10.1 CHAPTER 10: MEASURING OUTCOMES OF BRAND EQUITY: CAPURING MARKET PERFORMANCE Kevin Lane Keller Tuck School of Business Dartmouth College

10.2 Measuring Brand Equity Multi-dimensional concept Multi-dimensional concept Many different measures required Many different measures required The ultimate value of a brand depends on the underlying components of brand knowledge and sources of brand equity The ultimate value of a brand depends on the underlying components of brand knowledge and sources of brand equity

10.3 Comparative Methods Brand-based comparative approaches Brand-based comparative approaches Marketing-based comparative approaches Marketing-based comparative approaches Conjoint analysis Conjoint analysis

10.4 Brand-Based Approaches The marketing element under consideration is fixed. The marketing element under consideration is fixed. Consumer response is examined based on changes in brand identification. Consumer response is examined based on changes in brand identification. Application example: Blind testing Application example: Blind testing Advantage: Isolates the value of the brand Advantage: Isolates the value of the brand Disadvantage: The totality of what is learned depends on how many applications are examined. Disadvantage: The totality of what is learned depends on how many applications are examined.

10.5 Marketing-Based Approaches The brand is held fixed and consumer response is examined based on changes in marketing programs. The brand is held fixed and consumer response is examined based on changes in marketing programs. Applications: Explore price premiums’ effect on switching, consumer evaluations of marketing activities, brand extensions, etc. Applications: Explore price premiums’ effect on switching, consumer evaluations of marketing activities, brand extensions, etc. Advantage: Ease of implementation Advantage: Ease of implementation Disadvantage: Difficult to determine whether consumer responses are caused by brand knowledge or generic product knowledge Disadvantage: Difficult to determine whether consumer responses are caused by brand knowledge or generic product knowledge

10.6 Conjoint Analysis A survey-based multivariate technique that enables marketers to profile the consumer decision process with respect to products and brands A survey-based multivariate technique that enables marketers to profile the consumer decision process with respect to products and brands Helps researchers determine the trade-offs consumers make between brand attributes Helps researchers determine the trade-offs consumers make between brand attributes Applications: Assess advertising effectiveness and brand value; analyze brand/price trade-off Applications: Assess advertising effectiveness and brand value; analyze brand/price trade-off Advantage: Allows for different brands or different aspects of the product to be analyzed simultaneously Advantage: Allows for different brands or different aspects of the product to be analyzed simultaneously Disadvantage: May violate consumers’ expectations based on what they already know about brands Disadvantage: May violate consumers’ expectations based on what they already know about brands

10.7 Holistic Methods Attempt to place an overall value on the brand in either abstract utility terms or concrete financial terms Attempt to place an overall value on the brand in either abstract utility terms or concrete financial terms Net out various considerations to determine the unique contribution of the brand Net out various considerations to determine the unique contribution of the brand Holistic methods: Holistic methods: Residual approaches Residual approaches Valuation approaches Valuation approaches

10.8 Residual Approaches Examine the value of the brand by subtracting consumers’ preferences based on physical product attributes alone from their overall brand preferences Examine the value of the brand by subtracting consumers’ preferences based on physical product attributes alone from their overall brand preferences Advantage: Useful benchmark for interpreting brand equity, especially from a financially oriented perspective Advantage: Useful benchmark for interpreting brand equity, especially from a financially oriented perspective Disadvantage: Static view. Limited diagnostic value for strategic decision making Disadvantage: Static view. Limited diagnostic value for strategic decision making

10.9 Valuation Approaches Attempt to place a financial value on brand equity for accounting purposes Attempt to place a financial value on brand equity for accounting purposes Useful in cases of mergers and acquisitions, brand licensing, fund raising, and brand management decisions Useful in cases of mergers and acquisitions, brand licensing, fund raising, and brand management decisions Valuation approaches: Valuation approaches: Accounting background Accounting background Historical perspectives Historical perspectives General approaches General approaches Interbrand’s brand valuation methodology Interbrand’s brand valuation methodology

10.10 Accounting Background Intangible assets are typically lumped under the heading of goodwill and include things such as patents, trademarks, and licensing agreements, as well as “softer” considerations such as the skill of the management and customer relations. Intangible assets are typically lumped under the heading of goodwill and include things such as patents, trademarks, and licensing agreements, as well as “softer” considerations such as the skill of the management and customer relations. In an acquisition, the goodwill item often includes a premium paid to gain control, which, in certain instances, may even exceed the value of tangible and intangible assets. In an acquisition, the goodwill item often includes a premium paid to gain control, which, in certain instances, may even exceed the value of tangible and intangible assets.

10.11 Historical Perspectives In Australia Rupert Murdoch’s News Corporation included a valuation of some of its magazines on its balance sheets in In Australia Rupert Murdoch’s News Corporation included a valuation of some of its magazines on its balance sheets in British firms used brand values primarily to boost their balance sheets. British firms used brand values primarily to boost their balance sheets. In the United States, generally accepted accounting principles (blanket amortization principles) mean that placing a brand on the balance sheet would require amortization of that asset for up to 40 years. Such a charge would severely hamper firm profitability; as a result, firms avoid such accounting maneuvers. In the United States, generally accepted accounting principles (blanket amortization principles) mean that placing a brand on the balance sheet would require amortization of that asset for up to 40 years. Such a charge would severely hamper firm profitability; as a result, firms avoid such accounting maneuvers.

10.12 General Approaches In determining the value of a brand in an acquisition or merger, firms can choose from three main approaches: In determining the value of a brand in an acquisition or merger, firms can choose from three main approaches: Cost approach: Brand equity is the amount of money that would be required to reproduce or replace the brand Cost approach: Brand equity is the amount of money that would be required to reproduce or replace the brand Market approach: The present value of the future economic benefits to be derived by the owner of the asset Market approach: The present value of the future economic benefits to be derived by the owner of the asset Income approach: The discounted future cash flow from the future earnings stream for the brand Income approach: The discounted future cash flow from the future earnings stream for the brand

10.13 Interbrand’s Brand Valuation Assumes that brand value is the present worth of the benefits of future ownership Assumes that brand value is the present worth of the benefits of future ownership Follows five valuation steps: Follows five valuation steps: Market segmentation Market segmentation Financial (role of branding) analysis Financial (role of branding) analysis Demand (brand strength) analysis Demand (brand strength) analysis Competitive benchmarking Competitive benchmarking Brand value calculation Brand value calculation Brand value calculation : Calculate the brand value as the net present value (NPV) of the forecast brand earnings, discounted by the brand discount rate Brand value calculation : Calculate the brand value as the net present value (NPV) of the forecast brand earnings, discounted by the brand discount rate