BUSI 520
Chapter Eleven: Creating Brand Equity
How Does Branding Work?
Introduction
Perhaps the most distinctive skill of professional marketers is their ability to create,
maintain, enhance, and protect brands
Some of the hottest brands in recent years have emerged online
The American Marketing Association defines a brand as “a name, term, sign, symbol, or
design, or a combination of them, intended to identify the goods or services of one seller
or group of sellers and to differentiate them from those of competitors”
oA brand is thus a product or service whose dimensions differentiate it in some
way from other products or services designed to satisfy the same need
oDifferences may be:
Functional
Rational
Tangible
oMay also be:
Symbolic
Emotional
Intangible
Branding has been around for centuries as a means to distinguish the goods of one
produce from those of another
The Role of Brands
Brands identify the maker of a product and allow consumers to assign responsibility for
its performance to that maker or distributor
Brand’s Role for Consumers
oA brand is a promise between he firm and the consumer
In return for customer loyalty, the firm promises to reliably deliver a
predictably positive experience and set of desirable benefits with its
products and services
oA brand may be “predictably unpredictable” if that is what consumer expect, but
the key is that it fulfills or exceeds customer expectations in satisfying their needs
and wants
oConsumers may evaluate the identical product differently depending on how it is
branded
As consumers’ lives become more rushed and complicated, a brand’s
ability to simplify decision making and reduce risk becomes invaluable
oBrands can take on personal meaning to consumers and become an important part
of their identity
oBrand relationships, like any relationship, are not cast in stone, and marketers
must be sensitive to all the words and actions that might strengthen or weaken
consumer ties
Brands’ Role for Firms
oBrands perform valuable functions for firms:
They simplify product handling by helping organize inventory and
accounting records
Offers the firm legal protection for unique features or aspects of the
product
oThe brand name can be protected through registered trademarks, manufacturing
processes can be protected through patents, and packaging can be protected
through copyrights and proprietary designs
oA credible brand signals a certain level of quality so satisfied buyers can easily
choose the product again
oBrand loyalty provides predictability and security of demand for the firm, and it
creates barriers to entry that make if difficult for other firms to enter the market
Loyalty also can translate into customer willingness to pay a higher price
Often 20 percent to 25 percent more than competing brands
oBranding can be a powerful means to secure a competitive advantage
oBranding effects are pervasive
oTo firms, brands represent enormously valuable pieces of legal property that can
influence consumer behavior, be bought and sold, and provide their owner the
security of sustain future revenues
Wall Street believes strong brands result in better earnings and profit
performance for firms, which, in turn, create greater value for shareholders
The Scope of Branding
Ultimately, brand resides in the minds and hearts of consumers
oReflects the perceptions and idiosyncrasies of consumers
Branding is the process of endowing products and services with the power of a brand
oAll about creating differences between products
oMarketers need to teach consumers “who” the product is as well as well as what
the product does and why consumers should care
oBranding creates mental structures that help consumers organize their knowledge
about products and services in a way that clarifies their decision making and, in
the process, provides value to the firm
For branding strategies to be successful and brand value to be created, consumers must be
convinced there are meaningful differences among brands in the product or service
category
oBrand differences often relate to attributes or benefits of the product itself
Successful brands are seen as genuine, real, and authentic in what they sell as well as who
they are
oA successful brand makes itself an indispensable part of its customers’ lives
Marketers can apply branding virtually anywhere a consumer has a choice
oIt’s possible to brand:
A physical good
A service
A store
A person
A place
An organization
An idea
Defining Brand Equity
Introduction
Brand equity is added value endowed to products and services with consumers
oMy be reflected in the way consumers think, feel, and act with respect to the
brand, as well as the prices, market share, and profitability it commands
Customer-based brand equity is the differential effect brand knowledge has on
consumer response to the marketing of that brand
oThree key ingredients of customer-based brand equity:
Brand equity arises from differences in consumer response
Differences in response are a result of consumers’ brand knowledge, all
the thoughts, feelings, images, experiences, and beliefs associated with the
brand
Brand equity is reflected in perceptions, preferences, and behavior related
to all aspects of the marketing of a brand; stronger brands earn greater
revenue
In an abstract sense, brand equity provides marketers with a vital strategic bridge from
their past their future
Marketers must put greater emphasis on the quality of investments, not necessarily the
quantity
A brand promise is the marketer’s vision of what the brand must be and do for
customers
oViolating a brand promise can have severe consequences
Brand Equity Models
Brandasset Valuator (BAV)
oBAV compares the brand equity of thousands of brands across hundreds of
different categories
oFour key components:
Energized differentiation
Measures the degree to which a brand is seen as different from
others as well as its pricing power
Relevance
Measures the appropriateness and breadth of a brand’s appeal
Esteem
Measures perceptions of quality and loyalty, or how well the brand
is regarded and respected
Knowledge
Measures how aware and familiar consumers are with the brand
and the depth of their experience
oEnergized differentiation and relevance combine to determine brand strength
A leading indicator that predicts future growth value
oEsteem and knowledge together create brand stature
A “report card” of past performance and a lagging indicator of current
operating value
oBrand strength and brand stature combine to form the power grid
Depicts stages in the cycle of brand development in successive quadrants
oAs strength slips, they become mass market brands
oAccording to BAV analysis, consumers are concentrating their devotion and
purchasing power on an increasingly smaller portfolio of special brands—brands
with energized differentiation that deep evolving
These brands connect better with consumers—commanding greater usage
loyalty and pricing power and creating greater shareholder value
Brandz
oBrandDynamics employs a set of simple scores that summarize a brand’s equity
and are relatable directly to real world financial and business outcomes
oThree types of brand associations:
Meaningful
Different
Salient
oThe success of a brand along those three dimensions is reflected in three
important outcome measures:
Power
Prediction of the brand’s volume share
Premium
Brand’s ability to command a price premium relative to the
category average
Potential
Probability that a brand will grow value share
oAccording to the model, how well a brand is activated in the marketplace and the
competition that exists there will determine how strongly brand predisposition
ultimately translates into sales
Brand Resonance Model
oViews brand building as an ascending series of steps, from bottom to top:
Ensuring customers identify the brand and associate it with a specific
product class or need
Firmly establishing the brand meaning in the customers’’ minds by
strategically linking a host of tangible and intangible brand associations
Eliciting the proper customer responses in terms of brand-related
judgment and feelings
Converting customers’ brand responses to intense, active loyalty
oCreating significant brand equity requires reaching the top of the brand pyramid,
which occurs only if the right building blocks are put into place
Brand salience
How often and how easily customers think of the brand under
various purchase or consumption situations—the depth and breadth
of brand awareness
Brand performance
How well the product or service meets customers’ functional needs
Brand imagery
Describes the extrinsic properties of the product or service,
including the ways in which the brand attempts to meet customers’
psychological or social needs
Brand judgments
Focus on customers’ own personal opinions and evaluations
Brand feelings
Customers’ emotional responses and reactions with respect to the
brand
Brand resonance
The relationship customers have with the brand and the extent to
which they feel they’re “in sync” with it
oResonance is the intensity of customers’ psychological bond with the brand and
the level of activity it engenders
Building Brand Equity
Introduction
Marketers build brand equity by creating the right brand knowledge structures with the
right consumers
There are three main sets of brand equity drivers:
oThe initial choices for the brand elements or identities make up the brand
Brand names, URLs, logos, symbols, characters, spokespeople, slogans,
jingles, packages, and signage
oThe product and service and all accompanying marketing activities and
supporting marketing programs
oOther associations indirectly transferred to the brand by linking it to some other
entity
A person, place, or thing
Choosing Brand Elements
oBrand elements are devices, which can be trademarked, that identify and
differentiate the brand
oMarketers should choose rand elements to build as much brand equity as possible
The test is what consumers would think or feel about the product if the
brand element were all they knew
Brand Element Choice Criteria
oThere are six criteria for choosing brand elements (first three are brand building,
latter three are defensive and help leverage and preserve brand equity against
challenges):
Brand Building
Memorable
Meaningful
Likable
Defensive
Transferable
Adaptable
Protectable
Developing Brand Elements
oChoosing a name within inherent meaning may make it harder to later add a
different meaning or update the positioning
oThe likability of brand elements can increase awareness and associations
oOften, the less concrete brand benefits are, the more important that brand
elements capture intangible characteristics
oLike brand names, slogans are an extremely efficient means to build brand equity
The can function as useful “hooks” to help consumers grasp what the
brand is and what makes it special
Designing Holistic Marketing Activities
Customers come to know a brand through a range of contacts and touch points:
oPersonal observation and use
oWord of mouth
oInteractions with company personnel
oOnline or telephone experiences
oPayment transactions
A brand contract is any information-bearing experience, whether positive or negative, a
customer or prospect has with the brand, its product category, or its market
oThe company must put as much effort into managing these experiences as into
producing its ads
Integrated marketing is about mixing and matching marketing activities to maximize
their individual and collective effects
oMarketers need a variety of different marketing activities that consistently
reinforce the brand promise
oWe can evaluate integrated marketing activities in terms of the effectiveness and
efficiency with which they affect brand awareness and create, maintain, or
strengthen brand associations and image
Marketing programs should be put together so the whole is greater than the sum of its
parts
oMarketing activities should work singularly and in combination
Leveraging Secondary Associations
The final way to build brand equity is, in effect, to “borrow” it
oLinking the brand to other information in memory that conveys meaning to
consumers
Leveraging secondary associations can be an efficient and effective way to strengthen a
brand
oLinking a brand to someone or something else can be risky because anything bad
that happens to that other entity can also be linked to the brand
Internal Branding
Marketers must adopt an internal perspective to be sure employees and marketing
partners appreciate and understand basic branding notation and how they can help, or
hurt, brand equity
Internal branding consists of activities and processes that help inform and inspire
employees about brands
oHolistic marketers must got even further and train and encourage distributors and
dealers to serve their customers well
Brand bonding occurs when customers experience the company as delivering on its brand
promise
oThe brand promise will not be delivered unless everyone in the company lives the
brand
When employees care about and believe in the brand, they’re motivated to work harder
and feel greater loyalty to the firm
oImportant principles for internal branding:
Choose the right moment
Link internal and external marketing
Bring the brand alive for employees
Keep it simple
Measuring Brand Equity
Introduction
Indirect approach assesses potential sources of brand equity by identifying and tracking
consumer brand knowledge structures
Direct approach assess the actual impact of brand knowledge on consumer response to
different aspects of the marketing
For brand equity to perform a useful strategic function and guide marketing decisions,
marketers need to fully understand:
oThe sources of brand equity and how they affect outcomes of interest (brand
audits)
oHow these sources and outcomes change over time (brand tracking)
A brand audit is a focused series of procedures to assess the health of the brand, uncover
its sources of brand equity, and suggest ways to improve and leverage its equity
oMarketers should conduct brand audits when setting up marketing plans and when
considering shifts in strategic direction
oA good brand audit provides keen insights into consumers, brands, and the
relationship between the two
Brand-tracking studies use the brand audit as input to collect quantitative data from
consumers over time, providing consistent, baseline information about how brands and
marketing programs are performing
oTracking studies help us understand where, how much, and in what ways brand
value is being created to facilitate day-to-day decision making
Marketers should distinguish brand equity from brand valuation, which is the job of
estimating the total financial value of the brand
U.S. companies do not list brand equity on their balance sheets, in part because of
differences in opinion about what constitutes a good estimate
oCompanies do give it a value in countries such as the United Kingdom, Hong
Kong, and Australia
Managing Brand Equity
Brand Reinforcement
As a company’s major enduring asset, a brand needs to be carefully managed so its value
does not depreciate
Marketers can reinforce brand equity by consistently conveying the brand’s meaning in
terms of:
oWhat products it represents, what core benefits it supplies, and what needs it
satisfies
oHow the brand makes products superior and which strong, favorable, and unique
brand associations should exist in the consumers’ mind
An important part of reinforcing brands is providing consistent marketing support
oWhen change is necessary, marketers should vigorously preserve and defend
sources of brand equity
Marketers must recognize the trade-offs between activities that fortify the brand and
reinforce its meaning such as a well-received product improvement or a creatively
designed ad campaign, and those that leverage or borrow from existing brand equity to
reap some financial benefit, such as a short-term promotional discount
oAt some point, failure to reinforce the brand will diminish brand awareness and
weaken brand image
Brand Revitalization
Any new development in the marketing environment can affect a brand’s fortunes
Often, the first thing to do in revitalizing a brand is understand what the sources of brand
equity were to begin with
oThen decide whether to retain the same positioning or create a new one and, if so,
which new one
Sometimes the actual marketing program is the source of the problem because it fails to
deliver on the brand promise
oThen a “back to basics” strategy may make sense
In other cases, the old positioning is just no longer viable and a reinvention strategy is
necessary
There is a continuum of revitalization strategies, with pure “back to basics” at one end,
pure “reinvention” at the other, and many combinations in between
oThe challenge is often to change enough to attract some new customers but not
enough to alienate old customers
oRegardless of the strategy, brand revitalization of almost any kind starts with the
product
Devising a Branding Strategy
Introduction
A firm’s branding strategy, often called its brand architecture, reflects the number and
nature of both common and distinctive brand elements
A firm has three main choices on deciding how to brand new products:
oIt can develop new brand elements for the new product
oIt can apply some of its existing brand elements
oIt can use a combination of new and existing brand elements
When a firm uses an established brand to introduce a new product, the product is called a
brand extension
When marketers combine a new brand with an existing brand, the brand extension can
also be called a sub-brand
The existing brand that gives birth to a brand extension or sub-brand is the parent brand
oIf the parent brand is already associated with multiple products through brand
extension, it can also be called a master brand or family brand
Brand extensions fall into two general categories
oIn a line extension, the parent brand covers a new product within a product
category it currently serves
oIn a category extension, marketers use the parent brand to enter a different
product category
A brand line consists of all products—original as well as line and category extensions—
sold under a particular brand
A brand mix is the set of all brand lines that a particular seller makes (brand assortment)
Brand variants are specific brand lines supplied to specific retailers or distribution
channels
oResult from the pressure retailers put on manufacturers to provide distinctive
offerings
A licensed product is one whose brand name has been licensed to other manufacturers
that actually make the product
oCorporations have seized on licensing to push their company names and images
across a wide range of products
Branding Decisions
Alternative Branding Strategies
oAssuming a firm decides to brand its products or services, it must choose which
brand names to use (three general strategies are popular):
Individual or separate family brand names
Corporate umbrella or company brand name
Sub-brand name
House of Brands Versus a Branded House
o“House of Brands” strategy
The use of individual or separate family brand names
o“Branded House” strategy
The use of an umbrella corporate or company brand name
oThese two strategies represent two ends of an continuum
oWith a branded house strategy, it is often useful to have a well-defined flagship
product
A flagship product is one that best represents or embodies the brand as a
whole to consumers
It often is the first product by which the brand gained fame, a
widely accepted best-seller, or a highly admired or award-winning
product
Play a key role in the brand portfolio in that marketing them can
have short-term benefits as well as long-term benefits
oTwo key components of virtually any branding strategy are brand portfolios and
brand extensions
Brand Portfolios
A brand can be stretched only so far
oMarketers often need multiple brand sin order to purse multiple segments
oReasons for introducing multiple brands in a category include:
Increasing shelf presence and retailer dependence in the store
Attracting consumer seeking variety who may otherwise have switched to
another brand
Increasing internal competition within the firm
Yielding economies of scale in advertising, sales, merchandising, and
physical distribution
oThe brand portfolio is the set of all brands and brand lines a particular firm
offers for sale in a particular category or market segment
Building a good brand portfolio requires careful thinking and creative
execution
The hallmark of an optimal brand portfolio is the ability of each brand in it to maximize
equity in combination with all the other brands in it
oMarketers generally need to trade off market coverage with costs and profitability
The basic principle in designing a brand portfolio is to maximize market coverage so no
potential customers are being ignored, but minimize brand overlap so brands are not
competing for customer approval
oEach brand should be clearly differentiated and appealing to a sizable enough
marketing segment to justify its marketing and production costs
Marketers carefully monitor brand portfolios over time to identify weak brands and kill
unprofitable ones
oBrand lines with poorly differentiated brands are likely to be characterized by
much cannibalization and require pruning
Flankers
oPositioned with respect to competitors’ brands so that more important (and more
profitable) flagship brands can retain their desired positioning
Cash Cows
oSome brands may be kept around despite dwindling sales because they manage to
maintain their profitability with virtually no marketing support
Low-End Entry Level
oThe role of a relatively low-priced brand in the portfolio often may be to attract
customers to the brand franchise
High-End Prestige
oThe role of a relatively high-priced brand often is to add prestige and credibility to
the entire portfolio
Brand Extension
Most new products are brand extensions, typically 80 percent to 90 percent in any one
year
Advantages of Brand Extensions
oImproved Odds of New-Product Success
Consumers form expectations about a new product based on what they
know about the parent brand and the extent to which they feel this
information is relevant
By setting up positive expectation, extensions reduce risks
An introductory campaign for an extension doesn’t need to create
awareness of both the brand and the new product; it can concentrate on the
new product itself
Extensions can reduce launch costs
Extensions can avoid the difficulty, and expense, or coming up with a new
name and allow for packaging and labeling efficiencies
With a portfolio of brand variants within a product category, consumers
who want to change can switch to a different product type without having
to leave the brand family
oPositive Feedback Effects
Brand extensions can provide feedback benefits
Can help to clarify the meaning of a brand and its core values or improve
consumer loyalty to the company behind the extension
Brand extensions can renew interest and liking for the brand and benefit
the parent brand by expanding market coverage
A successful category extension may not only reinforce the parent brand
and open up a new market but also facilitate even more new category
extensions
Disadvantages of Brand Extensions
oLine extensions may cause the brand name to be less strongly identified with any
one product
oBrand dilution occurs when consumers no longer associate a brand with a
specific or highly similar set of products and start thinking less of the brand
oIf a firm launches extensions consumers deem inappropriate, they may question
the integrity of the brand or become confused or even frustrated
Retailers reject many new products and brands because they don’t have
the shelf or display space for them
The firm itself may become overwhelmed
oThe worst possible scenario is for an extension not only to fail, but to harm the
parent brand int eh process
“Marketing failures,” in which too few consumers are attracted to a brand,
are typically much less damaging than “product failures,” in which the
brand fundamentally fails to live up to its promise
oEven if sales of a brand extension are high and meet targets, the revenue may be
coming from consumers switching to the extension from existing parent-brand
offerings—in effect cannibalizing the parent brand
Intrabrand shifts in sales may not necessarily be undesirable if they’re a
form of preemptive cannibalization
Consumers who switched to a line extension might otherwise have
switched to a competing brand instead
oThe firm forgoes the chance to create a new brand with its own unique image and
equity
Successful Characteristics
oMarketers must judge each potential brand extension by how effectively it
leverages existing brand equity from the parent brand as well as how effectively,
in turn, it contributes to the parent brand’s equity
oMarketers should ask a number of questions in judging the potential success of an
extension:
Does the parent brand have strong equity?
Is there a strong basis of fit?
Will the extension have the optimal points-of-parity and points-of-
difference?
How can marketing programs enhance extension equity?
What implications will the extension have for parent brand equity and
profitability?
How should feedback effects best be managed?
oOne major mistake in evaluating extension opportunities is failing to take all
consumers’ brand knowledge structures into account and focusing instead on one
or a few brand associations as a potential basis of fit
Customer Equity
Introduction
The aim of customer relationship management (CRM) is to produce high customer equity
oOne definition is “the sum of lifetime values of all customers”
Customer Equity
oAcquisition depends on the number of prospects, the acquisition probability of a
prospect, and acquisition spending per prospect
oRetention is influenced by the retention rate and retention spending level
oAdd-on spending is a function of the efficiency of add-on selling, the number of
add-on selling offers given to existing customers, and the response rate to new
offers
Brand equity and customer equity share common themes
oBoth emphasize the importance of customer loyalty and the notion that we create
value by having as many customers as possible pay as high a price as possible
Brand equity and customer equity emphasize different things
oCustomer equity focuses on bottom-line financial value
oCustomer equity approach can overlook the “option value” of brands and their
potential to affect future revenues and costs
oBrand equity tends to emphasize strategic issues in managing brands and creating
leveraging brand awareness and image with customers
oBrand equity approaches could benefit from sharper segmentation schemes
afforded by customer-level analyses and more consideration of how to develop
personalized, customized marketing programs—whether for individuals or for
organization such as retailers
Brands serve as “bait” that retailers and other channel intermediaries use to attract
customers from whom they extract value
Customers are the tangible profit engine for brands to monetize their brand value
