CHAPTER 8: DEVELOPING A BRAND EQUITY MEASUREMENT AND MANAGEMENT SYSTEM

Kevin Lane Keller Tuck School of Business Dartmouth College

8.1

The New Accountability

Virtually every marketing dollar spent today must be justified as both effective and efficient in terms of return of marketing investment (ROMI). Some observers believe that up to 70% (or even more) of marketing expenditures may be devoted to programs and activities that cannot be linked to short-term incremental profits, but yet can be seen as improving brand equity.
8.2

The Brand Value Chain

Broader perspective than just the CBBE model The brand value chain is a structured approach to assessing the sources and outcomes of brand equity and the manner by which marketing activities create brand value.

8.3

The Brand Value Chain

The brand value chain has several basic premises. Fundamentally, it assumes that the value of a brand ultimately resides with customers.

8.4

The Brand Value Chain

Based on this insight, the model next assumes that the brand value creation process begins when the firm invests in a marketing program targeting actual or potential customers. The marketing activity associated with the program then affects the customer mindset with respect to the brand what customers know and feel about the brand. This mindset, across a broad group of customers, then results in certain outcomes for the brand in terms of how it performs in the marketplace the collective impact of individual customer actions regarding how much and when they purchase, the price that they pay, and so forth. Finally, the investment community considers this market performance and other factors such as replacement cost and purchase price in acquisitions to arrive at an assessment of shareholder value in general and a value of the brand in particular.
8.5

The Brand Value Chain

The model also assumes that a number of linking factors intervene between these stages.

These linking factors determine the extent to which value created at one stage transfers or multiplies to the next stage.
Three sets of multipliers moderate the transfer between the marketing program and the subsequent three value stages: the program quality multiplier, the marketplace conditions multiplier, and the investor sentiment multiplier.

8.6

Brand Value Chain

VALUE STAGES

Marketing Program Investment

- Product - Communications - Trade - Employee - Other

Customer Mindset
- Awareness - Associations - Attitudes - Attachment - Activity

Market Performance
- Price premiums - Price elasticity - Market share - Expansion success - Cost structure - Profitability

Shareholder Value
- Stock price - P/E ratio - Market capitalization

FILTERS

Program Multiplier
- Clarity - Relevance - Distinctiveness - Consistency

Consumer Multiplier

Market Multiplier

- Channel support - Market dynamics - Consumer size and profile - Growth potential - Competitive reactions - Risk profile - Brand contribution

Value Stages

Marketing program investment

Any marketing program that can be attributed to brand value development In what way have customers been changed as a result of the marketing program? How do customers respond in the marketplace?

Customer mindset

Market performance

Shareholder value
8.8

Marketing Program Investment

Any marketing program investment that potentially can be attributed to brand value development, either intentional or not, falls into this first value stage. Specifically, some of the bigger marketing expenditures relate to product research, development, and design; trade or intermediary support; marketing communications (e.g., advertising, promotion, sponsorship, direct and interactive marketing, personal selling, publicity, and public relations); and employee training. The extent of financial investment committed to the marketing program, however, does not guarantee success in terms of brand value creation. Many marketers have spent billions of dollars in marketing activities and programs but due to questionably strategic and tactically ineffective campaigns., have seen competitors steal key market positions. The ability of a marketing program investment to transfer or multiply farther down the chain will thus depend on qualitative aspects of the marketing program via the program quality multiplier. 8.9

Program Quality Multiplier

The ability of the marketing program to affect the customer mindset will depend on the quality of that program investment. There are a number of different means to judge the quality of a marketing program and many different criteria may be employed. To illustrate, four particularly important factors are as follows:

8.10

Multipliers

Program quality multiplier

The ability of the marketing program to affect customer mindset Must be clear, relevant, distinct, and consistent The extent to which value created in the minds of customers affects market performance It depends on factors such as competitive superiority, channel support, and customer size and profile The extent to which the value generated through brand market performance is manifested in shareholder value It depends on factors such as market dynamics, growth potential, risk profile, and brand contribution
8.11

Customer multiplier

Market multiplier

Program Quality Multiplier

1. Clarity: How understandable is the marketing program? Do consumers properly interpret and evaluate the meaning conveyed by brand marketing? 2. Relevance: How meaningful is the marketing program to customers? Do consumers feel that the brand is one that should receive serious consideration? 3. Distinctiveness: How unique is the marketing program from those offered by competitors? How creative or differentiating is the marketing program? 4. Consistency: How cohesive and well integrated is the marketing program? Do all aspects of the marketing program combine to create the biggest impact with customers? Does the marketing program relate effectively to past marketing programs and properly balance continuity and change, evolving the brand in the right direction?
8.12

A judicious marketing program investment could result in a number of different customer related outcomes. Essentially, the issue is,

Customer Mindset

in what ways have customers been changed as a result of the marketing program? How have those changes manifested themselves in the customer mindset?

Remember that the customer mindset includes everything that exists in the minds of customers with respect to a brand: thoughts, feelings, experiences, images, perceptions, beliefs, attitudes, and so forth. Understanding customer mindset can have important implications for marketing programs.
8.13

Customer Mindset
A host of different approaches and measures are available to assess value at this stage. One simple way to reduce the complexity of the brand resonance model into a simpler, more memorable structure is in terms of five key dimensions. The 5 As are a way to highlight key dimensions of the brand resonance model within the brand value chain model as particularly important measures of the customer mindset: 1. Brand awareness The extent and ease with which customers recall and recognize the brand and thus the salience of the brand at purchase and consumption. 2. Brand associations The strength, favorability, and uniqueness of perceived attributes and benefits for the brand in terms of points-ofparity and points-of-difference in performance and imagery. 3. Brand attitudes Overall evaluations of the brand in terms of the judgments and feelings it generates.
8.14

Customer Mindset
4. Brand attachment How intensely loyal the customer feels toward the brand. A strong form of attachment, adherence, refers to the consumers resistance to change and the ability of a brand to withstand bad news (e.g., a product or service failure). In the extreme, attachment can even become addiction. 5. Brand activity The extent to which customers are actively engaged with the brand such that they use the brand, talk to others about the brand, seek out brand information, promotions, and events, and so on.

8.15

An obvious hierarchy exists in these five dimensions of the brand resonance model: Awareness supports associations, which drive attitudes that lead to attachment and activity. According to the brand resonance model, brand value is created at this stage when customers have

Customer Mindset

1. deep, broad brand awareness; 2. appropriately strong and favorable points-of-parity and points-ofdifference; 3. positive brand judgments and feelings; 4. intense brand attachment and loyalty; and 5. a high degree of brand engagement and activity.

8.16

Marketplace Conditions Multiplier

The extent to which value created in the minds of customers affects market performance depends on various contextual factors external to the customer. Three such factors are as follows: 1. Competitive superiority: How effective are the quantity and quality of the marketing investment of other competing brands. 2. Channel and other intermediary support: How much brand reinforcement and selling effort is being put forth by various marketing partners. 3. Customer size and profile: How many and what types of customers (e.g., profitable or not) are attracted to the brand.
8.17

Marketplace Conditions Multiplier

The competitive context faced by a brand can have a profound effect on its fortunes. For example, both Nike and McDonalds have benefited in the past from the prolonged marketing woes of their main rivals, Reebok and Burger King, respectively. Both of these latter brands have suffered from numerous repositionings and management changes. On the other hand, MasterCard has had to contend for the past decade with two strong, well-marketed brands in Visa and American Express and consequently has faced an uphill battle gaining market share despite its well-received Priceless ad campaign.

8.18

The customer mindset affects how customers react or respond in the marketplace in a six main ways. The first two outcomes relate to price premiums and price elasticities. How much extra are customers willing to pay for a comparable product because of its brand? And how much does their demand increase or decrease when the price rises or falls? A third outcome is market share, which measures the success of the marketing program to drive brand sales. Taken together, the first three outcomes determine the direct revenue stream attributable to the brand over time. Brand value is created with higher market shares, greater price premiums, and more elastic responses to price decreases and inelastic responses to price increases.

Market Performance

8.19

The fourth outcome is brand expansion, the success of the brand in supporting line and category extensions and new product launches into related categories. Thus, this dimension captures the ability to add enhancements to the revenue stream. The fifth outcome is cost structure or, more specifically, savings in terms of the ability to reduce marketing program expenditures because of the prevailing customer mindset. In other words, because customers already have favorable opinions and knowledge about a brand, any aspect of the marketing program is likely to be more effective for the same expenditure level; alternatively, the same level of effectiveness can be achieved at a lower cost because ads are more memorable, sales calls more productive, and so on. When combined, these five outcomes lead to brand profitability, the sixth outcome.
8.20

Market Performance

Investor Sentiment Multiplier

The extent to which the value engendered by the market performance of a brand is manifested in shareholder value depends on various contextual factors external to the brand itself. Financial analysts and investors consider a host of factors in arriving at their brand valuations and investment decisions. Among these considerations are the following:

8.21

Investor Sentiment Multiplier

1. Market dynamics What are the dynamics of the financial markets as a whole (e.g., interest rates, investor sentiment, or supply of capital)?

2. Growth potential What are the growth potential or prospects for the brand and the industry in which it operates? For example, how helpful are the facilitating factors and how inhibiting are the hindering external factors that make up the firms economic, social, physical, and legal environment?
3. Risk profile What is the risk profile for the brand? How vulnerable is the brand likely to be to those facilitating and inhibiting factors? 4. Brand contribution How important is the brand as part of the firms brand portfolio and all the brands it has? 8.22

Shareholder Value

Based on all available current and forecasted information about a brand as well as many other considerations, the financial marketplace then formulates opinions and makes various assessments that have very direct financial implications for the brand value. Three particularly important indicators are the stock price, the price/earnings multiple, and overall market capitalization* for the firm. Research has shown that not only can strong brands deliver greater returns to stockholders, they can do so with less risk.

* Market capitalization (often market cap) is a measurement of size of a business enterprise (corporation) equal to the share price times the number of shares outstanding (shares that have been authorized, issued, and purchased by investors) of a publicly traded company.
8.23

Brand Equity Measurement System

A set of research procedures that is designed to provide timely, accurate, and actionable information for marketers so that they can make the best possible tactical decisions in the short run and strategic decisions in the long run

8.24

Brand Equity Measurement System

Conducting brand audits Developing tracking procedures Designing a brand equity management system

8.25

Designing Brand Tracking Studies

Tracking studies involve information collected from consumers on a routine basis over time

Often done on a continuous basis Provide descriptive and diagnostic information

8.26

What to Track

Customize tracking surveys to address the specific issues faced by the brand Product-brand tracking Corporate or family brand tracking Global tracking

8.27

How to Conduct Tracking Studies

Who to track (target market) When and where to track (how frequently) How to interpret brand tracking

8.32

Assume that McDonalds was interested in designing a short tracking survey to be conducted over the phone. How might you set it up? Although there are a number of different types of questions, it might take the following form: Interviewer: We are conducting a short phone interview concerning consumer opinions about quick-service or fast food restaurant chains.

Sample Brand Tracking SurveyMcDonalds

BRAND AWARENESS Recall (unaided) a) What brands of quick service restaurant chains are you aware of? b) At which brands of quick service restaurant chains would you consider using? c) Have you eaten in a quick service restaurant chain in the last week? Which ones? d) If you were to eat in a quick service restaurant tomorrow for lunch, which one would you go to? e) What if instead it were for dinner? Where would you go? f) What if instead it were for breakfast? Where would you go? 8.33 g) Which are your favorite quick serve restaurant chains?

BRAND AWARENESS Recognition Now, we want to ask you some questions about a particular quick service restaurant chain, McDonalds. a) Have you heard of this restaurant? [Establish familiarity] b) Have you eaten at this restaurant? [Establish trial] c) When I say McDonalds, what are the first associations that come to your mind? Anything else? [List all]

Sample Brand Tracking SurveyMcDonalds

8.34

Brand Tracking Survey-McDonalds

BRAND IMAGE What are the top five words that come to mind when you think of "McDonalds" (This should take less than 30 seconds) Brand Attributes How well do the following words describe McDonalds? (1= not at all, 5 = very much)? McDonalds ... a) Is convenient to eat at b) Provides quick, efficient service c) Has clean facilities d) Is for the whole family e) Has delicious food f) Has healthy food g) Has a varied menu h) Has friendly, courteous staff i) Offers fun promotions j) Has a stylish and attractive look k) Has good prices 8.35

Brand Tracking Survey-McDonalds

Brand Personality (note this might also include user imagery, usage imagery as breakout questions) How well do the following traits describe McDonalds (1= not at all, 5 = very much)? Sincere Exciting Competent Sophisticated Rugged Peaceful Passionate

8.36

Brand Tracking Survey-McDonalds

Judgments of Quality What is your overall opinion of McDonalds? What is your assessment of the product quality of McDonalds? How good a value is this McDonalds? Is McDonalds worth a premium price? What do you like best about McDonalds? Judgments of Credibility How innovative is McDonalds? How much do you admire McDonalds? How much do you respect McDonalds? Judgments of Consideration How likely would you be to recommend McDonalds to others? To what extent does McDonalds offer advantages that other brands cannot? How personally relevant is McDonalds to you?

8.37

Brand Tracking Survey-McDonalds

Judgments of Superiority How unique is McDonalds? To what does McDonalds offer advantages that other brands cannot? To what extent is McDonalds superior to other brands in the quick service restaurant category? Feelings Does McDonalds give you a feeling of (1= not at all, 5 = very much) Warmth Excitement Trust Awe Fear Calm Intensity

8.38

Brand Tracking Survey-McDonalds

RELATIONSHIP If McDonalds came to life as a person, what type of person would s/he be? This should take less than 30 seconds. If McDonalds came to life as a person and was at a party with you, what would s/he say to you? This should take less than 30 seconds. Loyalty I consider myself loyal to McDonalds. I eat at McDonalds whenever I can. This is the one brand of fastfood restaurant I would most prefer to visit. If McDonalds were not an option, it would make little difference to me if I had to eat elsewhere. I would go out of my way to go to McDonalds

8.39

Brand Tracking Survey-McDonalds

Attachment I really love McDonalds. I would really miss this brand if it went away. McDonalds is special to me. Engagement I really like to talk about McDonalds to others. I am always interested in learning more about McDonalds. I would be interested in merchandise with this brands name on it. I like to visit the website for McDonalds. Compared to other people, I follow news about McDonalds closely. Community I really identify with people who use this brand. McDonalds is often frequented by people like me. I feel a deep connection with others who use this brand.

8.40

Brand Equity Management System

A brand equity management system is a set of organizational processes designed to improve the understanding and use of the brand equity concept within a firm:
Brand equity charter Brand equity report Brand equity responsibilities

8.41

Brand Equity Charter

Provides general guidelines to marketing managers within the company as well as key marketing partners outside the company Should be updated annually

8.42

Brand Equity Charter Components

Define the firms view of the brand equity Describe the scope of the key brands Specify actual and desired equity for the brand Explain how brand equity is measured Suggest how brand equity should be measured Outline how marketing programs should be devised Specify the proper treatment for the brand in terms of trademark usage, packaging, and communication

8.43

The Knicks Brand Charter

The Knicks
Emotional Bond
Uniquely authentic An incomparable event, scene and energy Relentless, resourceful, and tough Championship caliber An intensely passionate, professional, unparalleled New York City experience

The Fans
Sensory fulfillment

Looks, feels, and sounds

Visceral thrill Eager anticipation/excitement War: winning/losing Psychological benefits Personal identification (with heroes) Social currency/belonging Emotional awards Intense experience Childhood Sustaining Exceeds 8.44

A vital part of New York City

Unlimited in its possibilities

Brand Equity Report

Assembles the results of the tracking survey and other relevant performance measures To be developed monthly, quarterly, or annually Provides descriptive information as to what is happening with the brand as well as diagnostic information on why it is happening

8.45

Brand Equity Report

In particular, one section of the report should summarize consumer perceptions on key attribute or benefit associations, preferences, and reported behavior as revealed by the tracking study. Another section of the report should include more descriptive market level information such as:

8.46

Brand Equity Report

1) Product shipments and movement through channels of distribution. 2) Relevant cost breakdowns. 3) Price and discount schedules where appropriate. 4) Sales and market share information broken down by relevant factors, e.g., geographic region, type of retail account or customer, etc. 5) Profit assessments.
8.47

Brand Equity Responsibilities

Organizational responsibilities and processes that aim to maximize long-term brand equity
Establish position of VP or Director of Equity Management to oversee implementation of Brand Equity Charter and Reports

Ensure that, as much as possible, marketing of the brand is done in a way that reflects the spirit of the charter and the substance of the report

8.48

Internal Branding

Internal brand management makes sure that employees and partners appreciate and understand basic branding notions and how these can affect the equity of the brands that they are working with. The ultimate goal is to make everyone in the organization, from the CEO to the trainees, to become passionate brand advocates. This can be achieved, according to Davis, by following a threestep course: Hear It, Believe It, Live It. To get employees to live the brand,

8.49

Brand Assimilation Process-Scott Davis

Principle 1: Make the Brand Relevant One of most critical principles is to make sure the brand is relevant to employees. Each employee in each functional group or unit of the company must understand not just what the brand stands for, but how they as individuals can embrace its meaning and represent it publicly. Only employees who understand the brand can help support it and use it to guide decision making.
Principle 2: Make the Brand Accessible If employees are to live and breathe the organizations brand, they must be equipped with the information and tools they need to understand it. Giving employees the ability to make brand-supporting decisions means that they must have ready access to answers to questions. Without creating that kind of access, the organization risks creating employees who are disinterested or frustrated with the task.
8.50

Brand Assimilation Process-Scott Davis

Principle 3: Reinforce the Brand Continuously For brand to become a cultural underpinning of the organization, employees must be continuously exposed to its meaning, far beyond the initial rollout of the internal branding program.Take Southwest Airlines as an example. In seeking to internally apply the attributes of its brand promise,A symbol of freedom, Southwests people (or HR) department teamed with other such departments as public relations and marketing to create an internal branding campaign around employee freedom.As part of the campaign, support was fostered through tactics such as having the carriers in-house publication highlight employee freedoms, having employees write about how they personally took advantage of freedoms, and renaming the intranet site Freedom Net. Newsletters and the intranet can be invaluable communication tools that help keep brand identity elements, successes, and updated information on the brand strategy top-of-mind for employees. Other tactics can include the rollout of such brand-related tools as laminated identity cards 8.51 and brand trading cards.

Brand Assimilation Process-Scott Davis

Principle 4: Make Brand Education an Ongoing Program Its particularly important that new employees are grounded in the brand culture and inspired to believe in what the brand represents. Putting these processes in place helps newcomers better understand the brands role and impact on the business, and it gives them the tools and the frameworks they need for their day-to-day decision-making. Additionally, the investment the company makes in training new employees speaks volumes about its level of commitment to them. The hotel chain has emphasized training because its top priority was the satisfaction of its guestsand it knew that employees were critical to delivering on that promise. Each new employee went through an intensive orientation called The Gold Standard, which was comprised of principles created to support the brand. These brand precepts were reinforced in daily departmental meetings attended by all employees. The Gold Standard provided the basis for all ongoing employee training. Not so coincidentally, Ritz-Carlton became a hospitality industry leader in training, providing 120 hours of training per employee per year. 8.52

Brand Assimilation Process-Scott Davis

Principle 5: Reward On-Brand Behaviors An incentive system rewarding employees for exceptional support of the brand strategy should be tied to the rollout of the internal branding program. This not only helps create and maintain excitement in the program, but it underscores, through individual recognition, the kinds of behaviors that need to be supported. Rewards also help demonstrate the organizations commitment to the brand and the program while creating a tangible model that helps employees better understand how they, too, perform on-brand. Continental Airlines created an employee reward program called Working Together under its new emphasis of promising on-time service as a key component of its brand promise to customers.

8.53

Brand Assimilation Process-Scott Davis

Principle 6: Align Hiring Practices Because the success of a brand assimilation program hinges on employees ability and capacity to embody the brand spirit, its also important that HR and marketing work together to develop basic screening procedures that ensure new hires will fit with and support the companys brand culture. This can be accomplished through a variety of tactics, starting with the incorporation of the core and extended brand identity elements into the process of evaluating prospective employees. Over time, job descriptions should be rewritten to incorporate these same brand identity traits into the list of expected employee behaviors.

8.54

Rate Your Firm's Marketing Assessment System

1. Does the senior executive team regularly and formally assess marketing performance? (a) Yearly - 10 (b) Six-monthly - 10 (c) Quarterly - 5 (d) More often - 0 (e) Rarely - 0 (f) Never - 0 2. What does the senior executive team understand by 'customer value'? (a) Don't know. We are not clear about this - 0 (b) Value of the customer to the business (as in 'customer lifetime value') - 5 (c) Value of what the company provides for the customers' point of view - 10 (d) Sometimes one, sometimes the other - 10 3. How much time does the senior executive team give to marketing issues? .........% (a) >30% - 10 (b) 20-30% - 6 (c) 10-20% - 4 8.55 (d) <0% - 0

Rate Your Firm's Marketing Assessment System

4. Does the business/marketing plan show the non-financial corporate goals and link them to market goals? (a) No/no plan-0 (b) Corporate no, market yes-5 (c) Yes to both-10 5. Does the plan show the comparison of your marketing performance with competitors or the market as a whole? (a) No/no plan-0 (b) Yes, clearly-10 (c) In between -5 6. What is your main marketing asset called? (a) Brand equity-10 (b) Reputation-10 (c) Other term-5 (d) We have no term-5

8.56

Rate Your Firm's Marketing Assessment System

7. Does the senior executive team's performance review involve a quantified view of the main marketing asset and how it has changed? (a) Yes to both-10 (b) Yes but only financially (brand valuation)-5 (c) Not really-0 8. Has the senior executive team quantified what 'success' would look like five or ten years form now? (a) No-0 (b) Yes-10 (c) Don't know-0

8.57

Rate Your Firm's Marketing Assessment System

9. Does your strategy have quantified milestones to indicate progress towards that sucess? (a) No-0 (b) Yes-10 (c) What strategy?-0 10. Are the marketing performance indicators seen by the senior executive team aligned with these milestones? (a) No-0 (b) Yes, external (customers and competitors)-7 (c) Yes, internal, (employees and innovativeness)-5 (d) Yes, both-10

8.58

Rate Your Firm's Marketing Assessment System

Score yourself according to the scale below. - If your total is greater than 90 percent, excellent. - If your total is 70-90 percent, congratulate yourself and keep at it. - More than 50 percent is good. - Less than 30 percent means what you think it means.

8.59