Measuring brand equity and building brand ownership
Today it is widely recognized that brands are the key assets for creating value in most companies. Yet it isn't always easy to understand how to build brand equity. We also often assume that a company is the sole owner of its brand. This is not always the case. This article is designed to clarify the basics of measuring brand equity and how high brand equity directly affects a business portfolio. And if you're interested in ensuring true "ownership" of your brand, then read on.
How is brand equity measured?
There are three basic criteria used today to measure brand equity:
Monetary value:
The amount of additional income expected from a branded product above what might be expected from an identical, but unbranded product. Think about your last trip to the food market. Both the branded and unbranded products are often produced by the same company but money has been spent to brand the "name" version. The price differential between the two is the monetary value of the brand. The better name the brand has, the more price differential the consumer will accept and purchase the brand.
Intangible value:
There are no tangible features to drive the price difference the product demands. Nike has done a great job of driving up the intangible value of their brand by having their product endorsed by athletes like Michael Jordan and Tiger Woods. Customers want to own the product and will pay the price differential based on the fact that they want "to be like Mike."
Perceived quality:
Perceived quality is the overall perception of the quality and image of a product that is independent of its physical features. Mercedes and BMW have focused on building an image of quality and luxury. Years of focusing relentlessly on these attributes in their marketing initiatives have lead many consumers to perceive their vehicles as superior to other brand-name automobiles.
What does brand equity mean to businesses? You might be surprised how many firms are now including this value on the company portfolio. The analysts first figure out what percentage of a company's revenues can be credited to the brand. They then deduct operating costs, taxes and a charge for the capital employed to arrive at the intangible earnings. The company strips out intangibles such as patents and customer convenience to assess what portion of those earnings is due to the brand. Finally, the brand strength is assessed to determine the risk profile of those earnings forecasts. Other areas are considered such as the place of leadership that company holds in the market, stability and even global reach. All this generates a discount rate that is applied to brand earnings to get a net value. The graph here shows the estimated equity of the top 10 brands worldwide. The values were determined by BusinessWeek and InterBrand, and according to these sources, represent the true economic worth of the brands listed.
How does high brand equity directly affect your business?
If your brand is strong, you will experience the following:
-Price is no longer the top issue and you may be able to charge price premiums over your competitors with less brand equity. This includes services as well on your products after they are sold.
-Your sales cycle is abbreviated because the customer has enough trust in your brand. The decision process is tremendously simplified when the brand is strong.
-The perceived "risk" of your product goes down.
-You will be able to maintain a higher awareness of your products.
-When introducing new products, your will be able to use your brand as leverage.
-Your products are more likely to be included in a customer's consideration set.
-You will be able to offer a strong defense against new products and competitors.
-Sales are increased as customers who buy from you and believe in your brand will buy from you again and again and again.
On the alternative side, a badly mismanaged brand can actually have negative brand equity, meaning that customers have such low perceptions of the brand that they prescribe less value to a product than they would if they objectively assessed all its attributes/features.
Taking ownership of your brand
In December of last year, I talked about the five basic rules in building a great brand. As a quick review they are:
-Differentiate
-Collaborate
-Innovate
-Validate
-Cultivate
The second rule, to collaborate, is where many companies begin to lose ownership of their brand. There are three basic models for brand collaboration:
1) Outsourcing the brand to a one-stop shop
2) Outsourcing the brand to a brand agency
3) Stewarding the brand internally with an integrated marketing team.
The first option is the traditional model where companies turn over their entire budget to an agent or advertising agency. The agency then conducts research, develops strategies, creates campaigns and measures the results. This is a great method for a small company who doesn't have the internal structure to support all the marketing efforts. The drawbacks are that the one agency may not be an expert in the industry of the client, there is a learning curve involved, and the various disciplines are not usually the best of breed. In effect, the company is handing a large part of its brand ownership to the agency.
The second model, the brand agency, is a growing trend for companies who still need to go outside for help but want some control from within. With this model the company works with a lead agency -- if the agency is quite familiar with the industry, then it works even better. The brand agency leads the projects and may even act as a contractor, paying other specialists (best of breed) as subcontractors. The advantages of this model are the ability to have many specialists working on your brand. A drawback is that stewardships of the brand still reside somewhat "outside" of the client company.
The third model, the integrated marketing team, is a very different approach. In this model, branding is a continuous network activity that is controlled within the company. In this model, best-of-breed specialists work alongside internal staff members in a team environment. A designated person within the company is assigned to lead and coach the various initiatives. This allows the company to acquire more ownership of their brand, and brand knowledge can accrue to the company. A drawback to this model is that it requires a strong internal team to run it. If your company has the manpower inside to take on this model, you should consider the hidden costs of taking staff time to integrate these projects.
Whether you choose to collaborate with an outside agency or go it "in-house," the importance of differentiating your brand, measuring it, building its equity and owning it are key items for any business agenda. Don't underestimate the power of building a strong brand and the value that lies therein. Invest in and focus on a good branding strategy. You and your business portfolio won't regret it.
