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Brand Equity Source: Managing Brand Equity David A. Aaker
What is Brand Equity? • A product is something that is made in a factory; a brand is something that is bought by a customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless. – Stephen King (WPP Group, London)
What is Brand Equity? • Brand equity is a set of assets such as name awareness, loyal customers, perceived quality and associations that are linked to the brand and add value to the product or service being offered. • Brand management team – responsible for the marketing program and its coordination with sales and manufacturing.
The Role of Brands • A brand is a distinguishing name and/or symbols (such as logo, trademark, or package design) intended to identify the goods or services of either one seller or a group of sellers, and to differentiate those goods or services from those of competitors.
The Role of Brands • A brand signals to the customer the source of the product, and protects both the customer and the producers from competitors who would attempt to provide products that appear to be identical.
The Role of Brands • The idea is to move beyond commodities to branded products – to reduce the primacy of price upon the purchase decision, and accentuate the bases of differentiation. (The power of brands is indicted by what firms are willing to pay for them).
Dimensions of Brand Equity • Brand loyalty • Brand awareness • Perceived quality • Brand associations in addition to perceived quality • Other proprietary brand assets – patents, trademarks, channel relationships, etc
Brand equity creates value for the customer • Brand equity assets affect customers’ confidence in the purchase decision (due to either past-use experience or familiarity with the brand and its characteristics). Both the perceived quality and brand associations can enhance customers’ satisfaction with the use experience. • The user (i.e. using Apple) can feel different.
Brand equity creates value for the firm • Enhance programs to attract new customers or recapture old ones, for instance try a new flavor will be more effective if the brand is familiar. • The perceived quality, the associations and the well-known name can provide reasons to buy and can affect use satisfaction; reducing the incentive to try others. • Brand equity will usually allow higher margins by permitting both premium pricing and reduced reliance upon promotions.
Brand equity creates value for the firm • Brand equity can provide a platform for growth via brand extensions. • Brand equity can provide leverage in the distribution channel (shelf space and cooperation to implement marketing programs). • Brand equity assets provide a competitive advantage that often presents a real barrier to competitors. For instance, an association (i.e. iPod - mp3 player)
Brand equity assets require investment to create, and will dissipate over time unless maintained
Brand Loyalty • The loyalty of the customer base reduces the vulnerability to competitive action. • Competitors may be discouraged from spending resources to attract satisfied customers. • Higher loyalty means greater trade leverage, since customers expect the brand to be always available
Awareness of the brand name and symbols • People will often buy a familiar brand because they are comfortable with the familiar. A recognized brand will thus often be selected over an unknown brand. • Brand must first enter the consideration set – it must be one of the brands that are evaluated.
Perceived quality • Perceived quality will directly influence purchase decisions and brand loyalty. • It can support a premium price, which, in turn, can create gross margin that can be reinvested in brand equity. • Perceived quality can be the basis for a brand extension. If a brand is well regarded in one context, the assumption will be that it will have high quality in a related context.
A set of associations • The specific associations linked to the brand name may provide credibility, and to some may stimulate confidence in the service. A life-style or personality association may change the use experience. • A strong association may be the basis of a brand extension. • If a brand is well positioned upon a key attribute in the product class (i.e. service or technological superiority), competitors will find it hard to attack, thus, an association can be a barrier to competitors.
Other proprietary brand assets • Such as patents, trademarks, and channel relationships. • Brand assets will be most valuable if they inhibit or prevent competitors from eroding a customer base and loyalty. • For instance, a trademark will protect brand equity from competitors who might want to confuse customers by using a similar name, symbol, or package. • A patent can prevent direct competition. • A distribution channel can be controlled by a brand because of a history of brand performance
What is the value of a brand? • Price premiums generated by the brand name • The value of the brand name in a given year would be that price differential multiplied by the unit sales volume. Discounting these cash flows over a reasonable time horizon. • Brand name and customer preference • The value of the brand would be the marginal value of the extra sales that the brand name supports.
What is the value of a brand? • Replacement cost • The cost of establishing a comparable name and business • Brand value based upon stock price movements • Using finance theory, use stock price as basis. The argument is thatthe stock market will adjust the price of a firm to reflect future prospects of its brand
Brand Loyalty • If customers are indifferent to the brand, buy with little concern to the brand name; there is likely little equity. If, on the other hand, they continue to purchase the brand even in the face of competitors with superior features, price, and convenience, substantial value exists in the brand and perhaps in its symbol and slogans.
Brand Loyalty • Brand loyalty is a measure of the attachment that a customer has to a brand. How likely a customer will be to switch to another brand, especially when that brand makes a change, either in price or in product features. • As brand loyalty increases, the vulnerability of the customer base to competitive action is reduced. It is one indicator of brand equity, which is demonstrably linked to future profits, since brand loyalty directly translates into future sales.
5 levels of brand loyalty • The bottom loyalty level is the nonloyal buyer who is completely indifferent to the brand – each brand is perceived to be adequate and the brand name plays little role in the purchase decision. • Whatever is on sale or convenient is preferred. • This buyer might be termed a switcher or price buyer.
5 levels of brand loyalty • The second level includes buyers who are satisfied with the product or at least not dissatisfied. There is no dimension of dissatisfaction that is sufficient to stimulate a change especially if that change involves effort. • These buyers might be termed habitual buyers. Such segments can be vulnerable to competitors that can create a visible benefit to switching.
5 Levels of brand loyalty • The third level are those who are also satisfied and, in addition, have switching costs – costs in time, money, or performance risk associated with switching. • To attract these buyers, competitors need to overcome the switching costs by offering a benefit large enough to compensate the switching cost. • This group might be called switching-cost loyal.
5 Levels of brand loyalty • On the fourth level are those who truly like the brand. Their preference may be based upon an association such as a symbol, a set of use experiences, or a high perceived quality. Liking is often a general feeling that cannot be closely traced to anything specific. • Segments at this level might be termed friends of the brand because there is an emotional/feeling attachment.
5 Levels of brand loyalty • The top level are committed customers. They have a pride of being users of a brand. The brand is very important to them either functionally or as an expression of who they are. • Their confidence is such that they will recommend the brand to others. • A brand that has a substantial group of extremely involved and committed customers might be termed a charismatic brand.
Brand loyalty as one basis of brand equity • Brand loyalty is tied more closely to the use experience. Brand loyalty cannot exist without prior purchase and use experience. However, loyalty is influenced in part by the other major dimensions of brand equity, awareness, associations, and perceived quality. • A key premise is that the loyalty is to the brand. If the loyalty were to a product rather than the brand, equity would not exist. Considering brand loyalty is a key, core bases of brand equity should help firms treat customers as the brand assets that they are.
The strategic value of brand loyalty • Reduced marketing costs • Less costly to retain customers than to get new ones. Loyalty of existing customers represents a substantial entry barriers to competitors. • Trade leverage • Shelf space favors brands with large strong loyal followers (fast moving)
The strategic value of brand loyalty • Attracting new customers • The acceptance of the brand by a relatively large customer base provides an image of the brand as an accepted, successful product. Awareness can be generated from the customer base. • Time to respond to competitive moves. • If a competitor develops a superior product, a loyal following will allow the firm time needed for the product improvements to be matched or neutralized.
Maintaining and enhancing loyalty TREAT THE CUSTOMER RIGHT A product or service that works – as expected – provides a basis for loyalty, a reason not to switch. The goal is to have a positive interaction – to treat the customers as any person would like to be treated: with respect. STAY CLOSE TO THE CUSTOMER Focus groups can be used to see and hear real customers voice concerns. Just the act of encouraging customer contact can help send signals to both the organization and the customers that the customer is valued.
Maintaining and enhancing loyalty MEASURE / MANAGE CUSTOMER SATISFACTION Regular surveys of customer satisfaction/dissatisfaction to understand how customers feel and to adjust products and services. For customer satisfaction measures to have impact they need to be integrated into day-to-day management. CREATE SWITCHING COSTS reward loyalty directly, i.e. frequent flyers.
Maintaining and enhancing loyalty PROVIDE EXTRAS It is often relatively easy to change customer behavior from tolerance to enthusiasm just by providing a few extra unexpected services. SELLING TO OLD CUSTOMERS INSTEAD OF NEW ONES The most common mistake that firms make is to attempt to grow mainly by attracting new customers. The problem is that new customers are almost always difficult to attract.
Maintaining and enhancing loyalty What is needed here is a reduction of dissatisfied customers’ motivation to leave, and an increase in the switching costs of those who are satisfied.
Brand Awareness • Brand awareness is the ability of a potential buyer to recognize or recall that a brand is a member of a certain product category. A link between product class and brand is involved.
3 levels of brand awareness • Brand Recognition This lowest level is based upon an aided recall test. There needs to be a link between the brand and the product class, it need not be strong. Brand recognition is a minimal level of brand awareness. It is particularly important when a buyer chooses a brand at the point of purchase. • Brand Recall Brand recall is based upon asking a person to name the brand in a product class; it is termed “unaided recall” because the responder is not aided by having the names provided.
3 levels of brand awareness • Top of the mind The first-named brand in an unaided recall task. A dominant brand is a brand that is the only brand recalled for a high percentage of the respondents.
Brand awareness may create value • The first step in the buying process often is to select a group of brands to consider – a consideration set. • Brand recall can be crucial to getting into this group. The first firms that come to mind will have an advantage.
Brand awareness may create value • The role of brand recall / top-of-mind can be crucial for frequently purchased products like coffee, detergent, and headache remedies, for which brand decisions usually are made prior to going to the store. • Thus, even if a brand is dominantly displayed, it may be critical that it be a “recalled” brand, or even “top-of-mind recalled,” to get the purchase.
Brand awareness may create value • Generally, if a brand does not achieve recall it will not be included in the consideration set. • However, people usually will also recall brands that they dislike strongly.
How to achieve brand awareness • Achieving awareness, both recognition and recall, involves two tasks: • gaining brand name identity and linking it to the product class.
How to achieve awareness Be Different, Memorable An awareness message should provide a reason to be noticed and it should be memorable. One key is simply to be different, unusual. Of course, it is necessary to create a link between the brand and the product class. Involve a Slogan or Jingle The link to the slogan might be stronger because it involves a product characteristic that can be visualized. A jingle can be a powerful awareness-creating device.
How to achieve awareness Symbol Exposure A symbol involves a visual image, which is much easier to learn and to recall than a word or phrase. Publicity Publicity is less expensive than media advertising but also effective. People are Interested in learning about a news story than in reading advertising. Event sponsorship Create or maintain awareness from the spectators – who view them either live or on television, and from others who read about them either before or after their occurrence.
How to achieve awareness Consider Brand Extension One way to gain brand recall is to put the name on other products. Attach the brand to additional products which are advertised, displayed and used. Using Cues One brand cue is the package. The package is the actual stimulus with which the shopper is confronted. Cues (i.e. celebrity endorsers, colors, symbols) can be used to remind people of the link developed in the advertising.
How to achieve awareness Recall Requires Repetition The brand name needs to be made more prominent, and the link from the brand to the product class needs to be stronger. The Recall Bonus Maintaining a strong top-of-mind awareness through constant exposure can create not only brand awareness, but also brand salience (prominence) that can inhibit the recall of other brands.