Brand Equity BM U-2 (1) PDF

SCHOOL OF MANAGEMENT iMBA Semester: III Marketing Specialization SUBJECT: Brand Management UNIT 2 Compiled By: Dr. Pratik Darji BRAND EQUITY Branding has been central to marketing for more than a century. One of the important skills a marketing professional should possess is the ability to cr...

SCHOOL OF MANAGEMENT iMBA Semester: III Marketing Specialization SUBJECT: Brand Management UNIT 2 Compiled By: Dr. Pratik Darji BRAND EQUITY Branding has been central to marketing for more than a century. One of the important skills a marketing professional should possess is the ability to create, nurture, enhance and protect the brands for the company. American Marketing Association defines a brand as a name, term, sign, symbol, or design, or a combination of these, used to identify the product and services of a company. For the consumer brand may stand for several things, like product attributes, product benefits, values, culture, personality, and user. THE CONCEPT OF BRAND EQUITY David Aaker specifies five levels of attitudes towards a brand. 1). No brand loyalty; due to price differential customer will switch brands. 2). No reasons to switch the brand; consumers are overall satisfied. 3). Customers are satisfied with the brand, and would incur cost by switching the brand. 4). Customers relate themselves with the brand. 5). Customers are devoted to the brand. Brand equity is mainly related to the levels 3, 4, and 5. Aaker (1996) defines brand equity as a set of assets (liabilities) linked to a brand's name and symbol that adds to (or subtracts from) the value provided by product or service to a firm and/or that firm's customers. The main assets of a brand are brand name awareness, brand loyalty, perceived quality, and brand associations. These assets create value in different ways. The assets create value not only to the customers but also for different intermediaries, and the firm. This conceptualization is presented in Figure 10.1. To manage and enhance brand equity the manager should understand the totality of relationships. The term `brand equity' was first used widely by American advertising practitioners in the early 1980s. It was not defined precisely; but in practical terms it meant the brand' s long term customer franchise, and the financial value of that franchise. The argument was that: Brands are financial assets, and should be recognized as such by top management and the financial market. The financial value of a brand depends on its `Brand Strength', and the strength of its customer franchise. For most consumer products and trade franchises, with the latter being ultimately based on the former. The brand's customer franchise can be strengthened by, inter alia, investing in product quality and in advertising. In contrast, trade and consumer price promotions produce short-term sales increases but do nothing to build long-term brand equity and arguably might even erode it. BRAND AWARENESS Awareness refers to the strength of a brand's presence in the consumer's mind. Awareness is measured in different ways in which consumers remember a brand ranging from recognition (Have you been exposed to this brand before?) to recall (what brands of this product class can you recall?) to "top of the mind" (the first brand recalled) to dominant (the only brand recalled). Recognition reflects familiarity gained from past exposure. It does not involve remembering where the brand was seen before, why it differs from other brands, or what the brand's product class is. It is simply remembering that there was a past exposure to the brand. A brand (for example); Mediclaim is said to have recall if it comes to consumer's mind when its product class `medical insurance' is mentioned. The ultimate awareness level is brand name dominance where in a recall task, most customers can only provide the name of a single brand - e.g., Xerox, Amul Butter, Godrej Storewell steel cabinet. Creating awareness is important and increasingly becoming expensive because of proliferation of brands in the market. Further, just creating awareness for recognition or recall is not sufficient, the effort should be focused on creating awareness that consumers remember and recall for right reasons and not otherwise. PERCEIVED QUALITY Perceived quality is the overall judgement about the quality of the product. It is the bottom- line measure of the impact of brand identity. Quality perceptions cannot be sustained unless the claims are true and substantive. For creating a high quality product and in turn high- quality perception, the marketer has to understand what quality means to the consumer segments, and what are the supportive elements like culture, proc.& %, etc. Perceived quality may differ from that of technical or functional performance of a product. Perceived quality is built over a period of time, if the claims and functional qualities as desired by the consumers are matching, then the quality perception of the product is reinforced. If the claims and functional performances were different the quality perception among the consumers would be eroded., Apart from the claims about the product, the company also vouches for quality. If the consumers have a past perceived quality image it takes considerable time and effort to change that; for example, before World-War 11 the Japanese products were consider to be of poor and cheap. It has been slowly and steadily altered to high quality products over a period of time by sustained effort by really offering functionally superior products and the associated claims made by the companies. Second, a company may be achieving quality on a dimension that consumers do not consider important. When Zenith offered cold water flow from a tap on the door of a refrigerator on the press of a pedal consumers did not recognize any benefit from it. This model never made it big. 48 Decisions Third, consumers rely on one or two cues that they associate with quality. Thus it is important to understand the little things that they use as a basis for making a judgement of quality. If people kick the car tyres to judge its sturdiness, then the tyres have to be sturdy. Fourth, because consumers may not know how best to judge quality a metaphor or visual image can help them to see the context correctly e.g., For the first time diamond buyers it should be indicated that quality is not reflected by price tags or carat claims. BRAND LOYALTY Brand loyalty is a. key consideration when placing a value on a brand that is to be bought or sold, because a highly loyal customer base can be expected to generate a very predictable sales and profit stream. It is less costly to retain customers than to attract newer ones. Enticing new customers is a mistake while neglecting existing ones. The loyalty acts as an entry barrier to competitors. Loyalty segmentation provides strategic and tactical insights that will assist in building strong brands. A market can usually be divided into the following groups: Non customers (those who buy other brands), price switchers (price sensitive people), the passively loyal (those who buyout of habit not reason), fence sitters (indifferent between two or more brands) and the committed. To improve the brands loyalty profile: Increase the number of customers who are not price switchers, strengthen the fence sitter's and those with committed ties to the brand, and increase the number who would pay more (or endure some inconvenience) to use the brand or service. The passively loyal are often neglected, which is wrong. Distribution gaps should be avoided or brand switching may occur. The committed or loyal customers are retained at any cost or else they are enticed away by competitor if the performance of the product or service is not improved.. Hence, firms should avoid directing resources from the loyal core to the non- customers and price switchers. To increase the brand loyalty, companies often resort to frequent buyer; programmers, volume discounts, discounts on wrappers, even some companies do form user clubs and provide special offers to the members. For example, AKAI has recently started customer service club, TELCO has started a TATA Sierra owners club. BRAND ASSOCIATIONS The brand equity is mainly derived from the associations that consumers make about and around the brand. The associations might range from attributes, symbols, music, celebrities and so on. Brand associations are largely driven by the brand identity-which is what the company wants the brands to stand for in the minds of consumers. Some of the examples are the Boost advertisements use Sachin Tendulkar as the spokesperson, endorsing that Boost is the secret of his energy, The background music in Liril advertisement, leading Bollywood actresses endorsing for Lux, the logo of Bajaj. Brand equity could help in building competitive advantage for the company. For example: The cost of marketing could be lower because of higher consumer awareness and loyalty. Company could enjoy more channel power and have leverage in trade negotiations. Price realization could be higher because of higher perceived quality. Also ward off price competition. Brand could be easily leveraged for brand extensions. To gain advantage the managers have to carefully understand the-drivers of brand equity. BRAND EQUITY MEASUREMENTS Young and Rubicam (Y &R), a major advertising agency, developed. Brand Asset Valuator, for measuring the brand equity across products. The main parameters used in the evaluation are: Brand personality; Differentiation of brand in terms of how distinctive the brand is in the category; Relevance - measure of evaluating the meaning of a brand to the respondent, i.e., whether there is personal relevance of the brand to him; Esteem - It is closely related to perceived quality, it is used to evaluate what kind of regard the brand is enjoying. Knowledge - what a brand stands for? Y &R hypothesis is that brands are built sequentially, starting from differentiation, relevance, esteem and knowledge. Equitrend has developed brand equity measure based on three brand assets, namely salience, perceived quality and user satisfaction. Brand salience, refers to the percentage of respondents who have an opinion about the brand. It goes beyond the measures like awareness, recognition, and recall. Perceived quality is measured using a eleven point scale ranging from `outstanding' to `unacceptable'. User satisfaction is measured quality rating of the consumers who use the brand most often. These three measures are used to develop a composite brand equity score. BRAND EQUITY TEN 1) Price Premium It is an indicator of how much the customer is willing to pay for the brand in comparison to another brand offering very similar benefits. It is a measure of brand loyalty. However, the price premiums could be affected by the brands used for comparison. Hence, in practice a set of competitive brands is specified for comparison. Direct questioning like "How much more would you like to pay to buy a packet of `Nescafe instead of ` Bru' ?" are used to elicit information from consumers. More reliable and sensitive estimates of price premium can be obtained by the use of indirect trade off analysis like conjoint analysis. Price premium is one important indicator because it directly captures brand loyalty- of the consumers. This measure does suffer due to certain inadequacies like: Specifying competitive brands would change the value of price premium; If the brand is competing with different competitors, in different market segments, then defining competitive bench marks is difficult; and If the prices are controlled by legislation, price premium cannot be a better measure. 2) Customer Satisfaction /Brand Loyalty Willingness for repeat purchase and sticking to the same brand can be directly measured by customer satisfaction. The range of questions are used to elicit satisfaction directly from the consumers: Are you satisfied with the brand? Is the brand meeting your expectations? Would you buy the same brand on you next purchase? 3) Perceived Quality Perceived quality is an important measure found to have direct impact on ROL It has very close association with other factors like functional benefits, organizational association. Perceived quality is measured using-semantic differential scale. For example, for a specific brand the respondents are asked to rate on the following parameters: As the measure is sensitive to the frame of reference, it is important to clarify to the respondents before they rate the brands. 4) Popularity and Leadership Position Three important factors need to be considered for defining a brand leadership. one, the proportion of market buying the brand, two, how well the brand matches the market dynamics of consumer preferences, and third, technical superiority. 5) Brand Value Functional and emotion benefit of a brand creates value to the consumers. Brand that generates good value to the consumers will be stronger than the brands of competitors in the market place. The common measure used is direct questioning Is the brand providing good value for money? This measure is also sensitive to the comparative set of brands used by the consumers. 6) Brand Personality Emotional and self-projective benefits of brands are captured by brand personality measures. Especially this is an important measure for products with very low differentiation and consumed in social setting e.g., Cigarettes, liquor, soft drinks. 7) Organizational Association Association of a brand to organization can be a powerful driver of differentiation. For example, a product from the house of Tata's, vouch for its quality. To understand this association the direct questions like the following can be used. I trust the organization, which brings out this brand. I would be proud to do business with the organization. 8) Brand Awareness It is a measure of presence of a brand in the minds of consumers. To a large extent brand awareness reflects the reach of a brand in the market place. Brand awareness includes both knowledge and salience of the brand in consumer's mind. In practice brand awareness is measured at different levels, like, recognition, recall, top of the mind, brand dominance, brand familiarly and brand salience. 9) Market Share Performance of a brand ultimately reflects in the market share. Market share data is more objective and easily available to the firm. However, the problem like specifying the product class or served market would affect the value of market share. Apart from the effect of brand equity, market shares can be affected by changes in prices or distribution and so on. Segregating the effects of other variables and evaluating the effect of brand equity is difficult. 10) Market Price and (Distribution Coverage) Decisions Relative price of a brand in market place is another factor to be considered important in measuring brand equity. Relative price is calculated by dividing the price of a brand in a particular period, by average price of all the brands in the product category. Distribution coverage is another measure considered important. It is measured by the percentage of stores stocking the brand, and percentage of consumers, who have access the brand.