One of the most important strategic investments we need to make and measure is whether our brand is truly an asset that enables the business to generate superior returns over time. That is, we must have a way to measure Marketing’s contribution to the company’s brand equity.

For a brand to qualify as an “asset” in financial terms, it needs to be measured in terms of its ability to generate future cash flow. Traditional metrics such as brand awareness, familiarity and quality are no longer suitable as measures of brand equity.  While these measure the scale of a brand’s market presence and the likelihood that the brand will make it into a given customer’s consideration set, they don’t explain the final purchase decision and therefore do not provide a reliable measure of the brand’s ability to generate cash flow.

Create a brand equity measure based on customer behavior

Create a brand equity measure based on customer behavior

Various  research suggests there are two promising candidates for how to measure brand equity. Both measure equity in terms of “outcomes” and both are customer-centric in nature.  These measures are derived from customer behavior: 

1) the extent to which customers are prepared to recommend the brand to others and

2) the price premium they are prepared to pay

Use Customer Behavior to Create Your Measure for Brand Equity

The first approach can be developed using the Net Advocacy Score that was outlined in our book Measure What Matters. The metric and that of the work by Frederick Reichheld, the author of The Loyalty Effect (1996) and Loyalty Rules. The second approach is based on a methodology advocated by Professor Don Lehmann of Columbia University on brand equity measurement.

Both of these “outcome” approaches can accurately measure how much brand equity you enjoy. These approaches, however, do not provide insight into how to measure whether or not you are creating brand equity.

Harris Interactive created a solid brand equity metric. Three measures are used to calculate a brand equity score: Familiarity ( how well your brand is known), Quality (the market’s perception of the brand), Purchase Intent (the likelihood to purchase the brand). Once the score is calculated two other measures are taken into consideration: Brand Expectations (the user’s perception as to whether the brand lived up to its promise) and Distinctiveness (the brand’s status among its competitors).

Follow these three steps used to calculate the equity score:

  1. Indexing Quality, Familiarity and Purchase Intent on a scale of 1- 10
  2. Weighted Familiarity* is then multiplied by the mean of Quality and Purchase Intent
  3. The result is indexed on a scale of 1-100

(*Familiarity weights: 10 = 1; 7.75 = .9; 5.5 = .8) Since Familiarity was asked on a scale of 1-5, the answers are individually calibrated on a 1-10 scale for this equation.

Totally into brand equity? We recommend making time to read,   Kenichi Ohmae’s book, The Mind of the Strategist. This book outlines two important sources of brand equity: relevance and differentiation.

  1. Relevance measures your customers’ perception of your brand’s ability to provide what they need.
  2. Differentiation measures your customers’ perception of the uniqueness of your offer.

“Relevant Differentiation” is an important metric because it measures the success of marketing in terms of the extent to which two goals have been achieved: maximization of the perceived fit between your brand and your customer’s needs and maximization of the perceived differentiation of your brand versus the brand of your competitors.  A high relevant differentiation score provides insight into why a certain brand is perceived to be uniquely capable of meeting customer needs.

Not sure you can create a Relevant Differentiation metrics.

Looking for a Model to Measure Brand Value

It’s important to have a consistent method for measuring brand value.  The best way is to create a model.  Model development takes expertise.  Therefore it can be helpful to use an existing approach.  Perhaps one of these 8 models will work for you.

  1. A model by Research International expresses brand equity as a combination of the functional benefits delivered by the brand (performance) and the emotional benefits (affinity). Underlying each of these macro constructs is a further layer of analysis that expresses performance as a function of product and service attributes and affinity as a function of the brand identification (the closeness customers feel to the brand), approval (the status the brand enjoys among a wider social context of family, friends and colleagues) and authority (the reputation of the brand). This model incorporates a form of conjoint methodology  that establishes the price premium that a brand’s equity will support while still maintaining a “good value for money” rating from customers.
  2. The model developed by the Ipsos Group which focuses on establishing the emotional component of brand equity. This model situates a brand’s attitudinal equity (measured in terms of differentiation, relevance, popularity, quality and familiarity) in the context of the degree of customer involvement with the category in question. 
  3. David Aaker developed a brand evaluation technique.  His model focuses on five primary components: loyalty, awareness, quality, associations, and proprietary assets. In his approach 11 unweighted tracking measures are used to diagnose brand strength.
  4. Bill Moran derived an index of brand equity as the product of three factors: effective market share as a weighted average. It represents the sum of a brand’s  market shares in all segments in which it competes, weighted by each segment’s proportion of that brand’s total sales. Relative price as a ratio. This is the price of goods sold under a given brand, divided by the average price of comparable goods in the market. Durability which is a measure of customer retention or loyalty. It represents the percentage of a brand’s customers who will continue to buy goods under that brand in the following year.
  5. Young and Rubicam’s The Brand Asset Valuator involves surveying customers regarding their beliefs and attitudes on four major dimensions: perceived differentiation (does this product/service offer something new to me), relevance (is this product/service relevant to me), attractiveness (do I want this product/service) and credibility (do I hold this product/service in esteem and/or believe in it?) Y&R asserts that these four measures can be used to assess the strength of a brand and that stronger brands attain high values across ALL four measures.  The Young & Rubican  is a measure of brand equity independent of category context. This model rates brands on the same 48 attributes and four macro constructs of differentiation, relevance, esteem and knowledge (curiously similar to the Ipsos approach, which it pre-dates). The constructs of differentiation and relevance are then combined into a single metric of brand strength that, through Young & Rubicam’s collaboration with the financial consultancy Stern Stewart, has been shown to provide a powerful explanation of superior market value. The constructs of esteem and relevance are combined to form brand stature.
  6.  Interbrand’s approach is a proprietary measure designed to separate the intangible value from the tangible value of a product. The premise behind the model is to remove estimated earnings attributable to tangible assets from total earnings and then calculate the portion of the profits attributable to the intangible value. This portion is then combined with growth and discount rates to estimate the value of the brand.
  7. Kevin Lane, a Marketing professor at the Tuck School of Business who recently coauthored a book with Phil Kotler, has an approach that blends performance characteristics and imagery. Customers’ relationship to a brand can be plotted in terms of their altitude on the pyramid of engagement and their relative bias toward a rationally dominant or emotionally dominant relationship. The idea behind a pyramid of engagement is that it is possible to characterize the relationship that a customer has with a brand into one of five stages: presence, relevance, performance, advantage and bonding. “Presence” customers have only a basic awareness of the brand while “bonded” customers are intensely loyal, at least in their attitudes. The underlying premise is that the lifetime value of customers increases the higher up they are in the pyramid.
  8. AC Nielsen took these models one step further by trying to establish a definitive relationship between measures of attitudinal engagement/loyalty and observed behavior. Their approach measures brand equity in terms of a customer’s frequency of purchase and the price premium paid. Once favorable behavior is observed, the methodology seeks to analyze the attitudinal characteristics of those customers.

Link Your Marketing to Brand Equity

When you tie your customer Marketing initiatives to customer value you can link programs to brand equity. The idea behind this approach is that companies who increase the share of wallet of existing customers ultimately increase the overall value of their customer franchise.  When the value of the customer franchise goes up so does the company’s brand equity. If you subscribe to this logic, you can see that there is a strong relationship between customer equity and brand equity.

To improve brand equity, develop Marketing initiatives that are designed to increase the amount of business your company is doing with an existing customer. What kinds of programs might these be? Programs that focus on add-on sales of ancillary products, increased attach rates and sales of additional or new services to current customers are examples of programs with a customer growth outcome. Each of these types of initiatives focus on increasing your share of a customer’s wallet. As a result, the value of the customer increases.

You can use the formula above to create your brand equity score. You can also track a number of metrics to demonstrate the link between marketing programs and brand equity. Connect the dots from the following three measures:

  1. The results from the Marketing programs
  2. The change in the value of the customer franchise
  3. The change in brand equity

To determine marketing’s impact you will need to know the current value of your customer franchise and current value of your company’s brand equity.

Once you have several data points, you will be able to create a model that will help you understand the impact of every dollar of improved customer franchise value on the company’s brand equity. You can then relate this back to the investment of Marketing dollars in marketing programs designed to grow each customer’s share of wallet.

Customer-centricity is at the heart of all of these metrics.  All of these approaches incorporate customer behavior into the methodology. Recency and frequency of purchase, Recommendation and willingness to recommend these are all reflections of customer behavior.What is a brand if it doesn’t in some way have meaning to your customer.  

Create more customer-centric measures. Tap our metrics and model development expertise

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