Elements Of Brand Equity Marketing Essay

Published Date: 23 Mar 2015

"Brand Equity - The term has been argued in both marketing and accounting Literatures; both giving a different perspective to the same concept. Feldwick (1996) simplified the dilemma by providing a set of definitions for the term. The definitions are as followed -

The total value of the brand is treated as a separate asset when it is included in the balance sheet.

A measure of strength of consumer's attachment to the brand.

A description of the perceptions and association that a customer has about the brand."

Mergers and Acquisitions (M & A) - This term refers to corporate finance, strategy and management of buying, selling and combining different companies with an aim to finance or help a growing company in a given industry grow rapidly without having to create another business entity.

The main issue that follows any type of Mergers and Acquisitions is the Brand problem, beginning with the naming of the new entity to the positioning it in the marketplace after the transaction. Here the Brand Equity plays a vital role. Brand equity is an amalgamation of brand value, brand strength and brand loyalty. The purchaser or the merger companies should assess analytical that which brand has the perfect balance of all these three elements. The right brand name choice leads to better premium also the future of a particular M & A depends on a wise brand choice. Keeping in mind all the factors a company can deal with the naming issue in the following ways -

Keeping the name of one brand and dropping the other. The strongest brand with better brand equity survives. The best example for this is the merger of Vodafone (67%) and Essar (33%), though the company is called Vodafone Essar its products are simply branded as Vodafone.

Keep the name of the stronger and demote the other name to other product or divisional brand. It works best when there is little overlap in the product lines. When Mars bought Wrigley's Jr. Company it didn't tamper with Wrigley's name. Wrigley's still continues to be the chewing gum giant whereas Mars remains as the chocolate bars.

In some mergers and acquisitions the companies try to please everyone by protecting the identity of both the brands this leads to the names where both the brands live. The best example to this is Kotak Mahindra bank.

The last option is discarding both the names and adopting a totally new one. Companies do this to create a new image in the consumer's mind. In 1995 Birla - Tata and AT &T started a telecom firm called Batata. Later in 2004 this company was rechristened as Idea Cellular.

Hence we can see that how Brand equity plays a major role in the decision of Mergers and Acquisition. Without analyzing brand equity it is impossible to mane the new entities thus formed after M & A.

Elements of Brand Equity

For any company to understand its' position in the market place and to make decisions for M & A, knowing the perfect balance of the elements of brand equity is of utmost importance. On a whole brand equity is made up of three interrelated elements as can be seen below -

Though in the figure it is shown that the outcome of brand strength is Brand Value but in the practical scenario there can be more than one output of brand strength. Another major outcome is market power.

Brand description

The Brand Description means the brand image i.e. the way the brand is presented to the consumer in order to create an image of the Brand in consumers' mind. The brand description is tailored keeping in mind the marketing mix- product, price, place and promotion. The chief factor that influences the brand description is the wants and the needs of the target market. It is not necessary to have a single brand image; there can be several but only one or two are predominant. The brand image should be strong and powerful enough to leave an impact on consumers' mind so that they can easily recall the brand. A consumer doesn't only buy a brand but also the quality, sophistication, wealth and power associated with it. It is evident from various researches conducted that feelings and images associated with the brands are powerful purchase influencer. A good brand image gives the company an edge over its competitors. Brand image is reinforced by the different aspects of brand experience like advertising, packaging, customer care etc. Hence brand description or brand image is like the base on which the Brand Equity is built. If the company has a bad brand image then it can never have a good Brand Equity. The success of the brand image or the otherwise leads to the degree of the brand strength.

Brand Strength

A synonym for brand loyalty, it constitutes of a customer's guarantee to continue with or repurchasing of the same brand. Also it can be determined as the positive behavior such as word of mouth publicity of the product. Only purchasing doesn't lead to brand loyalty as a customer may buy a brand due to some constraints such as lack of alternatives or stock out, such situation leads to "spurious loyalty". The actual loyalty is defined when the customer holds a very positive image about the brand and doesn't opt for any other alternatives; at the same time influences others to buy the brand thus increasing the customer base. Brand loyalty is an asset to the firm as acquiring a new customer is 4 times as costly as retaining an old loyal customer as a loyal customer not only is willing to pay a higher price for the brand but also brings in new customers.

Usage rate is considered most important in defining Brand Loyalty, where Pareto's 80-20 rule applies. 20 % of users account for 80% of usage and hence profit to the firm. Apart from that customer satisfaction, brand trust and customer's perceived value are the key factors which reinforce the brand loyalty.

Brand Strength determines the future cash flow thus leading to the brand value.

Apple iPhone is a classic example of brand loyalty as even with no loyalty programs and comparatively high prices it has been ranked No. 1 in Customer Loyalty leaders by Brand key 2010.

Brand Value

Brand Equity can be seen from both marketing and accounting perspective. Brand Value represents majorly the accounting part of it. Like Brand Strength, Brand Value is also customer based. It can be defined as the amount that a brand is worth of in terms of reputation, market value, income, prestige and potential income. The Brands with high value are treated as priced possession of a company, when such a brand is merged or acquired then its brand value is worth more than any other concern. A simple equation that defines the brand value can be given as

Brand value = what you get/ what you pay= Quality/ Price

As can be seen in the above equation brand value tells us the quality we get when we pay a particular price. It again depends on the customer in the sense that different customers have different expectations from different products against the price they are paying. Loyalty is the driving force of Brand value, for example Starbucks can charge $ 1.60 for medium sized coffee whereas a common café can charge 99 cents for the same coffee. It is the loyalty of the customers towards Starbucks which increases its Brand Value. More the brand value in the market better is the market share of a company. It is the high Brand value of Cadbury PLC which has preserved its name even after it has been acquired by Kraft foods.

The Brand Equity Pyramid

3. Response

What about you?

2. Meaning

What are you?

Identity

Who are you?

4. Relationships

What about you and me?Keller gave a customer based brand equity pyramid as can be seen below -

The above pyramid gives a branding ladder according to which a customer builds a relationship with the brand. There are four levels of questions which a customer generally asks, each of these questions are dependent on the achieving the previous one. The questions constitute six building blocks shown in the pyramid. The pyramid starts when the customer starts knowing the brand and the tip represents the point at which customer has built up a brand association. Thus it represents the process by which a brand image leads to the brand loyalty. The description of each step is as followed -

Step 1- In this step the customer has just started getting familiar with the brand hence asks the question who you are? The answer gives the correct identification of the brand. The building block for this level is salience i.e. a distinguished feature.

Step 2 - Once the initial identification is done the customer tends to know more about the product and hence asks what are you? The answer aims in forming a 'brand meaning' in customers mind. The image that the customer holds about the brand and the performance shown by the brand forms the building block of this level.

Step 3 - Now the customer responses against the brand meaning so formed in his mind. And asks the question What about you? At this step customer's feelings come into picture and he starts making judgment about the brand and its feature.

Step 4- In the customer based brand equity this is the ultimate step where the customer builds a relationship with the brand and thus starts associating himself with the brand. Resonance is the building block of this level i.e. a relation of trust between the brand and the customer. Thus this step achieves the final goal - Brand Loyalty.

Measuring Brand Equity

Many studies and researches have been conducted in this area. There is no definitive model or methodology to measure the Brand Equity. Some firms may develop their own methods where as some may use the models given by scholars and researchers. The measurement can be quantitative as well as qualitative depending upon the parameters. Generally measurement of Brand Description is qualitative and that of Brand Strength and Value is quantitative.

If we generalize then Brand equity can be measured in three different levels. All these measurement give the best approximate value. These levels are as followed -

Firm Level - The firm level measurement is based on the accounting approach. Here the brand is considered as a financial asset i.e. the worth of the brand when it is considered as an intangible asset. Brands can't be seen, touched or physically measured but are created with more efforts than any tangible asset. The Brand Equity of a firm backs up the tangible assets owned by that firm. For example if we define the value of the firm depending upon the market capitalization and then subtract the tangible and measurable tangible assets from it we are left with Brand Equity which is a non- measurable tangible asset. Suppose we take the market capitalization of Coca - Cola and subtract all the tangible and measurable intangible assets then we are left with the Brand Name Coca- Cola which alone has a high brand value, brand strength and brand association. One advanced approach is by involving consulting firm Interbrand. Interbrand uses a mathematical model where in the forecasted profits are discounted to a present value. The discount rate is defined by Wall Street and Interbrand equity specialists which takes into consideration the global reach, risk profile and market leadership of the brand.

Product Level - It is similar to benchmarking where the price of a lesser known brand is compared to that of a known famous equivalent Branded product. It is assumed that the difference in price is only due to the Brand name. For example Sony is considered as a benchmarking company in electronic products if now similar products from the brands like Videocon, Aiwa, Panasonic etc. are compared with Sony then that will lead to a product level measurement.

Consumer Level - At this level Brand association maps are used where in the mind of the customers are mapped according to the various factors of association like trust, brand image awareness etc. The brands scoring high on the above factors have high Brand equity. Many research firms like AC Nielsen provides Brand Association maps.

Only after measuring the brand equity of the brands the decisions regarding Mergers and Acquisitions are taken. Hence Brand equity plays a vital role in Mergers and Acquisitions.

Role of Brand Equity in Mergers and Associations (M & A)

In todays' world mergers and acquisitions take place regularly with an aim to grow in the given marketplace.

Brand is not just a name or tagline, as explained earlier it is an intangible asset which have a set of associations and expectations related to the company in the mind of the customers. The EquiTrend's study of the impact of the brand equity on the Return on investment (ROI) shows that the companies having high Brand Equity saw their ROI average of 30%. The one with decreasing brand equity saw negative 10% average on their ROI.

An example of how brand equity plays a major role can be seen in the following example-

In 1999 the acquisition of Orange a leading telecom brand in UK by Mannesmann was completed in twice the value per customer as paid by Deutsche Telekom for acquiring One 2 One cellular business. Both Orange and One 2 one had similar features in terms of growth rate, customer base and technology, then why did Mannesmann paid such a high value. The answer to this is the immeasurable intangible asset Brand Equity. One to one had used Porters first game plan i.e. overall cost leadership and used to provide cheap services to its customers. Whereas Orange placed its strategies on the second game plan i.e. differentiation based on quality, it focused on high quality network and customer service. It created high customer loyalty thus increasing the brand value of the Brand Orange. This reflected in the increase margins and market share of Orange. Also their post-acquisition strategies were better. Deutsche Telekom understood the problem and to overcome the situation quickly rebranded One 2 one to T- Mobile. Later in 2000 Vodafone acquired Mannesmann and France Telecom took over Orange mobile. Orange had such high Brand Equity that even after the second acquisition its name was preserved and was used by France Telecom for its domestic mobile services and global businesses.