApproachesValuation Approaches Attempt to place a financial value on Attempt to place a financial value on

brand equity for accounting purposesbrand equity for accounting purposes Useful in cases of mergers and Useful in cases of mergers and

acquisitions, brand licensing, fund acquisitions, brand licensing, fund raising, and brand management raising, and brand management decisionsdecisions

Valuation approaches:Valuation approaches: Accounting backgroundAccounting background Historical perspectivesHistorical perspectives General approachesGeneral approaches Interbrand’s brand valuation methodologyInterbrand’s brand valuation methodology

10.10

Accounting BackgroundAccounting Background Intangible assetsIntangible assets are typically lumped are typically lumped

under the heading of under the heading of goodwill goodwill and include and include things such as patents, trademarks, and things such as patents, trademarks, and licensing agreements, as well as “softer” licensing agreements, as well as “softer” considerations such as the skill of the considerations such as the skill of the management and customer relations. management and customer relations.

In an acquisition, the goodwill item often In an acquisition, the goodwill item often includes a premium paid to gain control, includes a premium paid to gain control, which, in certain instances, may even which, in certain instances, may even exceed the value of tangible and exceed the value of tangible and intangible assets.intangible assets.

10.11

Historical PerspectivesHistorical Perspectives In Australia Rupert Murdoch’s News In Australia Rupert Murdoch’s News

Corporation included a valuation of some of its Corporation included a valuation of some of its magazines on its balance sheets in 1984.magazines on its balance sheets in 1984.

British firms used brand values primarily to British firms used brand values primarily to boost their balance sheets. boost their balance sheets.

In the United States, generally accepted In the United States, generally accepted accounting principles (blanket amortization accounting principles (blanket amortization principles) mean that placing a brand on the principles) mean that placing a brand on the balance sheet would require amortization of balance sheet would require amortization of that asset for up to 40 years. Such a charge that asset for up to 40 years. Such a charge would severely hamper firm profitability; as a would severely hamper firm profitability; as a result, firms avoid such accounting maneuvers. result, firms avoid such accounting maneuvers.

10.12

General ApproachesGeneral Approaches

In determining the value of a brand in an In determining the value of a brand in an acquisition or merger, firms can choose acquisition or merger, firms can choose from three main approaches:from three main approaches: Cost approach:Cost approach: Brand equity is the amount of Brand equity is the amount of

money that would be required to reproduce or money that would be required to reproduce or replace the brand replace the brand

Market approach:Market approach: The present value of the The present value of the future economic benefits to be derived by the future economic benefits to be derived by the owner of the asset owner of the asset

Income approach:Income approach: The discounted future cash The discounted future cash flow from the future earnings stream for the flow from the future earnings stream for the brand brand

10.13

Interbrand’s Brand ValuationInterbrand’s Brand Valuation Assumes that brand value is the present worth Assumes that brand value is the present worth

of the benefits of future ownershipof the benefits of future ownership Follows five valuation steps: Follows five valuation steps:

Market segmentation Market segmentation Financial (role of branding) analysis Financial (role of branding) analysis Demand (brand strength) analysis Demand (brand strength) analysis Competitive benchmarking Competitive benchmarking Brand value calculationBrand value calculation

Brand value calculation : Calculate the brand Brand value calculation : Calculate the brand value as the net present value (NPV) of the value as the net present value (NPV) of the forecast brand earnings, discounted by the forecast brand earnings, discounted by the brand discount rate brand discount rate