Brand Equity and Associated Metrics in Marketing - Coursework Example

TITLE by Name of author Name of class Name of Professor Name of school Location of school Date Introduction Marketing experts have identified the equity of a brand as being among the most powerful of intangible assets that drives the value of a corporate (Lev 2005). Others are of the opinion that brands are representative of a company’s large assets, commanding about forty percent of a firm’s market value. In actual fact, it would be correct to consider brand as the fifth most important resource in a firm, after human resources, information, goods and funds (Lev and Daum 2004). Brand equity concept has thus, over the years, become a subject of interest to both practitioners and academics. Brand equity can thus be defined to as the differential response that a brand creates in the marketplace (Rossolatos 2014). This can either be positive differential response or negative differential response. To understand this concept better, one should understand that a brand’s ability to generate some kind of differential response in the market dictates the value of that particular brand. Thus, if a brand has a high equity then it will generate a positive differential response in the market. Given that brand equity is an intangible asset, it can only be reflected in a firm’s earnings and in its stock price (Lev and Daum 2004). What this therefore means is that brand equity is held in the consumers’ mind in terms of brand awareness and brand image. Ultimately, the customer becomes the most important component in determining the value of a brand as his/her choices will dictate the success or failure of a firm’s brand. Of considerable relevance, however, is how to measure brand equity and the metrics employed. Metrics in Brand Equity It is believed that by 2020, branding will become the most important value driver in corporate boardrooms. At the moment, it is already considered an effective means to better leadership and helps an organisation’s boardroom drive its vision in the right direction. The primary goal of the boardroom in a firm is to build shareholder value and sustain it as well as deliver to shareholders, competitive returns. To achieve this, boardrooms must manage by using metrics to find out how their brand is performing. Brand equity can thus be measured using three broad metrics of financial, preferences and knowledge considerations. The measures under each of these three metrics are fundamental in ensuring that the firm’s brand portfolio performs highly. Financial Metrics When measuring brand equity, financial metrics are applied to measure the monetary value of the brand via parameters such as market share, brands lifetime value, price premium, brand’s growth rate, capability to generate revenue and the transaction value. All these will allow a firm to estimate the accurate financial value of its brand (Davis 2012). Market share metric: The market share metric quantifies the amount of market share that a brand commands in the market place. This quantification can be divided into consumer segments, product segments and geographical segments (Skiera, Schulze and Wiesel 2012). This metric therefore indicates a brands aptitude to retain existing customers and more fundamentally, attract new customers. Price Premium: For a brand to be at a financially advantageous position, it has to have the aptitude to command a price premium (Davis 2012). Determining the difference in price points between a particular brand and competitor brands will indicate any premium adds to the brand equity. Marketing management will want to use this metric because of its two clear advantages; 1) it relies on market data that is actual 2) it is easy to calculate differential price points. However, marketing management will be very cautious when applying this metric due to three reasons: 1) Price premium does not provide any information on sources of brand equity. 2) Relies on either one of premium price strategy or market share strategy (Davis 2012). If the former is relied upon, then additional from premium price will give satisfactory results. However, if the latter strategy is used with the premium price metric will fail to provide accurate results of the value of the brand in question. 3) It is often very hard to get a competing firm’s profitability figures broken down according to individual products. Revenue: This is the mean annual revenue a brand generates per customer segment, product segment and geographical segments. This metric’s trend will indicate whether a brand gets more value from customers annually (Currim and Mintz 2013). For instance, if the mean annual revenue of a product keeps rising annually, it would indicate that the value of the firm’s brand equity on that particular product creates a positive differential response in the market; suggestive of a strong brand. Transaction Value: This is the value generated from a transaction a customer makes. The trend of this metric will indicate how the brand develops the customer. An example would be the use of cross-selling and up-selling strategies to increase the transaction value of a brand (Davis 2012). Growth Rate: How strong a brand is, its market share, level of customer loyalty and prospective customer base will determine a brand’s growth opportunities. This metric thus shows that a brand that is able to drive its growth will add to its equity (Currim and Mintz 2013). Financial metrics are important for marketing management because they basically measure the general value that a gets from the investments put into building and managing a brand. In brand management, valuation of a brand in financial terms has been a relatively new concept (Currim and Mintz 2013). Due to this, most people in the field of marketing did acknowledge that brands did contribute to the firm’s performance but couldn’t justify how spending on branding and marketing led to good or poor performance. Financial metrics have thus enabled marketers to validate the financial implications of all expenses related to branding and marketing. Marketing managers today are looking for ways to increase efficiency and accountability in the way they communicate with the board as well as with customers. Gone are the days when financial data was solely the accountant’s forte. Financial metrics have thus provided marketing managers with a channel through which they can effectively demonstrate the effectiveness of their branding strategies by tying financial performance to brand performance (Currim and Mintz 2013). Similarly, the market place is a highly competitive and selling to the mass market through traditional channels has become difficult. In some markets, small retailers force their low profile brands into the market with the sole aim of gaining a profit for the short-term. Financial metrics are beneficial in such markets as marketing managers are able to easily measure their brand’s monetary value against low profile brands and make strategic decisions on how they will strengthen their brand equity within the shortest possible time (Currim and Mintz 2013). Knowledge Metrics As one of the measurements of brand equity, knowledge metrics measures the level of consumer awareness of every promotion made on a particular brand together with what their priorities are (Burger 2012). A very common adage in the sales field says that firms formulate selling strategies to mirror the image of consumers’ buying strategies. Knowledge of a brand among customers will determine how a firm will sell. Thus critically studying and understanding consumers’ buying behaviour is very important if a firm is to strengthen its brand equity in the market (Burger 2012). Knowledge metrics has three very important indicators: 1. Brand Awareness: This is a marketing concept that analyses an individual’s knowledge of a brand and illustrates the ratio of persons that have knowledge about a brand (Kapferer 2012). In marketing, the knowledge of a certain brand is regarded as the main market based asset that customers store in their conscious mind and use when it comes to purchasing situations. Therefore, the association that consumers have with a brand will favour the purchase of that particular brand. An example of a measure of brand awareness is whenever a customer goes to buy any product, what is the first name that pops in the customers mind (Kapferer 2012). 2. Brand Attachment: Brand attachment is a concept that illustrates how strongly tied is a customer’s intensions to a particular brand (Priester, Iacobucci, Eisingerich, Park and MacInnis 2010). If there is a very strong link between the customer’s priority and the brand then the result will be an increase in market share for that brand as well as an increased consumer lifetime relations with the brand. More specifically, brand attachment forecasts aims to facilitate the execution of behaviours that will use, to a great extent, consumer’s possessions such as time and money. It is also a predictor of authentic consumer behaviours (Park, Macinnis & Priester 2008). Marketing managers find knowledge metrics to be fundamentally beneficial when it comes to measuring brand equity. Knowledge metrics give marketers an opportunity to take advantage of the amount of possession customers sacrifice just to purchase a particular brand. Managers today spend substantial amounts of money, time and human resource to carry out research on how much customers know their products. Information on brand awareness will thus guide managers and marketers to make positive strategic decisions on which geographic regions and customer segments to concentrate their resources in (Kapferer 2012). Knowledge metrics also become beneficial when marketing managers cannot strategically decide where to apply cross-selling and/or up selling strategies. For instance, if marketing managers have information that the level of brand awareness of a particular segment of customers in a particular geographical region is very low, then it will be easy for the firm to apply up-selling strategies easily (Kapferer 2012). On the other hand, if the level of brand awareness of customers in another geographic region is high, then the firm will easily apply cross-selling strategies. Both strategies will see the firm increase its brand awareness substantially without having to sacrifice the performance of other products in the firm’s line. This will consequently strengthen the firm’s brand equity (Kapferer 2012). Preference Metrics Preference metrics will measure the how competitive a brand is in the market and its position to other competing brands (Davis 2012). In other words, this metric assesses the level of customer preference for a firm’s brand and the extent to which they are prepared to advocate for the brand to others. Usually customer will pass through several different levels of preference for the brand involved from just simple awareness to them exhibiting strong loyalty and the brand gaining recurrent returns from the ever increasing customer base. Therefore, for a brand to be considered strong in the market place, its brand equity must have the aptitude to move customers through the different levels of preferences towards loyalty (Loken, Ahluwalia & Houston 2010). In tracking preference metrics, a firm may ask its customers questions regarding their use of the brand. For instance, a question such as “if asked to choose among these three products, which one would you prefer?” or “Have you ever willingly and objectively expressed your preference for brand X?” Answers to these questions will give a firm the right information on customer preference. Such information will help a firm create rich consumer profiles based on their current opinion of the brand, thereby enabling it to mold customer preferences accordingly. Marketing management will use preference metrics to improve brand experience among customers. Once a firm employs strategies to better customer brand experience through tailoring a product to suit customer preferences, customers will begin to slowly become less associated with a particular product or service and associate with the brand’ values (Slottje 2009). As such, a brand can afford to retain and attract more customers and move to other seemingly unrelated products or services, so long as it maintains its core brand values. A good example of a company that took advantage of performance metrics is the Virgin brand. Starting out just selling music, the company moved to film and videos before venturing into the aviation industry with Virgin Atlantic. Today the Virgin brand has extended its tentacles to the rail travel, soft drink, clothing, cosmetics, financial services and media industries (Athaide and Klink 2012). This is the eventual effect of customers preferring a particular brand over others because no matter what type of product a company produces, the company will make huge sales so long as its brand’s level of preference among customers remains high in the marketplace. In cases where marketing management will want to use persuasive appeal to get customers to buy particular products, preference metrics will prove invaluable (Davis 2012). It is a fact that brands play a major role in influencing customers’ purchasing decisions, usually with great persuasive appeal. The Marlboro brand is an excellent example of how the company has used preference metrics to understand the emotional and physical attributes that appeal to particular customers who want to live a particular lifestyle. Gold credit cards, Black credit cards and other prestigious items are products that help people express the fact that they are different from others. What preference metrics does therefore is that it aids marketing management to manage a brand in such a way they it brings out the personality of its customers. If a brand achieves this, then it will almost certainly produce a positive differential response in the marketplace (Athaide and Klink 2012). Conclusion The market in the 21st century has become highly volatile and highly competitive. Apart from human capital, funds, goods and information, companies have come to realize that their individual brand is also a very important resource and asset. Brand equity will thus determine the kind of impact a brand has in the marketplace. Measuring brand equity will help marketing managers formulate effective marketing strategies that will see their brand compete effectively in highly competitive markets and produce good results. Financial metrics, knowledge metrics and preference metrics must thus be used by companies to ensure that they increase their brands’ value. Therefore, for brand equity to be comprehensively evaluated, marketing managers will have to measure all the three metrics so as to make certain that the brand’s strength is valued in its entirety. References Lev, B 2005, Intangibles: Management, Measurement, and Reporting, Oxford, University of British Columbia Press. Priester, J, Iacobucci, D, Eisingerich, A, Park, C, MacInnis, D 2010, ‘Brand Attachment and Brand Attitude Strength: Conceptual and Empirical Differentiation of Two Critical Brand Equity Drivers’, Journal of Marketing, vol. 74, no. 6, pp. 1-17. Lev, B and Daum, J 2004, ‘The Dominance of Intangible Assets: Consequences for Enterprise Management and Corporate Reporting’, Measuring Business Excellence, 8 (1), pp. 6-17. Rossolatos, G 2014, Brand Equity Planning with Structuralist Rhetorical Semiotics. Kassel, Hess, Kassel University Press. Currim, I, Mintz, O 2013, ‘What Drives Managerial Use of Marketing and Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?’Journal of Marketing, vol. 77, no. 2, pp. 17-40. Park, C. W., Macinnis, D. J., & Priester, J. R. 2008, Brand attachment: constructs, consequences and causes. Boston, Now. Skiera, B, Schulze, C, Wiesel T 2012, ‘Linking Customer and Financial Metrics to Shareholder Value: The Leverage Effect in Customer-Based Valuation’, Journal of Marketing, vol. 76, no. 2, pp. 17-32. Davis, J 2012, Measuring marketing 110+ key metrics every marketer needs. Chichester, Wiley. Burger, M 2012, Brand Equity and Brand Value Explanation and Measurement. Norderstedt, Books on Demand. Kapferer, J.-N 2012, The new strategic brand management advanced insights and strategic thinking. London, Kogan Page. Loken, B., Ahluwalia, R., & Houston, M. J 2010, Brands and brand management: contemporary research perspectives, New York, Routledge. Slottje, D. J 2009, Quantifying consumer preferences. Bingley, Emerald Athaide G, and Klink R 2012, ‘Creating brand personality with brand names’, Marketing Letters, vol. 23, no. 1, pp. 109-117 Read More