Chapter 6:

Measuring Brand
Equity
 Contents
Need for measuring brand equity
Methods of measuring brand equity
Financial measures
Customer based measures
 Need for measuring brand
equity
Measuring brand equity helps us in the following ways:
If we know the value of the brand, it is easier to accurately set
royalty rates and transfer prices.
The value of a brand can help in boosting the share price by
generating positive public relations for the company.
It helps the management effectively measure the return on
investment (ROI).
The brand valuation process helps throw light on a number of
factors such as the performance of the brand relative to the
competition; it also helps identify the strengths and weaknesses
of the brand, and the various opportunities in the market, and
the opinion of the customers. This objective opinion gives a
useful insight into the performance of the brand.
 Measuring Brand Equity
Brand equity consists of two components
brand strength and brand valueand to
understand how customers evaluate band
equity, we need to have an understanding of
both these components
Brand value or the financial performance
Brand strength or customer based measures
Brand value
 Brand value

Cost-based valuation
Market-based valuation
Royalty relief method
Economic use method
 Cost based valuation
The value of a brand is calculated on the basis of
what it actually cost to create or what it might
theoretically cost to recreate the brand.
Thus, historical advertising and promotion
expenditures, campaign creation cost, trademark
registration cost, etc., are taken into account.
This, however, does not correctly reflect the current
value of the brand, as the cost of generating a brand
does not truly reflect the income-generating potential
of the brand.
 HISTORIC VALUATIONS
Investments pumped into a brand over a period of
time.

e.g. GM would look at the R&D they have invested and

amount spent on marketing and advertising.

When taken over a period of time this would
amount to a significant brand value

Contd.
8
 Benefit of simplicity as it is easy to measure

Fails to capture the essential nature of the

brand e.g. Blue Pepsi was launched and died

Many brands which were supported by huge

brand building efforts but sank without a trace
should be also valued high.
e.g. Pastonjee Ice Cream

Contd..
9
 Should the whole period be taken into consideration for
assessing brand value.

e.g. Lifebuoy came into India prior to 1902 while Coke is

half a century old.

10
 Market-based valuation
If information regarding market transactions involving
comparable brands is available, it is possible to
estimate one brands value by comparing it with
another brand.
This method is rarely used, as such data is scarce and
due to the fact that each brand is unique and it will be
difficult to compare brands.
 MARKET VALUATION

The best means to place a value on a product or service is

to look at the price a buyer is willing to pay i.e. the
Market Value

e.g. On E bay we can get a clear price of a 1968 Ford

Mustang i.e. what the buyer wants to pay
Contd.

12
One difficulty with this approach
Market values are influenced by expectations of
future earnings and not all of those future
earnings are related to the inner strength and
weakness of the brand.

13
 Royalty relief method
This method is based on the assumption that if the company
did not actually own the brand, but had to license it from a
third party, then what royalty it would pay for using the
brand name.
This is estimated by calculating the sales likely to occur in
the future and then applying an appropriate rate to arrive at
the income attributable to the brand royalties in the future
years. The notional brand loyalty is then discounted back to
a net present value that is the brand value.
This method is widely used in India, as it is favored by the
fiscal and tax authorities and the courts, because the
calculation is based on publicly available marketing and
financial information.
ROYALTY PAYMENTS VALUATIONS

It is assumed that Company does not own the

brand, but instead had to be license it from a third
party brand owner. The royalties on turnover would
be then payable to the third party for the privilege
of using the brand

e.g. How much would be the brand value of Nescafe,

or how much would Nestle pay for Nescafe.

15
Contd
 The valuation is made by forecasting the likely
value of earnings attributable to the brand, and
then calculating the royalties that would be
payable on this.

The limitation It does do little to illuminate

the source of value created by the brand.

16
 Economic use method
This method takes into account the economic value of
the brand tothe current owner in its current use.
This is the most widely used method and just like the
valuation of shares, it is a cash-flow valuation.
This is measured by calculating the increase in gross
profit due to selling a branded product versus selling
an unbranded product.
 PRICE PREMIUM VALUATION

A price premium is the difference in price between a

branded product and an unbranded equivalent product
It assumes that a price premium is the principal benefit
conferred by a brand

Volume X Price Premium = Brand Value

Contd
18
e.g. If (HUL) Wheel sells 1 crore of washing powder cartons, its average sells at
a rough price premium of 30%. There fore the brand in India is worth 30 lakhs.
Volume(1 crore) X Price Premium (30%) = Brand Value
(30Lakhs)
DRAWBACKS
Its is pointless if the associated cost of creating that premium are not met by
the price charged
e.g. Zodiac declares losses, now even at a premium they wll not be able to
cover their cost.

Contd

19
 There is no generic to judge against in the
market.
e.g. A brand which has monopoly

It is difficult to define what is generic

e.g. A person will buy a local brand for the name
of a national brand

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Brand strength
 Brand strength
Customer-based brand equity measures help in
overcoming the limitations of the financial
measures as they help managers evaluate
marketing strategies.
For example, promotional and positioning strategies
can be evaluated by customer-based measures and
this evaluation can help managers build sound
long-term health of their brand.
The two models that have been widely used to
measure brand equity are:
Brand asset valuator model
Aaker model
BRAND ASSET VALUATOR
The Brand Asset Valuator of the advertising agency Young &
Rubicam measures brand value by applying four broad factors:
1. Differentiation: differentiation is the ability for a brand to
stand apart from its competitors. A brand should be as
unique as possible. Brand health is built and maintained by
offering a set of differentiating promises to consumers and
delivering those promise to leverage value.

2. Relevance: Relevance is the actual and perceived

importance of the brand to a large consumer market
segment. This gauges the personal appropriateness of a
brand to consumers and is strongly tied to household
penetration (the percentage of household that purchase the
brand).
BRAND ASSET VALUATOR
1. Esteem: Esteem is the perceived quality and consumer
perceptions about the growing or declining popularity of a brand.
Does the brand keep its promises? the consumer response to a
marketers brand-building activity is driven by his perception of
two factors: quality and popularity, both of which vary by country
and culture.

2. Knowledge: Knowledge is the extent of the consumers

awareness of the brand and understanding of its identity. The
awareness levels about the brand and what it stands for shows
the intimacy that consumer share with the brand. True
knowledge of the brand comes through brand-building.

Differentiation and relevance taken together say a lot about its growth
potential (Brand Vitality), while esteem and knowledge determine the
current power of a brand (Brand stature)
BRAND ASSET VALUATOR
Differentiation
Brand
Vitality
Relevance
Brand
Value
Esteem
Brand
Statur
e Knowledge
Brand asset valuator model
Quadrant 2: Quadrant 3:
High
Niche / Unrealized Leadership

Decli
(Future performance)

ning
Brand Strength

D R E K D R E K D=differentiatio
Quadrant 1: Quadrant 4: R=relevance
Unfocused / New Eroding E=esteem
K=knowled
ge

Low
D R E K D R E K
High
Low

Brand Stature (Current performance)

 In-class exercise
Brand asset valuator - Examples
Quadrant 2: Quadrant 3:
High
Niche / Unrealized Leadership

Declinin
(Future performance)

g
Brand Strength

Quadrant 1: Quadrant 4:
Unfocused / New Eroding

Low

High
Low

Brand Stature (Current performance)

 Aaker Model

Market Behaviour Measures Loyalty Measures

Market share Price premium
Price and Distribution indices Satisfaction /loyalty

Measuring
Brand Perceived Quality/
Leadership Measures
Associations/ Equity Perceived Quality
Differentiation Measures
Leadership
Perceived Value
Brand Personality
Organizational Associations

Awareness Measures
Brand Awareness
 Quick Recapitulation
Need for measuring brand equity
Methods of measuring brand equity
Financial measures
Customer based measures
Questions?