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Development of brand equity:

evaluation of four alternative models
a b c
Hong-Youl Ha , Swinder Janda & Siva Muthaly
a
College of Business Administration, Kangwon National University,
Chuncheon, Kangwon-do, South Korea
b
Department of Marketing, Kansas State University, Manhattan,
USA
c
Department of International Business Studies, Swinburne
University of Technology, Hawthorn, Australia
Version of record first published: 04 May 2010.
To cite this article: Hong-Youl Ha , Swinder Janda & Siva Muthaly (2010): Development of brand
equity: evaluation of four alternative models, The Service Industries Journal, 30:6, 911-928
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The Service Industries Journal
Vol. 30, No. 6, June 2010, 911 –928
Development of brand equity: evaluation of four alternative models

Hong-Youl Haa , Swinder Jandab and Siva Muthalyc
a
College of Business Administration, Kangwon National University, Chuncheon, Kangwon-do,
South Korea; bDepartment of Marketing, Kansas State University, Manhattan, USA; cDepartment
of International Business Studies, Swinburne University of Technology, Hawthorn, Australia
(Received 20 February 2008; final version received 24 June 2008)
This study examines the development of brand equity by evaluating the influences of
brand associations, perceived quality, satisfaction, and brand loyalty. Based on insights
from prior research, four models are proposed, which focus on alternative relationships
among these four factors. Sample data sets from the banking and discount store services
Downloaded by [213.55.114.180] at 04:06 20 March 2013
are used to evaluate the relationships between and among these four factors. Results of
the comparative data analyses reveal that the research model fits the data significantly
better than the other three models. In particular, the contention that the effects of
perceived quality impact brand equity indirectly through satisfaction is supported.
The findings indicate that the primary contribution of the current study lies in the
inclusion of satisfaction as an antecedent to brand equity and in the attempts to
adequately model its relationships with the more traditional brand equity antecedents
of perceived quality, brand loyalty, and brand associations. These results, and their
implications, along with avenues for further research are also elaborated in this
research.
Keywords: brand equity; perceived quality; banking; discount stores; customer

satisfaction
Introduction
Brand equity is the incremental utility gained by a product or service by virtue of its brand
name. Brands high in equity such as Microsoft, Wal-Mart, Lexus, and Citibank have been
known to command high degrees of recognition and resulting success (Park & Srinivasan,
1994; Yoo, Donthu, & Lee, 2000). Brand equity is an important concept in brand manage-
ment for both theoretical and practical reasons. From a theoretical perspective, it is rel-
evant to understand what key elements make up brand equity (Punj & Hillyer, 2004).
From a practical perspective, it is important to figure out how brand equity can be
reinforced in order to enhance the overall brand experience.
To date, the study of brand associations, perceived quality, satisfaction, and brand
loyalty factors related to brand equity have dominated the service literature. The bases
for these discussions have been both operational and conceptual, with particular attention
paid to identifying the relationships between these factors. Some studies have questioned
the theoretical linkage between perceived quality and satisfaction (Henning-Thurau &
Klee, 1997; Pappu & Quester, 2006), although this linkage is well supported by several
prior studies (Chiou & Droge, 2006; Cronin, Brady, & Hult, 2000; Olsen, 2002). Although
the theoretical issue has been discussed by Oliver (1997) who demonstrates that percep-
tions of high quality lead to brand loyalty because it is the basis of consumer satisfaction,

Corresponding author. Email: youl1227@ams-web.org
ISSN 0264-2069 print/ISSN 1743-9507 online

# 2010 Taylor & Francis
DOI: 10.1080/02642060802320253
http://www.informaworld.com
912 H.-Y. Ha et al.
there is no definitive research to test whether satisfaction affects the relationship between
perceived quality and brand equity.
Extant research is replete with various ways of looking at brand equity. Aaker (1991)
and Keller (1998) use four dimensions to capture the dynamic nature of brand equity,
while Aaker and Jacobson (1994) suggest that perceived quality, via its effect on consumer
knowledge, reflects the future prospects of a brand. These approaches are valuable for cap-
turing the key features of brand equity formation, but the role of satisfaction has still
largely been ignored. Although Aaker (1996b) points out that satisfaction is a key dimen-
sion of brand equity, there is little research that looks at the relationships between satisfac-
tion, perceived quality, and brand equity. Moreover, Punj and Hillyer (2004, p. 130)
recently state that ‘research on brand equity is still in a state of evolution’, thereby imply-
ing the need for further work in this area. Thus, the main premise behind this research is
that it is important to understand what role satisfaction plays in the relationship between
perceived quality and brand equity.
This study, therefore, attempts to theoretically identify and empirically test the
relationship between satisfaction, perceived quality, brand equity, and brand loyalty, uti-
lizing data from two different contexts (banking and discount stores). The evaluation of
alternative models in this study allows for interpreting data, understanding developmental
processes, and formulating new research questions. In general, the following research
questions are posed:
(1) Is it important to assess all four factors mentioned above?
(2) How are the four factors related to one another?
(3) Is satisfaction an antecedent of service quality for brand equity formation?
Dimensions of brand equity

A variety of definitions for brand equity are offered in the literature (e.g. Aaker, 1991,
1996b; Keller, 1993). For example, Aaker (1996b) defines brand equity as a set of four
categories of brand assets linked to a brand’s name or symbol that add to the value pro-
vided by a product or service to a firm or to that firm’s customers. Those categories are
(1) brand awareness; (2) brand association; (3) perceived quality; and (4) brand loyalty.
Keller (1993, p. 2) proposes that customer-based brand equity is ‘the differential effect
of brand knowledge on consumer response to the marketing of the brand’. Brand equity
has other definitions and forms, such as favourable impression, attitudinal dispositions,
and behavioural predilections (Rangaswamy, Burke, & Oliva, 1993). A common
problem is that brand equity may be defined differently by different people. Most scholars
seem to view equity as multi-dimensional, consisting of some combination of awareness,
liking, preference, meaning, repeat purchase, etc. But no single method of conceptualizing
and measuring brand equity may be applicable to all brands (Kartono & Rao, 2005). Since
consumer response in marketing is defined in terms of consumer perceptions, preferences,
and behaviour arising from marketing mix activity (Hartman & Spiro, 2005), brand equity
in this study is conceptually defined as overall consumer response to the primary predictors
of brand purchase intent and behaviour.
While traditional approaches have mainly focused on four dimensions such as brand
awareness/associations, perceived quality, and brand loyalty on brand equity, we look
at satisfaction, in addition to these dimensions, as a comprehensive way to look at
brand equity formation. The important role of satisfaction in brand equity formation has
previously been discussed in the literature (e.g. Agarwal & Rao, 1996). This study,
The Service Industries Journal 913
thus, looks at perceived quality, brand associations, satisfaction, and brand loyalty and at
how these constructs relate to brand equity across different industries.
Brand associations
Brand associations are central to brand equity. In conceptualizing brand equity, Keller
(1993) depicts attitudes as the most abstract and highest level of brand association.
Brand equity is closely related to brand knowledge, which he defines in terms of brand
awareness and brand image. Both awareness (recall and recognition) and image relate
to brand associations held in a customer’s memory. In this study, brand awareness is incor-
porated into brand association (e.g. Aaker, 1996a; Rossiter & Percy, 1987; Yoo et al.,
2000). From a measurement standpoint, brand awareness, familiarity, and brand image
are all considered to be brand associations, and are viewed as primary customer-based
brand equity facets, consistent with several previously proposed brand equity frameworks
(Aaker, 1996a; Blackston, 1995; Keller, 1993, 1998; Netemeyer et al., 2004; Yoo et al.,
2000). Thus, this study defines brand association as the set of memory-based meanings
associated with a brand name.
Keller (1993) classifies brand association dimensions into three major categories –
attributes, benefits, and attitudes, while Low and Lamb (2000) suggest that brand
image, brand attitude, and perceived quality are the key dimensions of brand association.
Since consumers who are more experienced with a brand develop deeper knowledge struc-
tures related to multiple dimensions (Alba & Hutchinson, 1987), we believe that experi-
enced consumers are likely to hold favourable and strong perception of quality of that
brand, compared with less-experienced consumers. Such perceptions are directly linked
to consumer knowledge, which seems to indicate that perceived quality is one key dimen-
sion of brand equity. In their study of the impact of a firm’s marketing on brand equity,
Yoo et al. (2000) also found a significant link between brand associations and brand
equity.
Perceived quality
Definitions of perceived quality in a service context suggest that this is the result of com-
parisons a customer makes between his/her expectations about a service and perception of
the way that service has been performed (Caruana, 2002; Parasuraman, Zeithaml, & Berry,
1994). The most common definition of perceived quality integrates consumer experience
of the service and perceptions of the firm providing the service (González, Comesaña, &
Brea, 2007). Thus, this study conceptually defines perceived quality as the customer’s cog-
nitive evaluation of the overall experience of a brand (bank or discount store). Perceived
quality is distinct from brand associations; it plays a role in differentiating a brand and in
that sense providing a reason to purchase the brand.
Perceived quality has been found to correlate with financial performance (Aaker,
1996b) and is the pivotal force driving brand equity (Michell, King, & Reast, 2001). As
outlined by Netemeyer et al. (2004), perceived quality is considered a core customer-
based brand equity factor because it has been associated with the willingness to pay a
price premium, brand purchase intent, and brand choice. Psychology-based studies on
brand equity emphasize how brands influence perceived quality (Aaker, 1991). Since per-
ceived quality judgements from direct experience can be particularly strong (Fazio &
Zanna, 1981), quality judgments from direct experience should positively enhance
brand equity.
914 H.-Y. Ha et al.
Satisfaction
Over the years, numerous definitions of satisfaction have been proposed by marketing
scholars. After reviewing the literature on satisfaction, Oliver (1997, p. 28) concludes
that the wide variation in defining the factor of satisfaction was best reconciled in the defi-
nition of satisfaction as ‘the summary psychological state resulting when the emotion sur-
rounding disconfirmed expectation is coupled with a prior feelings about the customer
experience’. In this study, we define satisfaction as a summary affective response of
varying intensity after the customer frequently visits a facility (bank or discount store).
Satisfaction, which we attempt to present as an under researched, new predictor of
brand equity, may be actually an indicator that is a conceptual part of brand equity
(Aaker, 1996b). However, we can consider satisfaction to be central to the notion of
brand equity (e.g. Tax, Brown, & Chandrashekaran, 1998) because there is little empirical
research that addresses the role of satisfaction in affecting brand equity. This lack of lit-
erature implies that it would be meaningful to investigate how satisfaction could possibly
affect brand equity. Another potential reason for looking into this relationship is the prior
research evidence which indicates that service brand equity varies with customer satisfac-
tion (Pappu & Quester, 2006). Furthermore, since a strong service brand is essentially a
promise of future satisfaction (Berry, 2000), the possibilities for creating strong brand
equity become clearer when we examine the role of satisfaction. This view would also
be supported by Prasad and Dev (2000), who demonstrate that the first step in managing
brand equity is associated with a high degree of customer satisfaction. By identifying the
role of satisfaction in brand equity formation, we thus theorize that satisfaction will play a
critical role in brand equity formation, particularly in a service context.
Brand loyalty
Brand loyalty can be defined as ‘a deeply held commitment to re-buy or re-patronize a pre-
ferred product/service consistently in the future, thereby causing repetitive same-brand or
same brand-set purchasing, despite situational influences and marketing efforts having the
potential to cause switching behaviour’. (Oliver, 1999, p. 34). This definition emphasizes
both behavioural and attitudinal perspectives, and brand loyalty is considered as one of the
most important factors affecting consumer choice (Baldinger & Rubinson, 1996). This
research draws on the conceptual work of Dick and Basu (1994), who propose that custo-
mer loyalty is the result of psychological processes and has behavioural manifestations,
and should therefore incorporate both attitudinal and behavioural components. In this
study, therefore, we conceptually define brand loyalty as an attitudinal and behavioural
function of an evaluative psychological process for a particular brand.
In addition, brand loyalty is distinct from the notion of brand attitude, since multiple
brands can possess favourable attitudes, resulting in multi-loyalty or loyalty towards mul-
tiple brands (Jacoby, 1971). Baldinger and Rubinson (1996) and Chaudhuri (2001) demon-
strate that brand loyalty is affected by brand attitudes. For example, Baldinger and
Rubinson (1996) conducted a loyalty analysis for 27 brands and found that highly loyal
customers were consistently higher in their attitudes towards the brand.
Alternative models for brand equity formation

Armstrong, Brodie and Parsons, (2001) advocate the assessment of a number of competing
models to see which one best explains the relationships between the variables of interest.
Further, utilization of hierarchical structural model analysis possesses considerable
potential for investigating models representing a large number of different structures,

which can be obtained by slightly modified model specifications (Schweizer, Moosbrug-
ger, & Schermeller-Engel, 2003).
In order to establish objectivity, evidence from two or more competing models of the
role of brand associations, perceived quality, satisfaction, and brand loyalty in the devel-
opment of brand equity is examined. By structuring such alternative models, McKenzie
(1998) argues that researchers may be better able to judge how actual service data
relates to each alternative view. From a theoretical perspective, numerous brand equity
studies have endeavoured to model these linkages, particularly into the specification of
the ‘antecedent and consequent’ relationships (e.g. Bolton & Lemon, 1999; Yoo et al.,
2000).
As outlined earlier, the major purpose of this research is to evaluate four alternative
models, all of which have some support in the literature. These models, shown in
Figure 1, posit varying explanations for the relationship between perceived quality, satis-
faction, loyalty, and brand equity.
Model 1: direct effects

To provide a base comparison, this study begins with a direct effects model which treats
brand associations, perceived quality, brand loyalty, and satisfaction as antecedent con-
structs which affect brand equity (Figure 1). Each of these antecedents, with the exception
of satisfaction, has been previously shown to affect brand equity. The underlying theoreti-
cal approach is supported by Aaker’s (1996b) brand equity model.
Figure 1. Exploring link significance for alternative models.

916 H.-Y. Ha et al.
Cronin et al. (2000) have suggested that the model structure can often be dependent on
the nature of the study. Thus, this model allows a one-way direct effect of the antecedent
constructs on the sole consequent construct-brand equity. Prior literature provides ample
support for all the direct relationships suggested by this model, including the brand associ-
ations-brand equity link (Aaker, 1996b; Pappu & Quester, 2006; Ye and van Raaij, 2004),
perceived quality-brand equity link (Aaker, 1996b; Netemeyer et al., 2004; Pappu &
Quester, 2006), satisfaction-brand equity relationship (Berthon et al., 2001; Tax et al.,
1998), and the brand loyalty-brand equity relationship (Chaudhuri, 2001; Chaudhuri &
Holbrook, 2001; Sullivan, 1992; Yoo et al., 2000).
Model 2: traditional
The traditional model is essentially based on Aaker (1991, 1996b) brand equity model, but
also incorporates more dominant research into the development of the model. According
to his brand equity model, brand equity has been considered in many contexts: brand
associations, perceived quality, brand loyalty, and other proprietary brand assets.
There is evidence suggesting that overall satisfaction leads to brand loyalty. Caruana
(2002) have argued that satisfaction is an important determinant of brand loyalty. It can be
argued that satisfaction impacts brand equity indirectly through brand loyalty. The reason-
ing for including brand loyalty as a component of customer-based brand equity comes
from the importance of customer satisfaction in developing a brand (Aaker, 1991).
Research provides additional empirical support for loyalty responses as the major conse-
quence of consumer satisfaction (Bloemer & Kasper, 1995; Rust & Zahorik, 1993).
To better understand the relationship between satisfaction and brand loyalty,
Gustafsson, Johnson and Roos (2005) investigate the effects of satisfaction and commit-
ment on loyalty. Distinctions between attitudinal and behavioural components of
loyalty have been useful in understanding the link between satisfaction and loyalty.
Satisfaction with the preferred brand is an important determinant of attitudinal brand
loyalty (Bloemer & Kasper, 1995). Keeping in mind the underlying notion that affective
reactions influence attitude (Weiss & Cropanzano, 1996), research suggests that satisfac-
tion is an antecedent of attitudinal brand loyalty, and there is a positive relationship
between the two (Bennett, 2001; Bennett, Härtel, & McColl-Kennedy, 2005; Jones &
Suh, 2000). Jones and Sasser (1995), however, argue that satisfaction does not necessarily
lead to behavioural brand loyalty.
Research has also shown that brand trust and affect can lead to both attitudinal and be-
havioural loyalty (Chaudhuri & Holbrook, 2001). Similarly, Bloemer and Kasper (1995)
show that the relationship between customer satisfaction and brand loyalty does indeed
depend on the type of satisfaction: manifest satisfaction and overall satisfaction. The posi-
tive impact of manifest satisfaction on brand loyalty is greater than the positive impact
of overall satisfaction. However, even though manifest satisfaction plays a significant
role in improving brand loyalty, the effect of overall satisfaction on brand loyalty
should not be underestimated. Moreover, Olsen and Johnson (2003) demonstrated that
manifest (or transaction-specific) satisfaction and overall (or cumulative) satisfaction
have a complementary, not competing, effect on customer-level brand loyalty.
Model 3: perceived quality

The perceived quality model is also based on Aaker’s (1996b) brand equity model, but
there are differences between satisfaction and perceived quality. Brady and Robertson
(2001, p. 55) point out that the debate depends on whether practitioners (1) should focus on
providing quality service and its various components (e.g. Rust & Oliver, 1994) as a means
of creating favourable behavioural intentions or (2) would be better served to underscore
the significance of the more emotional satisfaction assessment. More recently, Pappu and
Quester (2006) show that consumers who reported higher satisfaction ratings have higher
perceptions of quality, compared with consumers who reported lower satisfaction ratings.
Based on the findings, they conclude that customer satisfaction is an antecedent of per-
ceived quality.
Although most marketing researchers accept a theoretical framework in which quality
performance leads to satisfaction (Oliver, 1997; Olsen, 2002), it has been suggested that
this debate seems to be on the many studies which consider only the effect of either
service quality or satisfaction on behavioural intentions, but does not test models that
include both of these factors (e.g. Brady & Robertson, 2001; Gotlieb, Grewal, &
Brown, 1994). Such studies may lead to biased results, which potentially overstate the
importance of one or both of these factors in the brand loyalty formation. Thus, the
quality model is consistent with Gotlieb et al.’s (1994) suggestion that an empirical exam-
ination of the antecedents and the effects of these two factors are needed. For the theoreti-
cal justification of the model, the linkage of the satisfaction-perceived quality (Henning-
Thurau & Klee, 1997; Pappu & Quester, 2006) is supported by the literature.
Model 4: research
The research model, which we advocate as the one that should provide the best fit to the
data, posits that perceived quality is antecedent to satisfaction, which in turn contributes
to brand equity (see Model 4 in Figure 1). Prior research provides considerable support
for the predictive effect of perceived quality on customer satisfaction. Cronin and Taylor
(1992) assess several models and conclude that perceived quality leads to satisfaction.
Lee and Back (2008) similarly find empirical evidence supporting this relationship in the
branding context. This link has also been previously established in numerous other
quality studies (e.g. Brady & Robertson, 2001; Fornell, 1992; Parasuraman, Zeithaml, &
Berry, 1985, Parasuraman, Zeithaml, & Berry, 1988; Tse & Wilton, 1988). Model 4 is
expected to perform the best in terms of predicting brand equity because the consumer
behaviour theory suggests that cognition (evaluation of service quality) influences affect
(judging the satisfaction for the service) (Brady & Robertson, 2001).
The second key relationship proposed in Model 4 relates to the positive effect of cus-
tomer satisfaction on brand equity. While traditional approaches have mainly focused on
four dimensions such as brand awareness/associations, perceived quality, and brand
loyalty on brand equity, we look at satisfaction in addition to these dimensions as a com-
prehensive way to look at brand equity formation. The important role of satisfaction in
brand equity formation has previously been discussed in the literature (e.g. Agarwal &
Rao, 1996).
A theoretical advantage of using brand equity as an outcome of satisfaction is that
when consumers actively think about the significance of product or service satisfaction,
they are willing to exercise more effort to obtain their favourable high-equity brand
(Keller, 1993; Sloot, Verhoef, & Franses, 2005). While there is little extant research
exploring this relationship, prior work does provide some empirical support. A recent
study conducted in a retail setting found that increased satisfaction contributes to enhanced
brand equity (Pappu & Quester, 2006; Prasad & Dev, 2000). Their evidence is consistent
with Olsen and Johnson’s (2003) study, who demonstrate that equity becomes an
918 H.-Y. Ha et al.
evaluation that customers are more likely to make as they approach the repurchase phase
of the purchase – consumption– repurchase cycle (e.g. department store) or transaction–
transactional satisfaction – repeat transaction (e.g. bank). We thus posit that perceived
quality judgements made via thinking about the brand will influence affective satisfaction
judgements, which will in turn enhance the value of the brand in the customer’s eyes.
Method
Data collection
Data were collected for two different service industries. Financial services data were
obtained from five banks (e.g. the First Bank, Shinhan Bank, Hanmi Bank, CHB, and Citi-
Bank). Retail services data were available for four discount stores (Lotte, E-mart, Home-
Plus (Tesco in the UK), and Hanaro Mart). The customers purchased their products and
services during September to December, 2004 in metropolitan areas of South Korea.
These services were chosen because customers in these two types of services had direct
contact with the firms. Further, a comparison of bank and discount store settings can
provide better implications which can be applied more broadly across different industries.
In terms of the service types for the discount store setting, the discount retail store may
be argued as a setting not best suited for this research. However, several prior research
studies in this realm have focused on discount and superstore sectors to study research
questions pertaining to service settings (e.g. McGoldrick, Betts, & Wilson, 1999; Sulek,
Lind, & Marucheck, 1995), which suggests that the research objectives may dictate the
appropriateness of the setting. Further, most discount superstores in the Korean context
are businesses that emphasize a variety of services in addition to products.
The characteristics of the services in this study cover a wide range of variations
included as part of the taxonomic dimensions proposed by Bowen (1990). Specifically,
banking services in South Korea are focused on intangible assets, delivered on a continu-
ing basis, and involve superficial membership relationships (Lee & Cunningham, 2001).
Local discount stores in South Korea attempt to enhance customers’ perceptions by a
face-to-face relationship that fosters loyal customers with a wide range of benefits. In
the Asia-Pacific region, a number of large giant global companies have embarked into
the South Korean marketplaces, particularly in the banking (Citibank and HBC) and dis-
count store (e.g. Tesco and Wal-Mart) industries.
For both data collection efforts, respondents were screened before the questionnaire
was administrated to make sure that they were familiar with the service context in ques-
tion. For both surveys, respondents were intercepted in the customer service lounge at tar-
geted multiple stores (or banks) in Seoul. This method of sampling was chosen as it was
easy to target respondents with previous service experience. The main criteria for selecting
participants for the sample was a minimum of 2 years of transactions with the bank and a
minimum of 2 years of experiences in shopping at discount stores with at least ten pur-
chases during that period. Trained interviewers indicated that the information would be
used by university researchers and offered assurances of confidentiality. Self-administered
surveys were distributed to 300 current customers from each of the two selected industries.
Thus, there were some overlaps between the two samples. After accounting for sample
bias and missing data, this study used a total of 508 questionnaires (247 for discount
stores and 261 for banks), which represents a 84.6% response rate. In this study, our
data were not aggregated into one sample to test the models.
Since the survey respondents were current customers of a bank and discount store,
researchers may have concerns that this survey explains more about brand loyalty than
brand equity formation. This would imply an investigation of consumers at different stages
in the relationship with the brand spanning from new customers to loyal customers.
However, as elaborated before, there are several different conceptualizations of brand
equity. More importantly, the current study builds on prior research into the key constructs
that affect brand equity formation, rather than on major influences of brand loyalty
formation.
Measures
The five factors were measured using 15 questions (responses on five-point Likert scales)
adapted from published scales (Table 1). The four dimensions of brand equity measured
were the following: brand associations, with four items adapted from Yoo et al. (2000)
and Netemeyer et al. (2004); perceived quality, with three items adapted from Yoo
et al. (2000); satisfaction, with two items adapted from Ragunathan and Irwin (2001);
and brand loyalty, with three items adapted from Yoo and Donthu (2001). Brand equity
was measured with three items adapted from Lasser, Mittal and Sharma (1995) and
Yoo et al. (2000). In particular, since the number of exposures does not guarantee more
brand associations, brand awareness/association items proposed by Yoo et al. (2000)
were applied to measure simple brand associations, incorporating brand recognition.
All survey questions were originally written in English and translated into Korean. To
make sure that the translation was accurate, the translation and back-translation method
was utilized. This study carefully followed Lee, Lee and Park’s (2004) recommendation
that the translation should be written in the appropriate Korean language spoken by a
Korean population at the specific time.
Statistical measures
The appropriateness of each model was examined using several fit indices. The overall fit
of a measurement model to the data has most commonly been tested using the x2 statistic
and the ratio of x2 to its degree of freedom (Jackson, Wall, Martin, & Davids, 1993).
However, a model with one or two more parameters always provides a better fit to the
data than other competing models (Pitt, Myung, & Zhang, 2002). To get around this
problem, we made sure that the four competing models all had the same number of par-
ameters. Further, Marsh, Balla and McDonald (1988) have shown that non-normed fit
index (NNFI) (r) is the only index that is relatively independent of sample size.
Further, researchers emphasize using SEM to test alternative or competing models
(Jackson et al., 1993; McKenzie, 1998; Punj & Hillyer, 2004).
Jarvis, MacKenzie and Podsakoff (2003, p. 200) state that ‘the most commonly used
latent variable measurement model is the principal factor model, where covariation
among the measures is caused by, and therefore reflects, variation in the underlying
latent factor’. In this study, the direction of causality is from the construct to the indicators,
and changes in the underlying construct are hypothesized to cause changes in the indicators;
thus, the measures are referred to as reflective indicators (Fornell & Bookstein, 1982).
Statistical analyses and results

As shown in Table 1, the confirmatory factor analysis (CFA) provided good fit to the data.
While the x2 statistic was significant (p , 0.01), it is known to be highly sensitive to
sample size (Jöreskog, 1993). The comparative fit index (CFI) estimates were 0.989
920 H.-Y. Ha et al.
Table 1. Results of the CFA analysis.

Bank Discount store
Variables (loadings) (loadings)
Brand associations
I am aware of the bank (or store) 0.676 0.791
I can recognize the bank (or store) among other competing banks 0.816 0.774
(or stores)
XXX is a brand of bank (or store) I am very familiar with 0.611 0.463
I have difficulty in imagining the bank (or store) in my mind (R) 0.457 0.429
Composite reliability 0.83 0.786
Average variance extracted 0.59 0.581
Perceived quality
The bank (or store) is of high quality 0.731 0.708
The likelihood that the bank (or store) is reliable is very high 0.810 0.743
The likely quality of the bank (or store) is extremely high 0.697 0.721

Satisfaction
Overall, I am satisfied with specific experiences with the bank (or 0.849 0.732
store)
I am satisfied with my decision to transact (or purchase) with this 0.757 0.885
bank (or from this store)
Brand loyalty
This bank (or store) would be my first choice 0.771 0.697
I consider myself to be loyal to this bank (or store) 0.657 0.692
I will not transact (or purchase) other banks (or store) if the service 0.811 0.820
is available at the bank (or store)
Brand equity
I can expect superior performance from the bank (or store) I am 0.904 0.806
evaluating
Even if another bank (or store) has same features as this bank, I 0.821 0.770
would prefer to use the bank
It makes sense to use (or repurchase) this bank (or store) instead of 0.624 0.691
any other bank (or store), even if they are the same
Note: Bank: x2 ¼ 62.201; df ¼ 43; RMR ¼ 0.036; GFI ¼ 0.965; CFI ¼ 0.989; TLI ¼ 0.983; AGFI ¼ 0.934;
RMSEA ¼ 0.034. Discount store: x2 ¼ 52.032; df ¼ 43; RMR ¼ 0.034; GFI ¼ 0.964; CFI ¼ 0.991; TLI ¼ 0.987;
AGFI ¼ 0.938 RMSEA ¼ 0.026.
(bank data) and 0.991 (discount store data). The root mean square error of approximation
(RMSEA) estimates were 0.034 (bank data) and 0.026 (discount store data).
Composite reliability was calculated using the procedures outlined by Fornell and
Larcker (1981). Parameter estimates were made and assessed the average variance
extracted for each factor (Anderson & Gerbing, 1988; Bagozzi & Yi, 1988). The compo-
site reliabilities for the five factors ranged from 0.83 to 0.90 (bank data) and from 0.786 to
0.903 (discount store data). The factor loadings ranged from 0.457 to 0.904 (bank data,
p , 0.05) and 0.429 to 0.885 (discount store data, p , 0.05). Three items of brand
associations that had loadings greater than 0.40 were not a cut-off value (Thompson,
2004). The average variance extracted ranged from 0.59 to 0.82 (bank data) and 0.581
to 0.823 (discount store data).
We also assessed discriminant validity with Fornell and Larcker’s (1981) criterion.
Table 2 shows that the smallest average variance extracted (AVE) exceeds the squared
correlation between each pair of the relationship value dimensions. This indicates a satis-
factory level of discriminant validity.
Research model correlation

The research model exhibited an excellent fit to both sets of data: for bank,
x2(48) ¼ 70.877, p , 0.01, r ¼ 0.97; for discount store, x2(48) ¼ 60.675, p , 0.01,
r ¼ 0.98. Furthermore, goodness-of-fit index (GFI) was 0.960 for bank and 0.963 for
discount store. The CFI estimates were 0.981 for bank and 0.984 for discount store.
The RMSEA was 0.043 for bank and 0.033 for discount store. In particular, Sharma,
Mukherjee, Kumar and Dillon, (2005) recommend that the Tucker – Lewis index (TLI)
should be used to evaluate model fit because TLI performs the best as long as the size
of the factor loadings is 0.5 or greater, and the sample size is not less than 200. In this
study, TLI was 0.968 for bank and 0.982 for discount store. The comparative model
results suggest that the research model provides the best fit to the data samples.
All hypothesized paths for the discount store data were significant, illustrating that
the link of brand associations to brand equity was insignificant for the bank data. The
signs of the coefficients were in the proposed directions. The estimate of the standardized
path coefficient indicates that the linkage between perceived quality and satisfaction
was significant (for bank, 0.204, p , 0.01: for discount store, 0.406, p , 0.001). The esti-
mate of the standardized path coefficient also indicates that the linkage between satisfac-
tion and brand loyalty was significant (for bank, 0.470, p , 0.001: for discount store,
0.375, p , 0.001). Further, the estimate of the standardized path coefficient indicates
that the linkage between brand loyalty and equity was significant (for bank, 0.741,
p , 0.001: for discount store, 0.820, p , 0.001). This suggests that there is a structural
correspondence among perceived quality, satisfaction, brand loyalty, and brand equity.
Table 2. Discriminant validity.

Mean SD 1 2 3 4 5
Bank
1. Brand associations 3.61 0.969 0.59
2. Perceived quality 3.31 0.698 0.40 0.69
3. Satisfaction 2.85 1.177 0.48 0.56 0.82
4. Brand loyalty 3.48 0.930 0.41 0.48 0.57 0.70
5. Brand equity 3.14 1.028 0.42 0.49 0.58 0.49 0.71
Discount store
1. Brand associations 3.37 1.013 0.58
2. Perceived quality 3.21 0.657 0.39 0.68
3. Satisfaction 2.60 1.115 0.47 0.55 0.82
4. Brand loyalty 3.33 0.843 0.39 0.46 0.55 0.68
5. Brand equity 2.87 0.955 0.40 0.47 0.56 0.47 0.69
Note: Bold numbers on the diagonal show the AVE. Numbers below the diagonal represent the squared
correlations.
922
Table 3. Bank and discount store sample structural estimates.
Direct effects model (M1) Traditional model (M2) Quality model (M3) Research model
Paths Estimates Paths Estimates Paths Estimates Paths Estimates
Bank estimates
BA!BE 0.294 SA!BL 0.431 SA!PQ 0.053 (ns) PQ!SA 0.204
BL!BE 0.595 BA!BE 0.200 (ns) PQ!BE 0.104 (ns) SA!BE 0.470
PQ!BE 0.023 (ns) BL!BE 0.750 BA!BL 0.313 BA!BE 0.178 (ns)
SA!BE 0.196 PQ!BE 0.038 (ns) BL!BE 0.681 BL!BE 0.741
H.-Y. Ha et al.
x2 ¼ 111.853; df ¼ 48 x2 ¼ 77.951; df ¼ 48 x2 ¼ 122.158; df ¼ 48 x2 ¼ 70.877; df ¼ 48
CFI ¼ 0.949 CFI ¼ 0.976 CFI ¼ 0.939 CFI ¼ 0.981
RMSEA ¼ 0.072 RMSEA ¼ 0.049 RMSEA ¼ 0.091 RMSEA ¼ 0.043
AIC ¼ 292.97 AIC ¼ 292.07 AIC ¼ 296.73 AIC ¼ 242.35
Discount store estimates
BA!BE 0.170 (ns) SA!BL 0.422 SA!PQ 0.177 PQ!SA 0.406
BL!BE 0.597 BA!BE 0.002 (ns) PQ!BE 0.165 (ns) SA!BE 0.375
PQ!BE 0.101 (ns) BL!BE 0.794 BA!BE 0.116 (ns) BA!BE 0.195
SA!BE 0.266 PQ!BE 0.032 (ns) BL!BE 0.599 BL!BE 0.820
x2 ¼ 100.380; df ¼ 48 x2 ¼ 85.651; df ¼ 48 x2 ¼ 113.464; df ¼ 48 x2 ¼ 60.675; df ¼ 48
CFI ¼ 0.954 CFI ¼ 0.960 CFI ¼ 0.947 CFI ¼ 0.984
RMSEA ¼ 0.067 RMSEA ¼ 0.056 RMSEA ¼ 0.074 RMSEA ¼ 0.033
AIC ¼ 226.04 AIC ¼ 213.16 AIC ¼ 229.90 AIC ¼ 203.00
Note: BA ¼ brand associations; PQ ¼ perceived quality; SA ¼ satisfaction; BL ¼ brand loyalty; BE ¼ brand equity. Apart from ( p , 0.05; p , 0.01), all estimates are significant
(p , 0.001).
Other model correlations

Table 3 shows the measures that were used to compare the other alternative models.
Models M1 (direct effects) and M2 (traditional) allowed for independent effects on
brand equity. As shown in Table 2, the difference between the two models is that in
M1, all dimensions are directly linked to brand equity, whereas in M2, satisfaction
impacts brand equity indirectly through brand loyalty. From a statistical perspective,
the overall fits of the models are significant.
For the banking industry, M1 and M2 both fit the data (x2(48) ¼ 111.853, CFI ¼ 0.949,
RMSEA ¼ 0.072; x2(48) ¼ 77.951, CFI ¼ 0.976, RMSEA ¼ 0.049). In both models, the
perceived quality to brand equity link was not significant. For M2, the brand associations to
brand equity link was also not significant. For the discount store industry, M1 and M2 both
fit the data (x2(48) ¼ 100.380, CFI ¼ 0.954, RMSEA ¼ 0.067; x2(48) ¼ 85.651,
CFI ¼ 0.960, RMSEA ¼ 0.056). In both models, the link between perceived quality and
brand equity was not significant as well. For M2, the brand associations to brand equity
link was also not significant.
Model 3 (perceived quality) switched the roles of satisfaction and perceived quality.
For both the bank and discount store industries, neither model fit the data. The overall
x2 values were 122.158 (RMSEA ¼ 0.091) and 113.464 (RMSEA ¼ 0.074), respectively.
Consistent with M1 and M2, the link between perceived quality and brand equity was not
significant.
As shown in Table 3, finally, we checked alternative model fits to select the best model.
Because three alternative models are not nested within the PRM, the Akaike’s Information
Criterion (AIC) is appropriate for model comparison (Tabachnick & Fidell, 1999) to select
the best one. As smaller values of AIC indicate a better fit of the model, the proposed
model (M4) in both industries has been shown to be a better criterion than the other
three models. Based on the results, we conclude that M4 is superior to the competing
models in both the bank and discount store settings.
Discussion
In terms of research questions 1 and 2, the primary interest of this study was that confusion
remains as to the proposed structure of the four factors that affect brand equity. It was
argued that the conventional links established in the literature could be changed
because of perceptions of the service experience. The findings support the notion that
brand associations, perceived quality, satisfaction, and brand loyalty act as diagnostic
means of brand equity formation. Erdem et al. (1999) posit that the brand equity
concept may be understood better if examined in a broader framework that assesses the
incremental effect of the brand at each of the various stages of the consumer’s choice
process. The present study supports this proposition and reiterates the attention given to
the study of brand associations, perceived quality, satisfaction, and loyalty in the literature.
Overall, the research model provides the best fit to the data in both banking and discount
store contexts. In the discount store industry context, the research model is clearly superior
to the competing models, all of which provide a much poorer fit to the data. Research
question 3 poses the question of whether or not satisfaction is an antecedent of service
quality on the brand equity formation. Although the perceived quality – satisfaction link
was significant for the discount store data, M3 does not provide an adequate fit to either
set of data, and thus we cannot conclude that satisfaction is antecedent to service quality.
The primary contribution of the current study lies in the inclusion of satisfaction as an
antecedent to brand equity and in the attempts to adequately model its relationships with
924 H.-Y. Ha et al.
the more traditional brand equity antecedents of perceived quality, brand loyalty, and
brand associations. The empirical findings allow one to speculate on the similarities
between brand equity and its dimensions. Perceived quality, brand associations, and
brand loyalty are relatively well-understood constructs, while research focusing on satis-
faction’s effect on brand equity formation is in its stage of infancy. The satisfaction to per-
ceived quality linkage in brand equity formation provides a parsimonious empirical
representation of the hierarchical sequence in which the equity components are related.
The contention that the effects of perceived quality impact brand loyalty through satisfac-
tion is also strongly supported, thus adding to prior research which suggests that service
brand equity varies with customer satisfaction (Pappu & Quester, 2006). From a scholarly
perspective, M2 is acceptable, but the empirical findings indicate that the order between
perceived quality and satisfaction plays a significant role in the development of brand
equity, particularly in services. As M3 is not valid, M4 indicates an alternative approach
to brand equity formation. From the perspective of the perceived quality – satisfaction lit-
erature, the findings highlight the different avenues of brand equity formation on the indir-
ect relationship between perceived quality and brand equity through satisfaction. This has
not been investigated in prior research.
Previous efforts to model brand equity formation have adapted models used for tra-
ditional theories, particularly, the establishment of brand equity by Aaker (1991) and
Keller (1993), while our findings highlight that such models may not capture a fundamen-
tal relationship between perceived quality and satisfaction on brand equity formation. This
provides support for the link between perceived quality and satisfaction in a Korean
context. The results suggest that the development of satisfaction judgment in a service
context plays a significant role in the preferred option on brand equity formation.
From a managerial perspective, practitioners can manage and improve perceived
quality levels in ways that can positively affect brand equity and satisfaction. The
current study suggests that practitioners should develop customer-oriented services that
are perceived to be of high quality, and should continuously monitor customer satisfaction.
In particular, keeping in mind the perceived quality ! satisfaction ! brand equity chain,
this study indicates that organizations should, on an ongoing basis, monitor both perceived
quality and satisfaction levels, and be proactive in making continuous adjustments geared
towards quality improvements that can positively affect satisfaction. For example, the
impact resulting from enhancing the perceived quality of a service (e.g. employees’ cus-
tomer orientation, particularly in the discount store industry and speed-up services to
reduce long waiting time in the banking industry) may result in enhanced customer satis-
faction, which will contribute towards enhanced brand equity. These findings support prior
research that has found a strong link between quality and satisfaction (Brady & Robertson,
2001; Cronin & Taylor, 1992; Fornell, 1992; Lee & Back, 2008; Parasuraman et al., 1985,
1988; Tse & Wilton, 1988). This is also consistent with prior research, which suggests that
a high level of customer satisfaction may be a precursor to the development of brand
equity (Prasad & Dev, 2000).
Limitations and future research

One limitation of this study is its relatively specific context – banking and discount store
settings in Korea. Conducting the same study in other industries may be a worthwhile
addition to the present results. In particular, we suggest that the results proposed in this
study could be extended using comparative studies from different countries or different
services. Another direction for further research involves testing the role of satisfaction
and perceived quality as dimensions of brand equity. This type of research would highlight
the differences in brand equity formation and maintenance. Since the role of perceived
quality is still strongly supported by the literature, the research model may need to be
adapted for situational cases of brand equity formation. Finally, research focusing on a
variety of moderating variables that may affect the relationship between perceived
quality, satisfaction, and brand equity will be a welcome addition to knowledge in
this area.
Conclusion
Overall, our conclusion from this research is that there is strong support for the notion
that the effects of perceived quality impact brand equity indirectly through satisfaction.
Moreover, this study shows that satisfaction is an antecedent to brand equity, along
with previously established antecedents such as perceived quality, brand loyalty, and
brand associations. Thus, organizations must strive to enhance the perceived quality of
their service in order to positively impact customer satisfaction, which will in effect
contribute towards enhanced brand equity. However, future studies should aim to
further validate these findings in other industries (different from banking and discount
store settings utilized here), which will help enhance the efficacy of these results.
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The Service Industries Journal

Development of brand equity:

To link to this article: http://dx.doi.org/10.1080/02642060802320253

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Development of brand equity: evaluation of four alternative models

Keywords: brand equity; perceived quality; banking; discount stores; customer

ISSN 0264-2069 print/ISSN 1743-9507 online

Dimensions of brand equity

Alternative models for brand equity formation

potential for investigating models representing a large number of different structures,

Model 1: direct effects

Figure 1. Exploring link significance for alternative models.

Model 3: perceived quality

Statistical analyses and results

Table 1. Results of the CFA analysis.

Average variance extracted 0.69 0.681

Research model correlation

Table 2. Discriminant validity.

Other model correlations

Limitations and future research

Science, 34(4), 613–627.

Journal of Product and Brand Management, 9(6), 350–370.

of products on consumer stock-out reactions. Journal of Retailing, 81(1), 15–34.

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