Studying or not: why brand equity matters

All too often sales and market share are the main measures of marketing performance. But building and then measuring brand equity is essential for marketers in order to grow sales, market share and ultimately company value. Understanding and measuring brand equity is a key topic covered in the Mastering Metrics syllabus, one of the three subjects required for the CIM Diploma in Professional Marketing. Don’t forget, you can call the Student Support Group’s free advice helpline for studying members in London on 01784 463057 or email caroline@studentsupportgroup.co.uk.

Whether you’re studying or not, brand equity matters to all marketers:
‘”When you have strong brand equity, your customers will buy more from you, they'll recommend you to other people, they're more loyal, and you're less likely to lose them to competitors.”
Keller, 2013.

Kevin Lane Keller, a marketing professor at the Tuck School of Business at Dartmouth College, developed the Brand Equity model, also known as the Customer-Based Brand Equity (CBBE) Model. The Brand Equity Model concept is simple. In order to build a strong brand, you must provide the right experiences around your brand to positively influence how customers think and feel about it.

Keller's Brand Equity Model

The model provides four steps to build strong brand equity.

From ‘Strategic Brand Management: Building, Measuring, and Managing Brand Equity’ by Kevin Lane Keller. © Pearson Education Limited 2013.

1. Brand identity: who are you?

In the first step, your goal is to create ‘brand salience’ or awareness. Find out who your customers are through research of the market. Discover whether there are different market segments, with different needs and relationships with your brand. Then find out how customers make their brand selection decisions. Identify how well your brand performs at each stage of their decision-making. Brands sell because they satisfy specific customer needs with a unique selling proposition (USP). Do your customers understand the USPs of your brand? By now you should know if your customers understand your brand or if there are perceptual problems to address.

2. Brand meaning: what are you?

Identify what your brand stands for and communicate this to customers, considering performance and imagery.  Consider performance across five categories: primary characteristics and features; product reliability, durability, and serviceability; service effectiveness, efficiency, and empathy; style and design; and price. Imagery in this context means how well your brand meets your customers' needs on a social and psychological level, through their experiences with the product, marketing or word of mouth. Take performance and imagery into account, when developing your brand’s ‘personality’. Identify gaps between required and actual performance and imagery and define how to address them.

3. Brand response: what do I think or feel about you?

Customers respond to your brand based on judgements and feelings. Judgements are based on: the brand’s actual and perceived quality; credibility which comprises expertise/innovation, trustworthiness and likeability; consideration or relevance to their needs and superiority compared to competitor alternatives. Customers also respond to your brand based on how it makes them feel. This model cites six positive brand feelings: warmth, fun, excitement, security, social approval, and self-respect. Consider how well your marketing strategy communicates your brand's relevance to people's needs. Then consider how your brand compares to competitor brands. Identify which feelings your brand strategy is focused upon. Identify the actions you can take to enhance customer’s positive feelings and perceptions.

4. Brand relationships: what association do I want with you?

Brand relationships top the brand equity pyramid because brand resonance is the most desirable level to reach, where customers feel a deep bond with your brand. Keller breaks relationships down into four categories: behavioural loyalty including regular, repeat purchases; attitudinal attachment, where customers love your brand; sense of community with people associated with the brand and finally, active engagement. This analysis allows you to construct an action plan to strengthen brand resonance within each category, such as creating a loyalty programme.

Read more on Keller’s brand equity model.

There are many ways to measure brand performance from tracking brand awareness to measuring advocacy through referrals and net promoter scores.

When you have built a strong brand, how do you measure its financial value?

Calculating brand value with the royalty relief method

The Royalty Relief method is used by Brand Finance to calculate brand value. It’s based on an interesting question. What license fee would a company be prepared to pay for its brand if they didn’t own it already? This method entails forecasting future brand revenue and calculating a royalty rate for the use of the brand. The Royalty Relief approach is used because:

• It calculates brand values by reference to documented third-party transactions
• It can be done based on publicly available financial information
• It is compliant with the requirement under the International Valuation Standards Authority and ISO 10668 to determine the fair market value of brands

Brand value = Brand strength index x Brand royalty rate x Forecast brand revenue

To calculate the financial value of a brand:

• The brand strength index is calculated on a scale of 0 to 100 based using a balanced scorecard of relevant attributes from emotional connection to financial performance and sustainability.
• The brand’s royalty rate is calculated by applying the brand strength score to the royalty rate range for license agreements for comparable brands in the sector.
• Then forecast brand revenue is determined based on past revenue, equity analyst forecasts and economic growth rates.

Forecast royalties are discounted to provide a net present value for future brand income.

For more on brand valuation see Brand Finance.

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