Brand equity is strategically crucial, but famously difficult to quantify. Many experts have developed tools to analyze this asset, but there is no universally accepted way to measure it.
The purpose of brand equity metrics is to measure the value of a brand. A brand encompasses the name, logo, image, and perceptions that identify a product, service, or provider in the minds of customers. It takes shape in advertising, packaging, and other marketing communications, and becomes a focus of the relationship with consumers. In time, a brand comes to embody a promise about the goods it identifies—a promise about quality, performance, or other dimensions of value, which can influence consumers’ choices among competing products. When consumers trust a brand and find it relevant, they may select the offerings associated with that brand over those of competitors, even at a premium price. When a brand’s promise extends beyond a particular product, its owner may leverage it to enter new markets. For all these reasons, a brand can hold tremendous value, which is known as brand equity.
There are many ways to measure a brand. In practice, brand equity is difficult to measure. Because brands are crucial assets, however, both marketers and academic researchers have devised means to contemplate their value. Some of these techniques are described below.
BrandPower is a measure of size (familiarity) and quality (favorability). Familiarity and favorability are then combined into a single BrandPower score.
- Familiarity: A weighted percentage of survey respondents who are familiar with the brand being evaluated. Familiarity is rated on a five point scale, respondents are considered to be familiar with a brand if they state that they know more than the company name only.
- Favorability: Those familiar with a corporation are then asked favorability dimensions, overall reputation, perception of management, and investment potential. Favorability attributes are evaluated on a 4-point scale.
Note: This CoreBrand Equity Construct has been independently audited and profiled by the Marketing Accountability Standards Board (MASB) according to the Marketing Metric Audit Protocol: http://www.themasb.org/mmap-metric-profiles/.
Royalty Relief Methodology (Brand Finance)
Brand Finance calculates brand value using the Royalty Relief methodology which determines the value a company would be willing to pay to license its brand as if it did not own it. This approach involves estimating the future revenue attributable to a brand and calculating a royalty rate that would be charged for the use of the brand.
Brand Equity Ten (Aaker)
David Aaker, a brand consultant professor emeritus at the University of California, Berkeley, highlights ten attributes of a brand that can be used to assess its strength. These include Differentiation, Satisfaction or Loyalty, Perceived Quality, Leadership or Popularity, Perceived Value, Brand Personality, Organizational Associations, Brand Awareness, Market Share, and Market Price and Distribution Coverage. Aaker doesn’t weight the attributes or combine them in an overall score, as he believes any weighting would be arbitrary and would vary among brands and categories. Rather he recommends tracking each attribute separately.
Brand Equity Index (Moran)
Marketing executive Bill Moran has derived an index of brand equity as the product of three factors:
Brand Equity Index (I) = Effective Market Share (%) x Relative Price (I) x Durability (%)
- Effective Market Share is a weighted average. It represents the sum of a brand’s market shares in all segments in which it competes, weighted by each segment’s proportion of that brand’s total sales.
- Relative Price is a ratio. It represents the price of goods sold under a given brand, divided by the average price of comparable goods in the market.
- Durability is a measure of customer retention or loyalty. It represents the percentage of a brand’s customers who will continue to buy goods under that brand in the following year.
Brand Asset Valuator (Young & Rubicam)
Young & Rubicam, a marketing communications company, developed the Brand Asset Valuator, a tool to diagnose the power and value of a brand. In using it, the agency surveys consumers’ perspectives along four dimensions:
- Differentiation: The defining characteristics of the brand and its distinctiveness relative to competitors.
- Relevance: The appropriateness and connection of the brand to a given consumer.
- Esteem: Consumers’ respect for and attraction to the brand.
- Knowledge: Consumers’ awareness of the brand and understanding of what it represents.
Brand Valuation Model (Interbrand)
Interbrand, a brand strategy agency, draws upon financial results and projections in its own model for brand valuation. It reviews a company’s financial statements, analyzes its market dynamics and the role of brand in income generation, and separates those earnings attributable to tangible assets (capital, product, packaging, and so on) from the residual that can be ascribed to a brand. It then forecasts future earnings and discounts these on the basis of brand strength and risk. The agency estimates brand value on this basis and tabulates a yearly list of the 100 most valuable global brands.
Marketers use conjoint analysis to measure consumers’ preference for various attributes of a product, service, or provider, such as features, design, price, or location. By including brand and price as two of the attributes under consideration, they can gain insight into consumers’ valuation of a brand—that is, their willingness to pay a premium for it.
- ^ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; and David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance (Second Edition). Upper Saddle River, New Jersey: Pearson Education, Inc.
- ^ CoreBrand, Correlating Brand With Financial Performance. (May 2014)
- ^ Brand Finance, Explanation of the Methodology. (May 2014)