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MEASURING OUTCOMES OF BRAND EQUITY: CAPURING MARKET PERFORMANCE

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MEASURING OUTCOMES OF BRAND EQUITY: CAPURING MARKET PERFORMANCE

  1. 1. 10.1 CHAPTER 10:CHAPTER 10: MEASURING OUTCOMES OF BRAND EQUITY:MEASURING OUTCOMES OF BRAND EQUITY: CAPURING MARKET PERFORMANCECAPURING MARKET PERFORMANCE Kevin Lane KellerKevin Lane Keller Tuck School of BusinessTuck School of Business Dartmouth CollegeDartmouth College
  2. 2. 10.2 Measuring Brand EquityMeasuring Brand Equity  Multi-dimensional conceptMulti-dimensional concept  Many different measures requiredMany different measures required  The ultimate value of a brand depends on theThe ultimate value of a brand depends on the underlying components of brand knowledge andunderlying components of brand knowledge and sources of brand equitysources of brand equity
  3. 3. 10.3 Comparative MethodsComparative Methods  Brand-based comparative approachesBrand-based comparative approaches  Marketing-based comparative approachesMarketing-based comparative approaches  Conjoint analysisConjoint analysis
  4. 4. 10.4 Brand-Based ApproachesBrand-Based Approaches  The marketing element under consideration isThe marketing element under consideration is fixed.fixed.  Consumer response is examined based on changesConsumer response is examined based on changes in brand identification.in brand identification.  Application example:Application example: Blind testingBlind testing  Advantage:Advantage: Isolates the value of the brandIsolates the value of the brand  Disadvantage:Disadvantage: The totality of what is learned dependsThe totality of what is learned depends on how many applications are examined.on how many applications are examined.
  5. 5. 10.5 Marketing-Based ApproachesMarketing-Based Approaches  The brand is held fixed and consumer response isThe brand is held fixed and consumer response is examined based on changes in marketing programs.examined based on changes in marketing programs.  Applications:Applications: Explore price premiums’ effect onExplore price premiums’ effect on switching, consumer evaluations of marketingswitching, consumer evaluations of marketing activities, brand extensions, etc.activities, brand extensions, etc.  Advantage:Advantage: Ease of implementationEase of implementation  Disadvantage:Disadvantage: Difficult to determine whetherDifficult to determine whether consumer responses are caused by brandconsumer responses are caused by brand knowledge or generic product knowledgeknowledge or generic product knowledge
  6. 6. 10.6 Conjoint AnalysisConjoint Analysis  A survey-based multivariate technique that enablesA survey-based multivariate technique that enables marketers to profile the consumer decision process withmarketers to profile the consumer decision process with respect to products and brandsrespect to products and brands  Helps researchers determine the trade-offs consumersHelps researchers determine the trade-offs consumers make between brand attributesmake between brand attributes  Applications:Applications: Assess advertising effectiveness and brandAssess advertising effectiveness and brand value; analyze brand/price trade-offvalue; analyze brand/price trade-off  Advantage:Advantage: Allows for different brands or different aspectsAllows for different brands or different aspects of the product to be analyzed simultaneouslyof the product to be analyzed simultaneously  Disadvantage:Disadvantage: May violate consumers’ expectations based onMay violate consumers’ expectations based on what they already know about brandswhat they already know about brands
  7. 7. 10.7 Holistic MethodsHolistic Methods  Attempt to place an overall value on the brandAttempt to place an overall value on the brand in either abstract utility terms or concrete financialin either abstract utility terms or concrete financial termsterms  Net out various considerations to determine theNet out various considerations to determine the unique contribution of the brandunique contribution of the brand  Holistic methods:Holistic methods:  Residual approachesResidual approaches  Valuation approachesValuation approaches
  8. 8. 10.8 Residual ApproachesResidual Approaches  Examine the value of the brand by subtractingExamine the value of the brand by subtracting consumers’ preferences based on physical productconsumers’ preferences based on physical product attributes alone from their overall brandattributes alone from their overall brand preferencespreferences  Advantage:Advantage: Useful benchmark for interpretingUseful benchmark for interpreting brand equity, especially from a financially orientedbrand equity, especially from a financially oriented perspectiveperspective  Disadvantage:Disadvantage: Static view. Limited diagnostic valueStatic view. Limited diagnostic value for strategic decision makingfor strategic decision making
  9. 9. 10.9 Valuation ApproachesValuation Approaches  Attempt to place a financial value on brand equityAttempt to place a financial value on brand equity for accounting purposesfor accounting purposes  Useful in cases of mergers and acquisitions, brandUseful in cases of mergers and acquisitions, brand licensing, fund raising, and brand managementlicensing, fund raising, and brand management decisionsdecisions  Valuation approaches:Valuation approaches:  Accounting backgroundAccounting background  Historical perspectivesHistorical perspectives  General approachesGeneral approaches  Interbrand’s brand valuation methodologyInterbrand’s brand valuation methodology
  10. 10. 10.10 Accounting BackgroundAccounting Background  Intangible assetsIntangible assets are typically lumped under theare typically lumped under the heading ofheading of goodwillgoodwill and include things such asand include things such as patents, trademarks, and licensing agreements,patents, trademarks, and licensing agreements, as well as “softer” considerations such as theas well as “softer” considerations such as the skill of the management and customer relations.skill of the management and customer relations.  In an acquisition, the goodwill item oftenIn an acquisition, the goodwill item often includes a premium paid to gain control, which,includes a premium paid to gain control, which, in certain instances, may even exceed the valuein certain instances, may even exceed the value of tangible and intangible assets.of tangible and intangible assets.
  11. 11. 10.11 Historical PerspectivesHistorical Perspectives  In Australia Rupert Murdoch’s News CorporationIn Australia Rupert Murdoch’s News Corporation included a valuation of some of its magazines on itsincluded a valuation of some of its magazines on its balance sheets in 1984.balance sheets in 1984.  British firms used brand values primarily to boost theirBritish firms used brand values primarily to boost their balance sheets.balance sheets.  In the United States, generally accepted accountingIn the United States, generally accepted accounting principles (blanket amortization principles) mean thatprinciples (blanket amortization principles) mean that placing a brand on the balance sheet would requireplacing a brand on the balance sheet would require amortization of that asset for up to 40 years. Such aamortization of that asset for up to 40 years. Such a charge would severely hamper firm profitability; as acharge would severely hamper firm profitability; as a result, firms avoid such accounting maneuvers.result, firms avoid such accounting maneuvers.
  12. 12. 10.12 General ApproachesGeneral Approaches  In determining the value of a brand in an acquisition orIn determining the value of a brand in an acquisition or merger, firms can choose from three main approaches:merger, firms can choose from three main approaches:  Cost approach:Cost approach: Brand equity is the amount of money thatBrand equity is the amount of money that would be required to reproduce or replace the brandwould be required to reproduce or replace the brand  Market approach:Market approach: The present value of the future economicThe present value of the future economic benefits to be derived by the owner of the assetbenefits to be derived by the owner of the asset  Income approach:Income approach: The discounted future cash flow from theThe discounted future cash flow from the future earnings stream for the brandfuture earnings stream for the brand
  13. 13. 10.13 Interbrand’s Brand ValuationInterbrand’s Brand Valuation  Assumes that brand value is the present worth of theAssumes that brand value is the present worth of the benefits of future ownershipbenefits of future ownership  Follows five valuation steps:Follows five valuation steps:  Market segmentationMarket segmentation  Financial (role of branding) analysisFinancial (role of branding) analysis  Demand (brand strength) analysisDemand (brand strength) analysis  Competitive benchmarkingCompetitive benchmarking  Brand value calculationBrand value calculation  Brand value calculation : Calculate the brand value as theBrand value calculation : Calculate the brand value as the net present value (NPV) of the forecast brand earnings,net present value (NPV) of the forecast brand earnings, discounted by the brand discount ratediscounted by the brand discount rate

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