Brand equity is an intriguing concept. Unlike “equity” in economics, finance, or in
real estate, where it refers to ownership interest, equity in marketing refers
to outcomes that “accrue to a product with its brand name compared with those
that would accrue if the same product did not have a brand name.” Kevin Keller
writes that a brand has “positive customer-based brand equity when consumers
react more favorably to a product and the way it is marketed when the brand is
identified than when it is not.
The idea of
brand equity is based on the premise that a brand promise adds “something”
intangible to the sum of brand’s tangible assets. The reasoning goes that, if
customers are aware of this promise when they are making choices among
products, it reduces risk associated with their choice, saves their time, and
provides reassurance in their decision. In exchange to this reassurance,
customers are expected to display a durable brand loyalty and reduced price
sensitivity. Standard indicators of brand equity have traditionally been the
size of loyal customer base, customers’ frequency of product purchase, and
lowered customer acquisition costs (as proportion of the total marketing
efforts).
Another
indicator of brand equity are consumer favorable responses to a brand,
reflected as a combination of “recognition, associations and judgements.” Brand
equity is here regarded as a consumer reaction to brand communication.
Marketing
practitioners often talk today about brand equity as a collection of individual
consumer reactions to a brand or, as a “collective representation.” Pauil
Feldwick claims that “Brands are built in people’s heads. What the most
skillful of marketing companies do, with great sensitivity and unceasing
vigilance, is provide some raw material from which brands are built.” Branding
consultancy Millward Brown Optimor similarly notes: “The only people who invent
brands are people. Brand reputations exist only in the minds of their observers
- and all observers are different. In theory, therefore, (and probably in
practice) the reputation of a brand within a million people’s heads will have a
million slightly different versions. But ... the strongest brands are those
that enjoy what’s been called a (favorable) consensus of subjectivity."
In this
view, brands’ products and services are not responsible for creation of brand
equity. Some people say that a “real,” durable, brand equity springs only from
a distinct set of brands’ purpose and beliefs: “Equity is more a factor of a
brand’s ability to express a clear and honest sense of why they exist and what
they believe about the world than simply the quality of what they do or make.
What do you stand for? The clearer that belief, the more attractive the brand
is to those with similar beliefs. If others believe what you believe, they will
put up with all kinds of better offers to do business with you”
Perhaps
unsurprisingly, brand equity has been, in practice, regularly estimated through
people’s perceptions of the brand. A mere presence of brand perceptions has
been considered a sufficient proof of existence of brand equity – or as Faris
puts it, “a brand is a form of socially constructed reality that has attained
an objective reality, which is why it can have a cash value that is dependent
on the totality of perceptions held about it.” If the intangibles such as brand
associations and perceptions are managed through brand communication in a
satisfactory way, the reasoning goes, then they will result in some tangible
economic effect on the brand.
The main
challenge here is that the mechanism of connecting the two has been mostly
asserted, rather than proven. Consider this example. A recent study titled “Rethinking
Brand Contamination” (Richardson Goseline, 2009) has shown that immediate
context - properties of the situation of exchange - shape consumers decisions
more than their brand perceptions. The study explored the impact of
counterfeited good on how people value the brand, and found that people can
more accurately distinguish between a branded designer bag and a fake if given
social clues, like if the individual carrying it wears expensive clothes or has
a look of a rich person. When knock-off goods were displayed without any
additional cues or context, observers were less likely to differentiate between
authentic and counterfeit luxury products. Additionally, shoppers were willing
to pay an average price of $786 for a real luxury bag, but that price declined
to $403, when they saw the items out of context displayed against a neutral
background. Another study, conducted by Nielsen’s Bases unit in 2009, found
that in-store marketing has significant advantages over television as a leading
medium for creating awareness of new products. These studies indicate that
consumers’ decision-making resides more on the local and distributed context of
their situation of purchase than on brand equity defined through consumers’ “favorable
brand responses.” It turns out that slight manipulations in the design of this
context can significantly change consumer purchasing behavior.
Then, a
change in consumers’ economic circumstances also question the idea of brand
equity. Traditionally, the main “proof” of brand equity has been consumers’
price insensitivity: their willingness to pay higher prices for branded
products than for the same, but generic ones. Recent research shows that, in
the situation when people cannot afford anymore high prices of a premium brand,
they regularly “trade down” to a generic brand. For example, when P&G
reported an 18 percent drop in its profits due to the decline in sales of its
premium-priced brands, it rolled out a cheaper version of its flagship
detergent product called Tide Basic in order to prevent its customers from
switching to a lower cost alternative. What Tide has been afraid of is that
people’s inability to pay premium for a brand would challenge their perception
of differences in quality between its products and products of other, more
generic, detergent brands. And with a reason: “After years of spending $17 on
bottles of Matrix shampoo and conditioner, 28-year-old Ms. Ball recently bought
$5 Pantene instead. ‘Buying the more expensive stuff just isn’t as exciting to
me - it’s not as important,’ she says, ‘I don’t know that you can even tell the
difference.’” Once people start asking what branded products are really worth,
brands’ ability to command a price premium evaporates - and their brand equity
goes to zero.
A way of
questioning the asserted connection between consumers’ favorable brand response
and brand equity is to correlate positive brand associations with product
sales. It turns out that, even if
a brand has a particular, well-defined, set of associations achieved through
persistent brand communication, this still does not guarantee that people will
buy its products. In other words, consumers can be aware of a brand, and
respond favorably to it, but find it personally irrelevant.
This is
tricky. Brand equity has been, for a long time, been correlated with product
sales. Interbrand, the largest brand consultancy today, claims: “The
understanding, interpretation, and measurement of brand equity indicators are
crucial for assessing the financial value of brands. After all, they are key
measures of consumers’ purchasing behavior upon which the success of brands
depend.”
But, if
brand associations do not translate into people’s purchasing behavior, then we
cannot know that brand equity has an economic effect on brands. Some brand
professionals have already noticed this challenge and they say that “there are
always reasons people will do business with you that have nothing to do with
you: timing, price, convenience, and habit are just a few. These things can
help influence an initial sale, and they can influence repeat business, but
they do not influence equity. Just because someone buys from you over and over
does not mean there is equity.” Lou Carbone, founder of consultancy Experience
Engineering, similarly says: “Just because I fly airlines doesn’t mean I love
them. I hate airlines.”
Regardless,
in the absence of alternatives, marketing professionals still largely
consider brand equity as a
critical indicator of the causal relationship between brand communication and
consumers decision-making in the situation of purchase. In other words, brands’
cultural relevance is still asserted to have a direct causal effect on their
economic performance.
Go figure.
Recent Comments