Brand Equity

Brand equity refers to the marketing effects or outcomes that accrue to a product with its brand name compared with those that would
accrue if the same product did not have the brand name. And, at the
root of these marketing effects is consumers’ knowledge. In other words,
consumers’ knowledge about a brand makes manufacturers/advertisers
respond differently or adopt appropriately adept measures for the
marketing of the brand. The study of brand equity is increasingly
popular as some marketing researchers have concluded that brands are one
of the most valuable assets that a company has. Brand equity is one of
the factors which can increase the financial value of a brand to the
brand owner, although not the only one.

Measurement

There are
many ways to measure a brand. Some measurements approaches are at the
firm level, some at the product level, and still others are at the
consumer level.

Firm Level:
Firm level approaches measure the brand as a financial asset. In short,
a calculation is made regarding how much the brand is worth as an intangible asset.
For example, if you were to take the value of the firm, as derived by
its market capitalization – and then subtract tangible assets and
“measurable” intangible assets- the residual would be the brand equity.
One high profile firm level approach is by the consulting firm
Interbrand. To do its calculation, Interbrand estimates brand value on
the basis of projected profits discounted to a present value. The
discount rate is a subjective rate determined by Interbrand and Wall
Street equity specialists and reflects the risk profile, market
leadership, stability and global reach of the brand.

Product Level:
The classic product level brand measurement example is to compare the
price of a no-name or private label product to an “equivalent” branded
product. The difference in price, assuming all things equal, is due to
the brand. More recently a revenue premium approach has been advocated.

Consumer Level:
This approach seeks to map the mind of the consumer to find out what
associations with the brand the consumer has. This approach seeks to
measure the awareness (recall and recognition) and brand image (the
overall associations that the brand has). Free association tests and
projective techniques are commonly used to uncover the tangible and
intangible attributes, attitudes, and intentions about a brand. Brands
with high levels of awareness and strong, favorable and unique
associations are high equity brands.

All of
these calculations are, at best, approximations. A more complete
understanding of the brand can occur if multiple measures are used.
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