What is brand equity? How should I measure it?
A strong brand is the single most valuable asset in any business. But what exactly is meant by ‘strong brand’, and how does it relate to the popular concept of brand equity?
There are at least two dimensions to this question.
The first relates to how brands ‘sit’ in people’s minds. This is the vast and rich network of associations (thoughts, feelings, beliefs, and values) etched into memory, which influence the choices you make (usually unbeknownst to you).
By this account, brand strength can be thought of as the differential value the brand has acquired in someone’s mind as a result of multiple interactions over time. In the context of consumer goods or services, this results in a ‘mental advantage’ over other brands or ‘predisposition’ to buy even a little more often, and often at a premium. This pricing power, or the brand’s ability to command a premium without losing business to a competitor is often associated with “brand equity” in consumer and service markets.
For employer branding, the differential value that strong brands exhibit plays out in the form of ‘attachment’: the extent to which the brand is seen as a venue for one’s self-expansion (e.g. future prospects, inspiration, optimism, esteem etc.). A strong brand finds it relatively easy to attract the ‘elite’, or motivate its workforce, and retains them longer. If you ever wondered why brand image or brand perception studies are core marketing activities, it is because the mental imprints associated with your brand can be shaped through communications and targeted experiences.
The second perspective on ‘strong brands’ is more rational. It’s grounded in marketing assets that are more tangible than ‘emotions and feelings’ and less difficult to measure. It focuses attention on financial performance, like the brand’s ability to drive commercial (and shareholder) value. It is this very idea of financial performance or brand valuation that drives certain conceptualizations of equity.
3 ways of measuring brand equity
Clearly, strong brands are the sources of great value — both in the mind and in the market. And it is this added mental or financial value that is commonly conceptualized as brand equity. However, despite these concepts, there is no clear and accepted definition of ‘brand equity. Various scholars and research practitioners disagree on the elements that underpin it or how it should be measured. There are at least three distinct meanings or uses of the term “brand equity”:
#1 Brand Valuation
Here, equity refers to the total value of the brand as a separate asset, which is sometimes included on a business’s balance sheet. Smart people at good companies like Millward Brown, Interbrand, or Brand Finance have devised complex mathematical formulas to determine a brand’s financial value. These can sometimes produce divergent estimates of brand value, or agreement on the direction of change from one year to the next.
Clearly, this is a complex space, which deals more with discounting future cash flows than with how brands sit in the minds of consumers. I would, therefore, encourage the reader to explore the websites of the consultancies mentioned above for details or the work of Professor Natalie Mizik at the Foster School of Business for more information on how these approaches differ.
#2 Brand Strength
This is probably what most market researchers first think about when discussing ‘brand equity’ and how to measure it. Here, equity is almost synonymous with ‘attitudinal strength or ‘strength in the mind’ and is a proxy measure for the relative consumer demand for the brand. It is captured by means of consumer surveys, and a series of evaluative questions that aim at assessing the relative preference, or ‘wantability’ the consumer has for the brand.
As every firm will promote its own conceptualization of equity (and proprietary metrics to measure it), there is not a common set of questions that are used to assess it. The real proof is in the pudding: To what extent do the chosen models explain the strength of the brand, as seen in the market, both in the short and longer term? This is where most distinctions will be made- some models are probably better predictors of the future state of the brand than others.
To get a feel for what’s available and how these approaches differ, explore the most common models used by organizations to form an opinion. For instance, Millward Brown’s MDF framework, Ipsos’ Brand Value Creator (BVC), or TNS’ Conversion Model (CM). Other systems relying on academic constructs (brand love), or cultural lenses (added value) are also worth exploring. Naturally, these methods rely on specific sets of questions and scales, as well as proprietary algorithms to compute the ultimate ‘magic number’ of equity. Proper interpretation of the results is most likely to require the expertise of the agency promoting the model.
#3 Brand Attributes
Some researchers simply define brand equity in terms of the ‘strong, favorable, and unique associations or beliefs’ the consumer has about a brand. A range of qualitative and quantitative techniques can be used to elicit and measure such associations, thereby identifying which are the biggest sources of the brand’s equity. Driver analysis using such data as input helps determine which specific imageries help to promote brand strength.
The appeal of measuring distinct brand associations over time and conducting driver analyses is that it is rather straightforward. (Though there is more to this than meets the eye when it comes to measuring stable associations.)
The approach can also provide useful guidance in assessing the impact of brand-building marketing activities designed to promote specific associations and ultimately choice (e.g. advertising). If the needle moves on the associations or perceptions being tracked, and sales follow, then ‘equity’ might have been reinforced. One should always be careful about short-term assessments of brand strength though, as equity often plays out in the longer-term.
So what is brand equity and does it matter?
Clearly, this short post is explanatory. It doesn’t bring into alignment the many models and conceptualizations of brand equity that have emerged in the last 30 years. So, does the concept of brand equity even matter?
Some scholars have certainly started to challenge its usefulness given the complex and multi-faceted nature of the construct. One of the goals of brand management is to maximize profitable sales over time. For this reason, it might be preferable to focus attention on simple ways of evaluating your brand both in the short and long term, rather than losing your mind trying to decide amongst the many models of brand equity out there.
This evaluation can be done in terms of a series of well-established short-term and long-term performance measures, that are easy to implement and easy to interpret. For example, Qualtrics now offers a Brand Perception project in our new XM Solutions line. These projects include pre-designed surveys and reports along with a guided workflow. The Brand Perception XM Solution is included with most Qualtrics licenses. This should get you started without losing sight of the overall goal: brand growth.
To learn more about measuring the value of a brand, download our eBook, Designing a World-Class Brand Tracking Study.
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August 28, 2020