Brand Equity Jacqueline J. Kacen Introduction In 2009

Brand Equityjacqueline J Kacenintroductionin 2009 The Coca Cola Bran

Brand equity Jacqueline J. Kacen INTRODUCTION In 2009, the Coca-Cola brand was valued at $68.7 billion dollars and it was the world’s most valuable brand (The brand name alone, an intangible asset, accounted for 51% of the stock market value of the Coca-Cola Company (Interbrand, 2004). Coca-Cola is a brand with equity. Coca-Cola not only illustrates the value of a brand name but also demonstrates the importance of brands to a company’s financial well-being. The term brand equity came to public attention in the 1980s.

It was first used by advertising practitioners to capture the idea that a brand had value to customers and because of this, the brand had financial value to the firm due to expected future sales (Barwise, 1993). In the late 1980s, quantifying the financial value of the brand became more important. Financial markets were recognizing the increasing gap between companies’ book values and stock market valuations, as well as noticing the premium prices paid above stock market value during the mergers and acquisitions taking place. Large amounts of goodwill on balance sheets needed to be accounted for in an acceptable way (Feldwick, 1996; Murphy, 1990).

Definition of Brand Equity

Brand equity is the ‘‘value of the brand’’ (American Marketing Association, 2009). A brand is ‘‘a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers’’ (American Marketing Association, 2009). In general, brand equity can be thought of as a set of brand 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 firm and/or that firm’s customers (Aaker, 1991).

Value is assessed from both the customer and managerial (i.e., financial) perspective. From a customer perspective, brand equity is based on consumer attitudes about positive brand attributes and favorable consequences of brand use. From a managerial perspective, brand equity is the incremental cash flows which accrue to branded products over and above the cash flows which would result from the sale of unbranded products (Simon and Sullivan, 1993). From a financial markets perspective, brand equity is the sum of future profits, discounted in each period by a risk-adjusted interest rate, that result from associating that brand name with particular products or services (Simon and Sullivan, 1993).

Why Brands Are Important

Customers like brands because brands provide assurances of quality, reliability, and consistency. Brands reduce perceived risk and allow people to shop quickly and confidently, saving time and energy on purchase decisions. Brands provide emotional rewards and experiential pleasure (Kapferer, 2008). Through brands, individuals can construct a self-concept and convey that concept to others.

Manufacturers benefit from brands as well. Brands cannot be copied by competitors, allowing manufacturers to command higher prices for preferred brands, obtain a larger market share, and spend less on promotional expenses such as advertising and price promotions (Shocker and Weitz, 1998). In addition, customer demand for the brand means manufacturers are better able to obtain distribution and cooperation from channel intermediaries. Customer preference for the brand can lead to a strong loyal customer franchise, more reliable demand forecasts, and expectations of cash flow from future sales. Last, a successful brand can be leveraged to increase sales and revenues for the firm through geographic market expansion and brand extensions.

Channel intermediaries, such as wholesalers and retailers, like brands because they allow for easier entry into markets, higher sales, and the opportunity to build loyalty at the store level.

How Brand Equity Is Measured

The brand name and what it represents are a company’s most important assets; a brand is the basis of competitive advantage and future revenue streams (Aaker, 1991). It is clear that brands help generate sales, and that sales and brand equity generate revenue and profits, and that long-term revenue is earned through repurchase and customer loyalty.

Measuring a brand’s equity is a useful exercise to firms not only because it allows firms to assign a financial value to the brand for purposes of balance sheet accounting and other financial transactions but also because knowing a brand’s equity can help guide marketing strategy and tactical decisions. It can help managers assess the extendibility of the brand name to new products and markets, evaluate their marketing decisions’ effectiveness, and track the brand’s health over time and against competitors (Keller, 1993).

Many methods have been proposed to value a brand. These approaches are generally financially driven or research-based. Financial methods include the cost-based value of the brand—aggregating expenditures such as R&D, marketing, advertising, and training costs (Aaker, 1991), residual market value after other sources of value are accounted for (Simon and Sullivan, 1993), ratios of price to competitors’ prices for equally desirable products (Crimmins, 1992), net present value of the price premium over unbranded products (Aaker, 1991), acquisition value (Brasco, 1988), and the future expected earnings (Brasco, 1988).

Market-level indicators—such as a loyal customer base, price premiums, and sustained market share leadership—are the result of consumer-level effects. Consumer perceptions of quality, beliefs about attributes, and attachment lead to market outcomes like market share leadership, price premiums, and the financial value of the brand as a separate asset.

Consumer-based research methods include measures of awareness, perceptions, attitudes, loyalty, purchase intentions, and purchase share. These measures are often collected via surveys or panels, which can be costly and subject to biases. Yet, they are essential as they predict market performance. A higher demand relative to competitors indicates stronger brand demand, which signifies greater brand strength—an outcome that supports the brand’s monetary valuation and future financial performance.

Building and Sustaining Brand Equity

Brand image, loyalty, strength, and financial value are interconnected but independent to some degree. High consumer awareness and favorability do not always guarantee market supremacy; empirical links between consumer perceptions and financial market performance are complex. Establishing causality and understanding the dynamics require comprehensive research efforts, as high consumer-perceived value does not automatically translate into enhanced market performance or financial return (Keller, 1993).

Conclusion

Brand equity encapsulates the collective effects of consumer, firm, and market decisions on brand value. Firms that successfully leverage their branding assets can generate higher sales and profits, sustaining competitive advantages over time. Nevertheless, despite its apparent benefits, measuring and managing brand equity remains a complex endeavor involving both qualitative and quantitative assessments. A rigorous understanding of brand equity can guide strategic decisions and ensure that brands continue to deliver value.

References

• Aaker, D. A. (1991). Managing Brand Equity: Capitalizing on the Value of a Brand Name. Free Press.
• Amer-ican Marketing Association. (2009). Dictionary of Marketing Terms. Retrieved from https://www.ama.org
• Barwise, P. (1993). Brand equity: snark or Boojum? International Journal of Research in Marketing, 10, 93–104.
• Brasco, T. C. (1988). How brand names are valued for acquisition. Marketing Science Institute Conference.
• Crimmins, J. C. (1992). Better measurement and management of brand value. Journal of Advertising Research, 32, 11–19.
• Feldwick, P. (1996). What is brand equity anyway, and how do you measure it? Journal of the Market Research Society, 38(2), 85–104.
• Interbrand. (2004). Brand Valuation: The Financial Value of Brands. Retrieved from http://brandcameo.org
• Keller, K. L. (1993). Conceptualizing, measuring, and managing customer-based brand equity. Journal of Marketing, 57(1), 1–22.
• Shocker, A., & Weitz, B. (1998). A perspective on brand equity principles and issues. Marketing Science Institute Conference.
• Simon, C. J., & Sullivan, M. W. (1993). The measurement and determinants of brand equity: a financial approach. Marketing Science, 12(Winter), 28–52.