Search of a Reliable Measure of Brand Equity
Jonathan Knowles, Wolff Olins
is the new black for marketers. According to a survey taken earlier
this year by the Association of National Advertisers (ANA) of
1,000 marketing executives, 66% ranked the accountability of
marketing as their number-one concern. A similar study by
the CMO Council revealed that 80% of respondents were "dissatisfied"
with their ability to measure ROI.
the desire of marketers to demonstrate that they are allocating
marketing investments as efficiently as possible is admirable,
they are doing themselves a disservice with their current obsession
with ROI. By interpreting marketing accountability solely
in terms of a metric of short-term payback, marketers are reinforcing
the impression of marketing as a merely tactical discipline.
bigger question — and the one that will earn marketers a seat
at the boardroom table in a way that no amount of ROI measurement
can — is whether brands truly are assets that enable the business
to generate superior returns over time.
first point for marketers to recognize is that, to qualify as
an "asset" in financial terms, a brand needs to be measured in
terms of its ability to generate future cash flow.
second point is even more important: Value can only be created
by changes in customer behavior. Changes in customer attitudes
are nice, but in and of themselves they do not generate cash flow.
means that many of the traditional metrics favored by marketers
— awareness, familiarity, and quality — are no longer suitable
as measures of brand equity. They still do a good job of measuring
the scale of a brand's market presence and the likelihood that
the brand will make it into a given customer's consideration set.
However, they do a poor job of explaining the final purchase decision,
and therefore do not provide a reliable measure of the brand's
ability to generate cash flow.
reason for this is that Total Quality Management (TQM) has driven
genuinely bad products and services out of the market. Those that
remain are all of satisfactory quality, meaning that the customer
now faces a bewildering array of good alternatives. In response
to this, the basis for the final purchase decision has expanded
from simply, "What will you do for me?" to, "What will you do
for me — and mean to me?"
the third point is that brand equity needs to be measured in a
way that captures the source and scale of this emotional augmentation
that the brand provides to the underlying functionality of the
product or service. Only such a definition of brand equity will
identify the extent of the customer utility that the brand has
are two promising candidates for how this equity can be measured:
first type of approach measures equity in terms of "outcomes,"
such as the extent to which customers are prepared to stake
their personal or professional reputation behind a brand by
recommending it to others or the price premium they are prepared
second type of approach measures equity in terms of the scale
and nature of the utility that the brand delivers to customers.
of the best known examples of the "outcome" type of approach is
the work of Fred Reichheld, the author of The Loyalty Effect
(1996) and Loyalty Rules (2001). His premise is disarmingly
simple — "willingness to recommend to a friend" is the single
most reliable measure of brand equity. Specifically, your "net
promoter" score (the number of people willing to recommend your
brand minus those who are not willing to do so) provides an accurate
predictor of your company's growth prospects.
similar vein are approaches that stress "willingness to pay a
price premium" as the truest test of the existence of brand equity.
And the advantage of these approaches is that they provide a direct
input into a valuation model like the "revenue premium" methodology
advocated by Professor Don Lehmann of Columbia University.
limitation of "outcome" approaches is that, while they may accurately
quantify how much brand equity you enjoy, they provide limited
insight into what creates this equity.
second type of approach tries to quantify the extent of brand
equity that a brand enjoys by measuring the degree of "relevant
differentiation" provided (although most do not explicitly use
this term). "Relevant differentiation" is an important metric
because it measures the success of marketing in terms of the extent
to which two goals have been achieved — maximization of the perceived
fit between your brand and your customer's needs; and maximization
of the perceived differentiation of your brand versus its competitors.
A high relevant differentiation score provides insight into why
a certain brand is perceived to be uniquely capable of meeting
are profiles of a number of well-established brand equity models
that seek to identify the scale and sources of brand equity.
developed by Research International, is one of the most elegantly
parsimonious models of brand equity. Essentially, it expresses
brand equity as a combination of the functional benefits delivered
by the brand (performance) and the emotional benefits (affinity).
Underlying each of these macro constructs is a further layer of
analysis that expresses performance as a function of product and
service attributes, and affinity as a function of the brand identification
(the closeness customers feel to the brand), approval (the status
the brand enjoys among a wider social context of family, friends,
and colleagues), and authority (the reputation of the brand).
EngineSM incorporates a form of conjoint methodology
that establishes the price premium that a brand's equity will
support while still maintaining a "good value for money" rating
the methodology developed by the Ipsos Group, is more uniquely
focused on establishing the emotional component of brand equity.
Importantly, it situates a brand's attitudinal equity (measured
in terms of differentiation, relevance, popularity, quality, and
familiarity) in the context of the degree of customer involvement
with the category in question.
to Equity EngineSM, Equity*Builder also explicitly
addresses how brand equity translates into perceived value and
Valuator, developed by Young & Rubicam, is noteworthy in that
it eschews the category-specific approach taken by other brand
equity methodologies and seeks to establish a pure measure of
brand equity independent of category context. All 2,500 brands
in its U.S. survey are rated on the same 48 attributes and four
macro constructs of differentiation, relevance, esteem, and knowledge
(curiously similar to the Ipsos approach, which it pre-dates).
constructs of differentiation and relevance are then combined
into a single metric of brand strength that, through Young &
Rubicam's collaboration with the financial consultancy Stern Stewart,
has been shown to provide a powerful explanation of superior market
value. The constructs of esteem and relevance are combined to
form brand stature that, interestingly, is correlated to current
market share but not potential for growth.
Lane Keller's Model
Although not available
as a commercial methodology, Kevin Lane Keller's brand equity
model is worthy of mention because of his authority within the
brand equity measurement arena (he is professor of marketing at
the Tuck School of Business at Dartmouth and recently co-authored
the 12th edition of Marketing Measurement with Philip Kotler).
Lane Keller mirrors the Equity EngineSM approach by
seeing the brand as a blend of the rational and the emotional,
measured in terms of performance characteristics and imagery.
Customers' relationship to a brand can be plotted in terms of
their altitude on the pyramid of engagement and their relative
bias towards a rationally dominant or emotionally dominant relationship.
The notion of
a pyramid of engagement is echoed in the BrandDynamicsTM
methodology developed by Millward Brown. This approach characterizes
the relationship that a customer has with a brand into one of
five stages: presence, relevance, performance, advantage, and
bonding. "Presence" customers have only a basic awareness of the
brand while "bonded" customers are intensely loyal, at least in
their attitudes. The underlying premise is that the lifetime value
of customers increases the higher up they are in the pyramid.
of the aforementioned approaches suffer from the fact that they
are attitudinal in nature and have yet to establish the definitive
relationship between measures of attitudinal engagement/loyalty
and observed behavior.
is the methodology developed by ACNielsen. In contrast to the
attitudinal approach to brand equity measurement embodied in the
other approaches described, Winning Brands begins from a behavioral
observation of brand equity. Brand equity is measured in terms
of a customer's frequency of purchase and the price premium paid.
Once favorable behavior is observed, the methodology seeks to
analyze the attitudinal characteristics of those customers.
article reminds marketers that the strategic component of their
work involves the creation and nurturing of a long-lived corporate
asset in the form of the brand. Of potentially greater importance
than a credible ROI model for marketers is the development of
a robust methodology for defining and measuring brand equity in
a way that meets the financial requirement for an asset, namely
that it represents a source of incremental cash flow over time.
This means that the focus needs to be on the metrics that capture
and explain customer behavior, not simply customer attitudes.
Such a measure of brand equity will represent, to quote Tim Ambler
of the London Business School, "a reservoir of cash flow, earned
but not yet released to the income statement."
Knowles is a senior strategist for Wolff Olins and has provided
brand consulting services from both the creative and analytical
perspectives. He is the principal contributor to Brands: Visions
and Values (J. Wiley & Sons, 2001).