• Brand Equity

• Brand Equity

Brands vary in the amount of power and value they have in the marketplace. Some brands are largely unknown to most buyers. Other brands have a high

degree of consumer brand awareness. Still others enjoy brand preference ­ buyers select them over the others. Finally, some brands command a high degree

of brand loyalty. A top executive at II.J. Heinz proposes this test of brand loyalty: 'My aeid test ... is whether a [consumer], intending to buy Heinz Ketchup in a store but finding it out of stock, will walk out of the store to buy it elsewhere or switch to an alternative product.'

brand equity

A powerful brand has high brand equity. Brands have higher brand equity to The value of a brand,

the extent that they have higher brand loyalty, name awareness, perceived based on the extent to

quality, strong brand associations and other assets such as patents, trademarks •Tishich it has high brand

and channel relationships. 11 A brand with strong brand equity is a valuable asset. loyalty, name

In fact, it can even be bought or sold for a price. Many companies base their awareness, perceived

growth strategies on acquiring and building rich brand portfolio!}. For example, quality, strong brand

Grand Metropolitan acquired various Pillsbury brands, including Green Giant associations, and other

assets such as patents, vegetables. Haagen­Dazs ice cream and Burger King restaurants. Switzerland's trademarks and channel

Nestle" bought Rowntree (UK), Carnation (US), Stouffcr (US), Buitoni­Perugina relationships.

(Italy) and Perrier (France), making it the world's largest food company control­ ling many desirable 'brands'.

Measuring the actual equity of a brand name is difficult. 12 Because it is so hard to measure, companies usually do not list brand equity on their balance sheets. Still, they pay handsomely for it. For example, Nestle paid £2.5 billion to buy Rowntree, six times its reported asset value. And when Grand Metropolitan

bought Ileublein, it added 1 s ?800 million to its assets to reflect the value of Smirnoff

Individual Produce Dcciaions 573

Figure 13.3

Major branding decisions

and other names. According co one estimate, the brand equity of Marlboro is <S'31 billion, Coca­Cola g24 billion and Kodak $13 billion. 13

The world's top brands include such superpowers as McDonald's, Coca­Cola, Campbell, Disney, Kodak, Sony and Mercedes­Ben/ (see Marketing Highlight 13.2). High brand equity provides a company with many competitive advantages. Because a powerful brand enjoys a high level of consumer brand awareness and loyalty, the company will incur lower marketing costs relative to revenues.

Because consumers expect stores to carry the brand, the company has more leverage in bargaining with retailers. And because the brand name carries high credibility, the company can more easily launch brand extensions. Above all, a powerful brand offers the company some defence against fierce price competi­

tion. Marketers need to manage their brands carefully in order to preserve brand equity. They must develop strategies that effectively maintain or improve brand awareness, perceived brand quality and usefulness, and positive brand associa­ tions over time. This requires continuous R & D investment to provide a constant flow of improved and innovative products to satisfy customers' changing needs, skilful advertising and excellent trade and consumer service. Some companies, such as Colgate­Palmolive and Canada Dry, appoint 'brand equity managers' to guard their brands' images, associations and quality. They work to prevent brand managers from overpromoting brands in order to produce short­term profits at

the expense of long­term brand equity. Some analysts sec brands as the most enduring asset of a company, outlasting the company's specific products and facilities. Yet, behind every powerful brand stands a set of loyal customers. Therefore, the basic asset underlying brand equity is customer equity. This suggests that marketing strategy should focus on extending loyal customer lifetime ­value, with brand management serving as an essential marketing tool.

Branding poses challenging decisions to the marketer. Figure 13.3 shows the key branding decisions. We will examine each of these in turn.