Saturday, December 13, 2014

Four Ways To Measure Brand Equity

Brand Equity is defined as:

"Brand equity is a phrase used in the marketing industry which describes the value of having a well-known brand name..." by Wikipedia.

"The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent." by Investopedia.

As someone who specializes in marketing, I still feel these definitions are highly conceptual, perceptual, and perhaps even theoretical. The general challenge most marketers have in their work is the translation of what we do best (the conceptual) into what the number crunchers want (the measurable).

When we think of the word "equity," must of us probably think about real estate. This is actually quite an accurate perspective. Much as in buying property, intrinsic value is not innate to any particular plot of land - the same goes for company brands. The value is what has been done with the land, what is being done, and what can be done -- it is the utility of real estate which makes it valuable. That is why we always hear: "Location. Location. Location!" If the location is meaningful, then the location is valuable.

Still, I prose: How do you MEASURE it? "The Market" isn't exactly selling brands the way it is selling houses, plots of land, etc.

Therefore, it is with great pleasure that I introduce Four Ways To Measure Brand Equity.

Four Ways To Measure Brand Equity

1. Brand Separation.
Brand separation is the difference in asset exchange one brand needs to subsidize to a consumer to change brands for a single purchase.

"How much of a discount do I need to give you to buy Dunkin' Donuts instead of Starbucks coffee?"

The intriguing thing about brand separation is that it is short term. The average person is more than willing to swap out one brand for another if the it is temporary, and, if it's done at a discount... or even free! Can't say "no" to free, right? Brand separation is the litmus test in seeing how your brand equity compares to a competitor's. Surveying this numerical disparity can be quite enlightening.


2. Brand Conversion.
Brand conversion is the difference in asset exchange one brand needs to subsidize to a consumer for the product loyalty of the competing brand. 

"How much must I pay you for you to switch from an Android phone to an iPhone?"

What I find interesting about brand conversion is the essential difference between this and brand separation; permanence. When people need to commit to something for the long term, things get serious. In fact, things may get so serious that a discount may not be enough to drive someone to convert to a different brand. You may need to end up paying them for them to use your product and brand. What can be seen in brand separation is likened to the cost per unit of market entry any particular product's life cycle. The numerical survey for brand conversion can be interpreted as market repositioning. How much must your firm pay out to elevate your brand above the competition?


3. Lead Time Loyalty.
Lead time loyalty is a two dimensional construct; the length of time for which a customer is willing to wait for their favorite brand before switching to a less favorable competitor, and, the asset subsidy a firm must supply the consumer to switch to a competitor for a single purchase.

"Would you buy Dunkin' Donuts if I could get you your coffee faster? How much of a discount do I need to give you for you to buy Dunkin' Donuts in that time frame?"

Waiting sucks. How many times have you gone into a store to buy something, saw the line was long, gave up, and left? I know I've done that plenty of times. Now as we expand this on thought, lead time is really based on the "time is money" principle. If you need to get into an emergency room and the wait is 4 hours, but, the urgent care down the street has only a 30 minute line, would you drive to that urgent care? More importantly, if you were paying cash, the emergency room may cost you several hundred dollars but the urgent care visit would only be maybe one to two hundred. Does that further tip the scales towards going to urgent care instead?

Lead time loyalty really breaks things down to the heart of the matter. Why should I wait for you? What value does your brand and/or your products bring that makes it so worth it to wait? This parametric measure gives you four basic quadrants of where your brand is either weak or strong when compared to competitors. Where you are strong, that is where you have much brand equity. Where you are weak and quickly abandoned, this is where your brand (or product) doesn't really bring any value to the consumer. Because measuring lead time loyalty is two dimensional, there exists four possibilities to where your brand may currently exist:

  1. Valued & high end
  2. Unvalued & high end
  3. Value & low end
  4. Unvalued & low end

It is your job to optimize that space you occupy -- or better yet, to move your brand's trajectory to a more favorable destination.


4. Lifetime Loyalty.
Lifetime loyalty is the asset exchange subsidy which a competing firm must give to a consumer for the consumer to switch from a favorite brand to the competitor for the lifetime of brand use.

"How much must I pay you for you to switch from Android to Apple, FOREVER?"

Similar to brand conversion, lifetime loyalty is all about the long haul. Can you stay with me forever? Will you stray, just for convenience, perhaps? Scandalous! But really, lifetime loyalty measures the long term growth potential and market penetration costs to ousting a competitor's brand and replacing it with yours. The difference between this and brand conversion is the word "forever." Brand conversion may be a swapping dance, back and forth between top end brand products. However, lifetime loyalty is something that dabbles in the space of goodwill. To this point, there's another question you could ask in terms of time, for measurement and comparison:

"How long are you willing to stay with Android if Apple allowed for similar software freedoms starting right now?"

Lifetime loyalty is the most correlative of these four ways to measure brand equity, however, just like brand separation, it gives you a very good initial glimpse at what you're up against -- or perhaps, where you've lucky enough to be situated.


Some Other Considerations Regarding Brand Equity

Market Positioning:
Where on the grocery shelf are you compared to your competitors? Are you on the top shelf, valued and priced the most? Or, are you on the bottom, sold in bulk with a low price point? Doing a SWOT analysis gives you a framework to which you can examine your position. For more on this, please take a look at this post: Consumer Awareness & Access to Physical Therapists (Part 1) with Part 2 linked at the bottom of said post.


Corporate Social Responsibility (CSR):
CSR has become a huge deal these days. Only in the early 2000's the US stock markets saw CSR behaviors by firms as an unnecessary financial burden -- wasting assets which could have been better used turning a profit elsewhere. However, NOW, CSR is seen as standard and expected. Companies who announce or are exposed for mishaps are proportionately rewarded or punished by how socially responsible the market perceives them to have been. Typically, the fluctuation in shareholder wealth is a function of company reputation, CSR ranking by media, and general public exposure.

Which leads us to the last consideration I'd like to discuss today...


Goodwill:
A company's goodwill is pragmatically unmeasurable. Marketers can certainly correlate and estimate the value of a firm's goodwill. However, truth be told, goodwill is simply that... it is the amount of favorable willpower to which the market at large is willing to serve as benefactor toward any given brand.

Sure! In accounting and in law, there are formulas to "calculate"goodwill, estimate really... Here is a popular equation available.

In any case, I think the most honest measure of goodwill is public support of a brand compared to another brand. How many people do you see walking around with Starbucks cups versus Dunkin' Donuts? How many people do you see driving a certain brand of car of care versus another? How many people do you hear casually conversing regarding physical therapy versus chiropractic care? This could go on for a long, long time.


Some Closing Thoughts:
Measuring brand equity is a very important consideration for long term business success. I feel that it is often neglected for attention garnered toward operations, finances, accounting, supply chain, etc. However, a brand is the personage of a firm. As we watch the information age quickly mature several times over, we've appreciated that we have returned how we connect with businesses, brands, networks, collaborations, and each other as individuals in a very social way -- through relationships. For lack of better terms, brand equity is the quality of relationship you have with your consumers. If you want them to value you, you must first demonstrate that you value them.

To use these four measures most effectively, one should use brand separation and lifetime loyalty as the bread to sandwich the juicy center of brand conversion and lead time loyalty. Brand separation and lifetime loyalty demonstrate short term and long term considerations regarding a brand's market mobility. Brand conversion and lead time loyalty describe a brand's leverage within the market itself. More importantly, the center of this sandwich also frames the greatest opportunities for your brand.

I hope you have found these four ways of measuring brand equity both interesting and useful. More importantly, I hope that these will serve as valuable tools -- as solutions for your success.

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