MEASURING OUTCOME OF

BRAND EQUITY
CHAPTER 11
MEASURING BRAND EQUITY

• Multi-dimensional concept
• Many different measures required
• The ultimate value of a brand depends on the underlying components
of brand knowledge and sources of brand equity
COMPARATIVE METHODS

• Brand-based comparative approaches

• Marketing-based comparative approaches
• Conjoint analysis
BRAND-BASED APPROACHES

• The marketing element under consideration is fixed.

• Consumer response is examined based on changes in brand
identification.
• Application example: Blind testing
• Advantage: Isolates the value of the brand
• Disadvantage: The totality of what is learned depends on how many
applications are examined.
MARKETING-BASED APPROACHES

• The brand is held fixed and consumer response is examined based

on changes in marketing programs.
• Applications: Explore price premiums’ effect on switching, consumer
evaluations of marketing activities, brand extensions, etc.
• Advantage: Ease of implementation
• Disadvantage: Difficult to determine whether consumer responses are
caused by brand knowledge or generic product knowledge
CONJOINT ANALYSIS

• A survey-based multivariate technique that enables marketers to profile the consumer

decision process with respect to products and brands
• Helps researchers determine the trade-offs consumers make between brand attributes
• Applications: Assess advertising effectiveness and brand value; analyze brand/price
trade-off
• Advantage: Allows for different brands or different aspects of the product to be analyzed
simultaneously
• Disadvantage: May violate consumers’ expectations based on what they already know
about brands
HOLISTIC METHODS

• Attempt to place an overall value on the brand in either abstract utility

terms or concrete financial terms
• Net out various considerations to determine the unique contribution of
the brand
Holistic methods:
• Residual approaches
• Valuation approaches
RESIDUAL APPROACHES

• Examine the value of the brand by subtracting consumers’ preferences

based on physical product attributes alone from their overall brand
preferences
• Advantage: Useful benchmark for interpreting brand equity, especially from a
financially oriented perspective
• Disadvantage: Static view. Limited diagnostic value for strategic decision
making
VALUATION APPROACHES

• Attempt to place a financial value on brand equity for accounting purposes

Useful in cases of mergers and acquisitions, brand licensing, fund raising,
and brand management decisions
• Valuation approaches:
• Accounting background
• Historical perspectives
• General approaches
• Interbrand’s brand valuation methodology
ACCOUNTING BACKGROUND

• Intangible assets are typically lumped under the heading of goodwill

and include things such as patents, trademarks, and licensing
agreements, as well as ―softer‖ considerations such as the skill of the
management and customer [Link] an acquisition, the goodwill
item often includes a premium paid to gain control, which, in certain
instances, may even exceed the value of tangible and intangible
assets.
HISTORICAL PERSPECTIVES

• In Australia Rupert Murdoch’s News Corporation included a valuation

of some of its magazines on its balance sheets in 1984.
• British firms used brand values primarily to boost their balance sheets.
• In the United States, generally accepted accounting principles
(blanket amortization principles) mean that placing a brand on the
balance sheet would require amortization of that asset for up to 40
years. Such a charge would severely hamper firm profitability; as a
result, firms avoid such accounting maneuvers.
GENERAL APPROACHES

• In determining the value of a brand in an acquisition or merger, firms can

choose from three main approaches:
• Cost approach: Brand equity is the amount of money that would be required
to reproduce or replace the brand
• Market approach: The present value of the future economic benefits to be
derived by the owner of the asset
• Income approach: The discounted future cash flow from the future earnings
stream for the brand
INTERBRAND’S BRAND VALUATION

• Assumes that brand value is the present worth of the benefits of future ownership
• Market segmentation – product/service, distribution channels, consumption patterns,
geography, existing and new customers. Value the brand in each segment.
• • Financial role – identify and forecast the earnings from intangibles (branded
revenues less operating cost, applicable taxes and a charge for the capital
employed
• • Demand – Asses the role the brand plays in driving demand for products and
services in the market in which it operates
• Competitive bench marking – This method relies on extensive
competitive benchmarking and a structured evaluation of the brands
market, stability, leadership position, growth rate etc.
• Brand value calculation • Calculate the brand value as the NPV of the
forecast brand earnings, basically calculate the future income in
today’s terms
CRITERIA FOR INCLUSION IN BEST GLOBAL BRAND

• To be included in best global brands , a brand must be truly global , having

successfully transcended geographic and cultural boundaries . It will have expanded
across the established economic center of the world and entered the major market .
In measurable terms , this requires that :
• At least 30 present of revenue must come from outside of the brnds home region
• The brand must have a significant presence in Asia , Europe and North America as
well as broad geographic coverage in emerging markets
• There must be sufficient publicly available data on the brands financial performance
.
• Economic profit must be expect to be positive over the longer term
• Delivering a return above the brand cost of capital
• The brand must have a public profile and awareness across the major economics of
the world .
• These requirements—that a brand be global, profitable, visible, and
relatively transparent with financial results—explains the exclusion of some
well-known brands that might otherwise be expected to appear in the
ranking.
•
APPLICATIONS FOR BRAND VALUATION

• Interbrand’s brand valuation methodology seeks to provide a rich and insightful

analysis of your brand, providing a clear picture of how your brand is contributing to
business growth today, together with a road map of activities to ensure that it is
delivering even further growth tomorrow.
• Brand activation roadmap
• Valuation analysis is also used to support the business case for Iconic Moves,
combining market research with financial modelling to quantify potential impact,
investment and ROI.
•
BRAND ACTIVATION ROADMAP

• Valuation analysis is also used to support the business case for Iconic
Moves, combining market research with financial modelling to quantify
potential impact, investment and ROI.
•
METHODOLOGY

• Having pioneered brand valuation in 1988, we have a deep

understanding of the impact a strong brand has on key stakeholder
groups that influence the growth your business, namely (current and
prospective) customers, employees, and investors. Strong brands
influence customer choice and create loyalty; attract, retain, and
motivate talent; and lower the cost of financing. Our brand valuation
methodology has been specifically designed to take all of these
factors into account.
• Interbrand was the first company to have its methodology certified as
compliant with the requirements of ISO 10668 (requirements for
monetary brand valuation) and played a key role in the development
of the standard itself.
• There are three key components to all of our valuations: an analysis of
the financial performance of the branded products or services, of the
role the brand plays in purchase decisions, and of the brand’s
competitive strength.
• 1. Financial Analysis
• This measures the overall financial return to an organization’s investors, or
its economic profit. Economic profit is the after-tax operating profit of the
brand, minus a charge for the capital used to generate the brand’s revenue
and margins.
• 2. Role of Brand
• This measures the portion of the purchase decision attributable to the brand
as opposed to other factors (for example, purchase drivers such as price,
convenience, or product features). The Role of Brand Index (RBI) quantifies
this as a percentage. RBI determinations for Best Global Brands derive,
depending on the brand, from one of three methods: commissioned market
research, benchmarking against Role of Brand scores from client projects
with brands in the same industry, or expert panel assessment.
• 3. Brand Strength
• Brand Strength measures the ability of the brand to create loyalty and,
therefore, sustainable demand and profit into the future. Brand Strength
analysis is based on an evaluation across 10 factors that Interbrand believes
constitute a strong brand. Performance in these areas is judged relative to
other brands in the industry and relative to other world-class brands. The
Brand Strength analysis delivers an insightful snapshot of the strengths and
weaknesses of the brand and is used to generate a road map of activities to
grow the brand’s strength and value into the future.
• As a leader in brand measurement and valuation, Interbrand periodically
reviews its frameworks and methodologies to ensure they continue to reflect
how valuable brands are built and managed.
CONJOINT ANALYSIS

• Conjoint analysis is an advanced market research technique that gets

under the skin of how people make decisions and what they really
value in products and services. Also known as Discrete Choice
Estimation, or stated preference research, it involves presenting
people with choices and then analysing the drivers for those choices.
For an example, check out our interactive conjoint analysis
demonstration or our simple conjoint in Excel to see how conjoint
analysis works.
• Outputs from conjoint analysis are measurements of customer
value called utility or part-worths. Utility scores can be combined to
build build market models and forecasts to answer questions such as
"Which should we do, build in more features, or bring our prices
down?" or "Which of these changes will hurt our competitors most?" to
allow the business to better optimise product and service design to
customer needs.
Every customer making choices between products
and services is faced with trade-offs (see our conjoint
demonstration). Is high quality more important than a
low price and quick delivery for instance? Or is good
service more important than design and looks?
For businesses, understanding precisely how
customers value different elements of a product or
service means product development can be
optimised to give the best balance of features or
quality for the prices the customer is willing to pay.
Across a market as a whole, this can be used to
define the best product range for different segments
or market needs, balancing features, value and price
across a product set in order to maximise customer
value and market returns

Conjoint analysis aims to find the optimum

positioning between low-price-low-quality and high-price-
high-quality in terms of price and features by quantifying
the trade-offs and compromises customers take in
decision making.
AN ESTABLISHED AND POWERFUL MEANS OF
ESTIMATING CUSTOMER VALUE

• With on-going development and improvements since it was invented in the

1970s conjoint analysis has become a core tool for product planning and
pricing research. By understanding precisely how people make decisions
and what they value in your products and services, you can work out the
sweetspot or optimum level of features and services that balance value to
the customer against cost to the company and forecast potential demand or
market share in a competitive market situation.
• It is, however, a sophisticated technique and expertise is required to ensure
the design and outputs will achieve the business objectives.
CONJOINT PRINCIPLES - ATTRIBUTES AND
LEVELS

• The principles behind conjoint analysis start with breaking a product or service down into
it's constituent parts (called attributes and levels - see the section on how to design a
conjoint analysis study) then to test combinations of these parts in order to find out what
customers prefer. By designing the study appropriately using carefully chosen statistical
designs (also known as experimental designs) it is then possible to use statistical
analysis to work out the value, or utility score, of each part of the product or service in
terms of its contribution to the customer's decision.
• For example a computer may be described in terms of attributes such as processor type,
hard disk size and amount of memory. Each of these attributes is broken down
into levels - for instance levels of the attribute for memory size might be 1GB, 2GB, 3GB
and 4GB.
FROM ATTRIBUTES AND LEVELS TO PRODUCT
PROFILES AND CHOICE TASKS

• These attributes and levels can be used to define different products by choosing
different levels for different products so the first stage in conjoint analysis is to create a
set of product profiles (possible combinations of attributes and levels) to produce a set of
options from which customers or respondents are then asked to choose - know as
choice sets or choice tasks.
• Obviously, the number of potential profiles increases rapidly for every new attribute
added as the number of possible combinations increases, so there are statistical
techniques and design methods to simplify both the number of profiles to be tested and
the way in which preferences are tested so that the maximum amount of choice
information can be collected from the smallest set of choice tasks.
•
CHOOSING THE RIGHT TYPE OR FLAVOUR OF
CONJOINT ANALYSIS

• The precise approach to creating 'choice tasks' depends on the which

type or flavours of conjoint analysis is most appropriate to use. The
most common approach is choice-based conjoint (CBC), but other
flavours exist
• Choice-based Conjoint (CBC) Analysis:
• This type of conjoint analysis is the most popular because it asks
consumers to imitate the purchasing behavior in the real market: which
products they would choose, given certain criteria on price and features.
• Adaptive Conjoint Analysis (ACA):
• This type of conjoint analysis is used more often in scenarios where
the number of attributes/features exceeds what can be done in a choice
based scenario. ACA is great for product design and segmentation
research, but not for determining the ideal price.

• Conjoint analysis might not be the right option. Other approaches

such as MaxDiff, Simalto or hierarchy of needs studies, each have
different ways to manage the balance between the number of attributes
that can be included and the relative complexity of the choices that
need to be shown in order to get good quality data.
STATISTICAL DESIGN AND ANALYSIS

• A conjoint analysis study relies on appropriate statistical design in order to

be able to estimate the utility models. Once all the choice tasks have been
completed, analysis involves modelling what drove customers choices or
preferences from the product profiles offered.
• The statistical output then quantifies both what is driving the preference from
the attributes and levels shown - known as utilities or part-worths and
importance scores. These utilities give an measurement of value for each
level, of each attribute, in terms of its contribution to the choices that were
made and so shows the relative value of one level against another.
MARKET MODELS - FORECASTING MARKET
POTENTIAL

• The statistical output gives a detailed quantified picture of how customers make decisions, and a
set of data that can be used to build market models which can predict preferences or estimate
market share in new market conditions in order to forecast the impact of product or service
changes on the market. For businesses this allows them to see where and how they can gain the
greatest improvements over their competitors, where they can add value for the customer, how
price impacts on decisions and so forecast demand and revenue. Not surprisingly conjoint analysis
has become a key tool in building and developing market strategies.
• By combining these market models with internal project costings, companies can evaluate
decisions in terms of Return on Investment (ROI) before going to market. For example determining
what resources to put into New Product Development and in what areas. Choice-based conjoint or
discrete choice modelling also form the basis of much pricing research and powerful needs-based
segmentation.
ALTERNATIVES TO CONJOINT - FROM MAXDIFF
TO CONFIGURATORS AND E-COMMERCE MOCK-
UPS

• Conjoint analysis is relatively complex as it requires an understanding of

how to use and create attributes and levels, what flavour to use, how to
make the product profiles, what choice task to offer and then how to analyse
the data and build the market model. It is possible to use off-the-shelf
software which will provide guidance and help, but it can be also make it
easy to make mistakes or generate poor designs. And conjoint analysis
doesn't always fit, particularly if there are many levels, or a deeper more
emotional drive to decision making. So, depending on the product or service,
it is possible that off-the-shelf approaches aren't always suitable and other
methods are needed.
• Fortunately there are a number of related approaches used
as alternatives to conjoint analysis, such as MaxDiff, configurators or
Simalto (also known as trade-off grids). MaxDiff is more about
measuring the value from a list of items, than generating complete
products, but it uses many of the same features and analytics as
conjoint. Simalto, like conjoint analysis, breaks products down into
attributes and levels, but then presents them as a grid of options to
respondents.
• range of other research techniques including menu building (building
a configured product from a range of selected options), and search
and filter studies in the form of e-commerce style mock-ups where
respondents hunt for their most preferred products can also be used
in conjunction with or as alternatives to conjoint analysis.
• Thank you