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‘Brand Equity’ Best Predicts A Company’s Success

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By: Jerry. W. Thomas, President and Chief Executive, Decision Analyst Inc.

We can think of “brand equity’’ as the accumulated reputation and goodwill of the brand or brands owned by a company.

This is a greatly simplified definition of brand equity, but it will suffice for now. All other factors being equal, brand equity is the very best predictor of a corporation’s probability of long-term success. In well-managed corporations, senior management stays focused on building and maintaining brand equity for all of their brands among the most important target audiences (customers and prospective customers).

An important secondary reservoir of brand equity resides in the minds and hearts of a company’s employees. They must buy into, believe in and support the corporation’s brand story. A third repository of brand equity exists in the minds of the trade and distribution channels. Do they have faith in the company, and will they support its brands?

The last store of brand equity – at least for public companies – is the attitudes of investors, shareholders and stock analysts. Regardless of the target audience, brand equity exists solely in the minds and emotions of human beings. Brand equity lives in the feelings, memories and imaginations of target audiences, not in real estate, factories, equipment, inventories, retail stores, or other assets.

To optimize brand equity, these three types of models can play a role:

Diagnostic Models: These help brands understand the building blocks and  architecture of existing brand equity.

Prescriptive Models: These can be used to formulate optimal strategies to maximize brand equity over time.

Tracking Models. Once a sound brand strategy in is place, it’s important to track the cumulative effects through repeated surveys of target consumers, employees and other target audiences.

Brand equity tracking models are the focus of this article, but keep in mind that other types of brand equity models exist.

Brand Equity Tracking Model Components

The first measure of brand equity is brand awareness. A brand with no awareness has no brand equity. The higher a brand’s awareness, the more brand equity a brand enjoys. Generally, the higher brand awareness is, the more favorable consumers’ perceptions of and associations related to the brand tend to be (there are rare exceptions to this rule, but it’s almost always true).

Brand awareness is traditionally measured by two questions: the first to measure unaided brand awareness; followed by a question to measure aided brand awareness. Total brand awareness is the combination of the two measures with any duplication or overlap eliminated (i.e., a net result). These measures are generally reported as the total percentage of the target population or target market that is aware of the brand.

Unaided brand awareness tends to understate actual brand awareness, while aided brand awareness or total brand awareness tends to overstate actual awareness. True brand awareness falls somewhere between unaided and total brand awareness, but typically closer to the total brand awareness number. Awareness alone is an extremely important measure and must be a variable in any brand-equity tracking model, but let’s not forget that awareness can be positive or negative – and this metric must be incorporated into the model.

Brand awareness is typically measured as a one-dimension variable (think of a graph showing height of awareness, or percentage of those aware) for each time period – but we could also think of it as two-dimensional (percent aware by depth of awareness) for each time period. That is, a consumer can be aware of a brand (and count as part of that brand’s awareness), but that awareness might be shallow and fleeting, or that awareness could be deep and abiding. Depth of awareness or strength of awareness is another variable in brand-equity modeling.

Another important measure of a brand is consumer knowledge. How much do members of the target market actually know about a brand (and the accompanying products or services)? Knowledge overlaps depth of awareness to some extent, but it goes beyond strength or depth of awareness into the character and makeup of that awareness. It’s another variable to consider for the brand equity model.

A brand’s image is another core measurement of brand equity, an extension of the knowledge dimension. Brand image is a reference to all of the associations, values, feelings, emotions, perceptions, mental pictures, symbols, smells, sounds, music, stories, and colors linked to a brand. These image dimensions are typically measured with some type of sensitive scale, such as nine to 11-point anchored grid scales, but there are many ways to measure brand image and several different question types can be used. Now that we have a sense of the key measurements, let’s look at some models to link these variables.

Let’s start with some simple examples of brand-equity tracking models, to convey the basic concepts, and then discuss a more complete model. The first model we might build is a total brand awareness model. It’s very simple:

Brand Equity = Total Brand Awareness

Total brand awareness is measured each month, each quarter, or every six months, to monitor total brand awareness trends over time. This model has only one independent variable (total brand awareness) but it is a model nevertheless and is one way to define and track brand equity over time. This is not a perfect standalone model, but it is commonly used across many different product and service categories. Ah! But you say, “that’s too easy, too simple.” So, let’s make the model a little more complicated.

We want to keep total brand awareness, since it’s such an important variable, but let’s add a second variable to the model, unaided brand awareness. We can think of unaided brand awareness as an indicator of depth of awareness or strength of awareness. So, the new brand-equity model might take the following form:

Brand Equity = Total Brand Awareness + Unaided Brand Awareness

Wait, you say, aren’t you double counting unaided brand awareness? True, but generally total brand awareness is much, much higher than unaided brand awareness, so the double-counting is not as big a weakness as you might suspect, and this model gives you a constant equation to track brand equity over time.

But wait one more minute, you say. There are some new or poorly defined product categories that make it almost impossible to measure unaided brand awareness. Good point! This model won’t work in those categories. Also, when you add the two variables together, drop the % signs (so 58.6 % becomes 58.6, or 14.7% becomes 14.7). This model would give you a numeric value for brand equity somewhere between 0 and 200.

Before we move on, another way to weave Total brand awareness and unaided brand awareness together could be a multiplicative model. That is, instead of adding total brand awareness to unaided brand awareness, you could multiply the two variables together. The model would look like…

Brand Equity = Total Brand Awareness X Unaided Brand Awareness.

This is similar to length-times-width, which equals the area of a rectangle. That is, height (total brand awareness) times depth (unaided brand awareness) equals the total area of brand equity at a point in time. Again, you would get rid of the % signs and make sure both total brand awareness and unaided brand awareness are numbers greater than 1.0. You don’t want to multiply if one of the numbers is below 1.0, since that would make brand equity decline as a result of flawed arithmetic. Okay, you say, this is all elementary school stuff. Can’t we do better?

So, let’s build on these basic concepts and see if we can design a simple brand equity tracking model. As before, let’s begin with total brand awareness. A reasonable model might look like the following:

Brand Equity = X + ((V + K)/2) + Y

Where…
X = Total Brand Awareness
V = Percent who say they are “Very Familiar” with brand
K = Unaided Brand Awareness
Y = Brand Image Profile

Drop the percent signs since they would no longer serve any meaningful purpose. In the middle term within the model, we are taking an average of two variables (V and K). So, there you have it, a simple model of brand equity that incorporates some of the major elements of brand equity. This brand equity score could range from 0 to a maximum of 300, given the stated formula and assuming brand image is a score less than 100.

As you can see, the final result is an arbitrary number or score, but it is a consistent and inclusive metric to track brand equity over time, taking some of the important variables into account. The same basic model could be applied to competitive brands (as an approximation), so that your brand equity trends could be roughly compared to a competitors’ brand equity trends (but be wary of head-to-head comparisons, because brand equity cannot be measured precisely across brands if the attendant strategies are different).

The process of building a relevant, predictive brand equity tracking model is more complicated than these simple examples and involves extensive investigation and analysis upfront to identify the key variables, learn how to measure those variables, determine the weights to assign to variables, and develop hypotheses about the structure of the model itself. These investigations would involve in-depth qualitative research among key target markets, followed by choice modeling experiments to define an optimal brand strategy.

The goal is a predictive (or forward-looking) model. That is, if we incorporate into the model the brand image dimensions that are predictive of long-term success, then as brand equity goes up over time, the brand’s market share should increase, or brand loyalty should increase, or pricing power should increase (after appropriate lag times). The brand strategy itself would serve as the foundation for the brand equity tracking model. Each product category, company and brand is unique, so the brand equity tracking model must be customized to fit each brand.

Building a predictive brand equity tracking model is difficult; but quantifying and monitoring a corporation’s most valuable brand assets is a wise investment for the long-term success of a business enterprise.

About The Author:

Jerry. W. Thomas is president and chief executive of Dallas/Fort Worth-based Decision Analyst Inc. Founded 45 years ago, Decision Analyst is, one of the nation’s oldest and largest privately owned marketing research and analytics firms. The company serves leading companies, organizations and governments around the world. Jerry welcomes feedback and comments.

www.gawdo.com

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