| Brand equity is the value consumers
associate with the brand name itself, rather than the specific
product or service. Put in layman's terms, would you rather wear a
plain white T-shirt or the same T-shirt with a Nike logo on it?
You'd probably agree that most people would prefer the Nike T-shirt.
And they'd be willing to pay more for it.
There are two good reasons why marketers want to increase equity
in their brands: (1) better bottom-line results, and (2) greater
customer loyalty.
But to increase equity, you must first be able to measure it. And
most measurement approaches are complicated and involve complex
models.
BRX has an easier way
BRX founder Dr. Joel Axelrod developed Brand Equity Systems to
accurately measure brand equity. It's a proprietary system that's
not only simple to understand and use . . . but also helps marketers
know what they can do to increase brand equity.
Brand Equity SystemsSM uses an
operational definition of brand equity that relates the value of a
brand to the bottom line (or really, the consumer's wallet):
Brand equity is measured by gauging demand for a product in
relation to competitive products. We're really seeking to understand
price sensitivity for a product — and judging how much product
demand may decrease as price increases. A brand with strong equity
will continue to be in demand even as its price increases.
To demonstrate how this system works, we'll look at three
studies:
- A college looking to measure the impact of increased tuition
on application rates
- A manufacturer of a new storage shed who wanted to find out
what price consumers would pay for its product
- An international tire manufacturer wanting to measure the
effects of advertising
As part of its Brand Equity Systems,SM BRX has devised an ingenious method for
eliciting a truer picture of respondents' price sensitivity and
purchase preference among a range of brands, including the "Test
Brands" in question.
This is important because respondents often give rational and
expected responses because they understand "the game" and these
rational answers often encourage marketers to keep the price low.
However, they often don't behave rationally. So the challenge, when
conducting this type of research, is to not let respondents know
that price sensitivity is what's being measured.
Variations on a demand curve
By averaging the purchase preference points for the Test Brand at
different price levels, a demand curve can be determined. Typically,
we find variations of three different demand curves:
- Price sensitive
- Price insensitive
- Premium quality
The following charts show how price-sensitivity measurement
typically works:
Table 1 illustrates a typical
price-sensitive curve, where demand increases as price decreases.
Price sensitivity
information provides the basis for calculating brand equity. Our
basic assumption is that the more resistant the consumer is to price
increases, the greater the brand equity.
How much is a good education
worth?
Earlier this year, Time magazine ranked Geneseo as one of
the 10 best college bargains nationwide, based on the caliber of its
students and its above-average graduation rates. With this kind of
endorsement, it's hard not to wonder how much a student would pay
for an education at SUNY Geneseo. How high could it go without
affecting admission application rates?
In Table 2, the
price-insensitive curve shows demand holds steady as price
increases. This is a definite sign of brand equity.
Our research measurement shows that the number of admission
applicants remained stable even as tuition increased. Even though
Geneseo has no plans to increase tuition, it can now use this
valuable information as a student recruitment tool to tout its
educational superiority at rock-bottom tuition prices.
Pricing a new product does not have to be
like throwing a dart in the dark
All manufacturers face the challenge of pricing a new product.
They know what it costs to make it, but what will a consumer be
willing to pay for it?
A manufacturer of Premium Storage Sheds brought this very
challenge to BRX. The manufacturer believed they had a new product
that the marketplace would readily embrace. And they knew what they
wanted to charge for it. The challenge was to see if the two were
compatible.
The first part of the study focused on
whether the public really wanted the product. The second part was
designed to find out if the public would pay the price the
manufacturer wanted to charge.
The results are illustrated in Table
3. They clearly show that demand can actually increase as
price goes up. Presumably, that's because of quality concerns. The
curve also shows the point where the product is no longer viewed as
a good value, and subsequently demand starts to drop off.
Our study definitely proved there was market appeal for the new
product and the manufacturer had set the right price.
The final result: The Storage Sheds entered the market at a price
that's appealing to consumers and that the company can deliver with
maximum profitability.
We all ask the question, "What impact does
my advertising really have?"
Up to this point, we've described how Brand Equity SystemsSM measures equity. Another application of
the system is to provide answers to marketing questions, such as:
"What specific product attribute has the most value to
customers?"
"Will sales increase if we lower prices?" (They may not!)
"If we raise our price and lose some customers, which brands will
they switch to — another of our brands or a competitor's?"
Brand equity is a strategic goal. It's the very reason companies
spend billions of dollars every year on advertising. Imagine being
able to really measure the impact of your advertising — and not just
by looking at market share.
An international tire manufacturer used Brand Equity SystemsSM to measure their advertising efforts on
a quarterly basis.
Using the system as a diagnostic tool, the manufacturer was able
to determine which product attributes should be exploited in order
to maximize the value of its brand-building advertising efforts. The
results also helped define how it should position itself against the
competition. But the most important result gained from the system
was the knowledge that the marketplace changes — and that means the
company's advertising efforts need to change, too.
Here's how the system works:
Brand Equity SystemsSM can be used
to determine:
(1) Attribute Importance: the relative
importance of product attributes
(2) Attribute Presence: the degree to
which competing brands are seen as having the same attributes
Each quarter, participants in the study were asked to rate the
relative importance of product attributes when choosing a brand. We
know consumers evaluate many product attributes when making purchase
decisions, but some attributes carry more weight than others. It's
critical to determine which attributes or features are most
important.
For example, we asked how much value the manufacturer's brand
name carried. Would people pay more for its tires over other brands?
The manufacturer also wanted to focus on the specific product
attributes that are most important to customers. While this may seem
too tactical, it directly impacts the bottom-line results of
advertising efforts. The advertising could zero in on the attributes
that consumers felt had the most value. Because the study was
quarterly, they could fine-tune as necessary.
Participants were shown several different attributes and asked to
distribute a fixed number of points ("constant sum") in a way that
indicated their relative importance, as shown in Table 4. For example, is tread wear more
important to consumers than traction on wet roads?
| Table 4 |
| Attribute Importance |
| Has long tread life |
8 |
| Provides good traction on wet
roads |
5 |
| Is built with latest technology |
2 |
| Gives a smooth ride |
3 |
| Has good handling at high speeds |
1 |
| Is a good value for the price |
6 |
| Stops quickly |
5 |
 |
| Total |
30 |
Table 4 is based
on Attribute Importance — which specific attributes are most
important to customers shopping for
tires. |
Once the manufacturer understood the relative importance of
attributes, the next step was to determine the degree to which each
brand was seen as having each attribute. Using a rating scale of 1
to 10 — with 1 meaning "does not describe this brand at all" and 10
meaning "describes this brand perfectly" — the company could see how
it compared to the competition as shown in Table
5. Again, this information could have a definite impact on
its marketing and advertising plans.
| Table 5 |
| Attribute |
Brand
A |
Brand
B |
Brand
C |
| Has long tread life |
4 |
5 |
8 |
| Provides good traction on wet
roads |
6 |
9 |
7 |
| Is built with latest technology |
6 |
9 |
3 |
| Gives a smooth ride |
3 |
5 |
3 |
| Has good handling at high speeds |
7 |
5 |
4 |
| Is a good value for the price |
5 |
3 |
9 |
| Stops quickly |
8 |
9 |
6 |
The final results can be directly translated into advertising
messages that focus on the consumer's perceived importance of those
positive attributes that are seen to outperform the competition.
This will build brand equity — and increase sales.
Can Brand Equity SystemsSM work for you?
Today, we're all looking for the "edge" that's going to put our
products and services on top. And it's getting more and more
difficult as consumers get SMsmarter
and competition increases. The solutions aren't black and white.
That's why Brand Equity SystemsSM is
a valuable and viable tool for measuring the effectiveness of your
brand-building efforts.
Jeffrey S. Gutenberg is owner and president of BRX Global, a
marketing research firm, Rochester, New York. He is also Associate
Professor, School of Business, SUNY Geneseo. He has held this
position teaching marketing courses since 1981. Prior to moving to
the Rochester area, Mr. Gutenberg had teaching affiliations with
University of Southern California, University of Hawaii and Loyola
Marymount University. He is also the director of the SUNY Geneseo
Survey Research Center. In addition to his professional and academic
accomplishments, Mr. Gutenberg is active in local and national
marketing associations and was recognized as "Volunteer of the Year"
for the Arts & Cultural Council of Greater Rochester in 1997.
Mr. Gutenberg can be reached at (585) 453-8387.
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