CHAPTER 8: DEVELOPING A BRAND EQUITY MEASUREMENT AND MANAGEMENT SYSTEM

1. CHAPTER 8: DEVELOPING A BRAND EQUITY MEASUREMENT AND MANAGEMENT SYSTEM Kevin Lane Keller Tuck School of Business Dartmouth College

2. The New Accountability • Virtually every marketing dollar spent today must be justified as both effective and efficient in terms of “return of marketing investment” (ROMI). • Some observers believe that up to 70% (or even more) of marketing expenditures may be devoted to programs and activities that cannot be linked to short-term incremental profits, but yet can be seen as improving brand equity.

3. The Brand Value Chain • Broader perspective than just the CBBE model • The brand value chain is a structured approach to assessing the sources and outcomes of brand equity and the manner by which marketing activities create brand value.

4. The Brand Value Chain • The brand value chain has several basic premises. Fundamentally, it assumes that the value ofa brand ultimately resides with customers.

5. The Brand Value Chain • Based on this insight, the model next assumes thatthe brand value creation process begins when the firm invests in a marketing program targetingactual or potential customers. • The marketing activity associated with the program then affects thecustomer mindset with respect to the brand – what customers know and feel about the brand. • This mindset, across a broad group of customers, then results in certainoutcomes for the brand in terms of how it performs in the marketplace – the collective impactof individual customer actions regarding how much and when they purchase, the price thatthey pay, and so forth. • Finally, the investment community considers this market performanceand other factors such as replacement cost and purchase price in acquisitions to arrive at anassessment of shareholder value in general and a value of the brand in particular.

6. The Brand Value Chain • The model also assumes that a number of linking factors intervene between these stages. • Theselinking factors determine the extent to which value created at one stage transfers or “multiplies”to the next stage. • Three sets of multipliers moderate the transfer between the marketing programand the subsequent three value stages: the program quality multiplier, the marketplace conditionsmultiplier, and the investor sentiment multiplier.

7. Brand Value Chain Market Performance Shareholder Value Customer Mindset Marketing Program Investment VALUE STAGES - Price premiums - Price elasticity - Market share - Expansion success - Cost structure - Profitability • - Product • - Communications • Trade • Employee • - Other - Awareness - Associations - Attitudes - Attachment - Activity - Stock price - P/E ratio - Market capitalization Program Multiplier Consumer Multiplier Market Multiplier FILTERS • Clarity • Relevance • - Distinctiveness • - Consistency • - Channel support • Consumer size and profile • Competitive reactions • Market dynamics • Growth potential • Risk profile • Brand contribution

8. Value Stages • Marketing program investment • Any marketing program that can be attributed to brand value development • Customer mindset • In what way have customers been changed as a result of the marketing program? • Market performance • How do customers respond in the marketplace? • Shareholder value

9. Marketing Program Investment • Any marketing program investment that potentially can be attributed to brand valuedevelopment, either intentional or not, falls into this first value stage. • Specifically, some of thebigger marketing expenditures relate to product research, development, and design; trade orintermediary support; marketing communications (e.g., advertising, promotion, sponsorship,direct and interactive marketing, personal selling, publicity, and public relations); and employeetraining. • The extent of financial investment committed to the marketing program, however, doesnot guarantee success in terms of brand value creation. Many marketers have spent billionsof dollars in marketing activities and programs but due to questionably strategic and tacticallyineffective campaigns., have seen competitors steal key market positions. The ability of amarketing program investment to transfer or multiply farther down the chain will thus depend onqualitative aspects of the marketing program via the program quality multiplier.

10. Program QualityMultiplier • The ability of the marketing program to affect the customer mindset will depend on the quality ofthat program investment. There are a number of different means to judge the quality of a marketingprogram and many different criteria may be employed. To illustrate, four particularly importantfactorsare as follows:

11. Multipliers • Program quality multiplier • The ability of the marketing program to affect customer mindset • Must be clear, relevant, distinct, and consistent • Customer multiplier • The extent to which value created in the minds of customers affects market performance • It depends on factors such as competitive superiority, channel support, and customer size and profile • Market multiplier • The extent to which the value generated through brand market performance is manifested in shareholder value • It depends on factors such as market dynamics, growth potential, risk profile, and brand contribution

12. Program QualityMultiplier 1. Clarity:How understandable is the marketing program? Do consumers properly interpret andevaluate the meaning conveyed by brand marketing? 2. Relevance:How meaningful is the marketing program to customers? Do consumers feel thatthe brand is one that should receive serious consideration? 3. Distinctiveness: How unique is the marketing program from those offered by competitors?How creative or differentiating is the marketing program? 4. Consistency: How cohesive and well integrated is the marketing program? Do all aspectsof the marketing program combine to create the biggest impact with customers? Does themarketing program relate effectively to past marketing programs and properly balancecontinuity and change, evolving the brand in the right direction?

13. CustomerMindset • A judicious marketing program investment could result in a number of different customerrelatedoutcomes. Essentially, the issue is, • in what ways have customers been changed asa result of the marketing program? • How have those changes manifested themselves in thecustomer mindset? • Remember that the customer mindset includes everything that existsin the minds of customers with respect to a brand: thoughts, feelings, experiences, images,perceptions, beliefs, attitudes, and so forth. Understanding customer mindset can haveimportant implications for marketing programs.

14. CustomerMindset A host of different approaches and measures are available to assess value at this stage. One simple way to reduce the complexity of the brandresonance model into a simpler, more memorable structure is in terms of five key dimensions.The “5 A’s” are a way to highlight key dimensions of the brand resonance model within the brandvalue chain model as particularly important measures of the customer mindset: 1. Brand awareness The extent and ease with which customers recall and recognize the brandand thus the salience of the brand at purchase and consumption. 2. Brand associations The strength, favorability, and uniqueness of perceived attributes andbenefits for the brand in terms of points-of-parity and points-of-difference in performanceandimagery. 3. Brand attitudes Overall evaluations of the brand in terms of the judgments and feelings itgenerates.

15. CustomerMindset 4. Brand attachment How intensely loyal the customer feels toward the brand. A strong formof attachment, adherence, refers to the consumer’s resistance to change and the ability of abrand to withstand bad news (e.g., a product or service failure). In the extreme, attachment can evenbecomeaddiction. 5. Brand activity The extent to which customers are actively engaged with the brand such thatthey use the brand, talk to others about the brand, seek out brand information, promotions, andevents, andso on.

16. CustomerMindset • An obvious hierarchy exists in these five dimensions of the brand resonance model: Awarenesssupports associations, which drive attitudes that lead to attachment and activity. According tothe brand resonance model, brand value is created at this stage when customers have 1. deep, broad brand awareness; 2. appropriately strong and favorable points-of-parity and points-of-difference; 3. positive brand judgments and feelings; 4. intense brand attachment and loyalty; and 5. a high degree of brand engagement and activity.

17. MarketplaceConditionsMultiplier The extent to which value created in the minds of customers affects market performance dependson various contextual factors external to the customer. Three such factors are as follows: 1. Competitive superiority: How effective are the quantity and quality of the marketinginvestment of other competing brands. 2. Channel and other intermediary support: How much brand reinforcement and sellingeffort is being put forth by various marketing partners. 3. Customer size and profile: How many and what types of customers (e.g., profitable or not)are attracted to the brand.

18. MarketplaceConditionsMultiplier • The competitive context faced by a brand can have a profound effect on its fortunes. For example,both Nike and McDonald’s have benefited in the past from the prolonged marketing woes oftheir main rivals, Reebok and Burger King, respectively. Both of these latter brands have sufferedfrom numerous repositionings and management changes. On the other hand, MasterCard hashad to contend for the past decade with two strong, well-marketed brands in Visa and AmericanExpress and consequently has faced an uphill battle gaining market share despite its well-received “Priceless” ad campaign.

19. Market Performance • The customer mindset affects how customers react or respond in the marketplace in a six mainways. • The first two outcomes relate to price premiums and price elasticities. How much extra arecustomers willing to pay for a comparable product because of its brand? And how much doestheir demand increase or decrease when the price rises or falls? • A third outcome is market share,which measures the success of the marketing program to drive brand sales. Taken together, thefirst three outcomes determine the direct revenue stream attributable to the brand over time.Brand value is created with higher market shares, greater price premiums, and more elasticresponses to price decreases and inelastic responses to price increases.

20. Market Performance • The fourth outcome is brand expansion, the success of the brand in supporting line and categoryextensions and new product launches into related categories. Thus, this dimension captures theability to add enhancements to the revenue stream. • The fifth outcome is cost structure or, morespecifically, savings in terms of the ability to reduce marketing program expenditures becauseof the prevailing customer mindset. In other words, because customers already have favorableopinions and knowledge about a brand, any aspect of the marketing program is likely to be moreeffective for the same expenditure level; alternatively, the same level of effectiveness can beachieved at a lower cost because ads are more memorable, sales calls more productive, and soon. • When combined, these five outcomes lead to brand profitability, the sixth outcome.

21. InvestorSentimentMultiplier • The extent to which the value engendered by the market performance of a brand is manifestedin shareholder value depends on various contextual factors external to the brand itself. Financialanalysts and investors consider a host of factors in arriving at their brand valuations andinvestment decisions. Among these considerations are the following:

22. InvestorSentimentMultiplier 1. Market dynamics What are the dynamics of the financial markets as a whole (e.g., interestrates, investor sentiment, or supply of capital)? 2. Growth potential What are the growth potential or prospects for the brand and the industryin which it operates? For example, how helpful are the facilitating factors and how inhibitingare the hindering external factors that make up the firm’s economic, social, physical, and legalenvironment? 3. Risk profile What is the risk profile for the brand? How vulnerable is the brand likely to be tothose facilitating and inhibiting factors? 4. Brand contribution How important is the brand as part of the firm’s brand portfolio and allthebrands it has?

23. ShareholderValue • Based on all available current and forecasted information about a brand as well as manyother considerations, the financial marketplace then formulates opinions and makes variousassessments that have very direct financial implications for the brand value. • Three particularlyimportant indicators are the stock price, the price/earnings multiple, and overall marketcapitalization* for the firm. Research has shown that not only can strong brands deliver greaterreturns to stockholders, they can do so with less risk. * Market capitalization (often market cap) is a measurement of size of a business enterprise (corporation) equal to the share price times the number of shares outstanding (shares that have been authorized, issued, and purchased by investors) of a publicly traded company.

24. Brand Equity Measurement System • A set of research procedures that is designed to provide timely, accurate, and actionable information for marketers so that they can make the best possible tactical decisions in the short run and strategic decisions in the long run

25. Brand Equity Measurement System • Conducting brand audits • Developing tracking procedures • Designing a brand equity management system

26. Designing Brand Tracking Studies • Tracking studies involve information collected from consumers on a routine basis over time • Often done on a “continuous” basis • Provide descriptive and diagnostic information

27. What to Track • Customize tracking surveys to address the specific issues faced by the brand • Product-brand tracking • Corporate or family brand tracking • Global tracking

28. How to Conduct Tracking Studies • Who to track (target market) • When and where to track (how frequently) • How to interpret brand tracking

29. SampleBrandTrackingSurvey-McDonald’s Assume that McDonald’s was interested in designing a short tracking survey to be conductedover the phone. How might you set it up? Although there are a number of different types ofquestions, it might take the following form: Interviewer: We are conducting a short phone interview concerning consumer opinions about quick-serviceor “fast food” restaurant chains. BRAND AWARENESS Recall (unaided) • What brands of quick service restaurant chains are you aware of? • At which brands of quick service restaurant chains would you consider using? • Have you eaten in a quick service restaurant chain in the last week? Which ones? • If you were to eat in a quick service restaurant tomorrow for lunch, which one wouldyougoto? • What if instead it were for dinner? Where would you go? • What if instead it were for breakfast? Where would you go? • Which are your favorite quick serve restaurant chains?

30. SampleBrandTrackingSurvey-McDonald’s BRAND AWARENESS Recognition Now, we want to ask you some questions about a particular quick service restaurantchain, McDonald’s. • Have you heard of this restaurant? [Establish familiarity] • Have you eaten at this restaurant? [Establish trial] • When I say McDonald’s, whatarethefirstassociationsthatcometoyourmind? Anything else? [Listall]

31. BrandTrackingSurvey-McDonald’s BRAND IMAGE What are the top five words that come to mind when you think of "McDonalds" (This shouldtake less than 30 seconds) BrandAttributes How well do the following words describe McDonalds?(1= not at all, 5 = very much)? McDonald’s ... • Is convenient to eat at • Providesquick, efficient service • Has cleanfacilities • Is for the whole family • Has deliciousfood • Has healthyfood • Has a variedmenu • Has friendly, courteousstaff • Offersfunpromotions • Has a stylish and attractive look • Has goodprices

32. BrandTrackingSurvey-McDonald’s Brand Personality (note this might also include user imagery, usage imagery as breakoutquestions) How well do the following traits describe McDonalds(1= not at all, 5 = very much)? • Sincere • Exciting • Competent • Sophisticated • Rugged • Peaceful • Passionate

33. BrandTrackingSurvey-McDonald’s Judgments of Quality • What is your overall opinion of McDonald’s? • What is your assessment of the product quality of McDonald’s? • How good a value is this McDonald’s? • Is McDonald’s worth a premium price? • What do you like best about McDonald’s? Judgments of Credibility • Howinnovative is McDonald’s? • How much do you admire McDonald’s? • How much do you respect McDonald’s? Judgments of Consideration • How likely would you be to recommend McDonald’s to others? • To what extent does McDonald’s offer advantages that other brands cannot? • How personally relevant is McDonald’s to you?

34. BrandTrackingSurvey-McDonald’s Judgments of Superiority • Howunique is McDonald’s? • To what does McDonald’s offer advantages that other brands cannot? • To what extent is McDonald’s superior to other brands in the quick servicerestaurantcategory? Feelings Does McDonald’s give you a feeling of … (1= not at all, 5 = very much) • Warmth • Excitement • Trust • Awe • Fear • Calm • Intensity

35. BrandTrackingSurvey-McDonald’s RELATIONSHIP If McDonalds came to life as a person, what type of person would s/he be? This should takelessthan 30 seconds. If McDonalds came to life as a person and was at a party with you, what would s/he say to you? This should take less than 30 seconds. Loyalty • I consider myself loyal to McDonalds. • I eat at McDonalds whenever I can. • This is the one brand of fast‐food restaurant I would most prefer to visit. • If McDonalds were not an option, it would make little difference to me if I had to eatelsewhere. • I would go out of my way to go to McDonalds

36. BrandTrackingSurvey-McDonald’s Attachment • I reallyloveMcDonalds. • I would really miss this brand if it went away. • McDonalds is special to me. Engagement • I really like to talk about McDonalds to others. • I am always interested in learning more about McDonalds. • I would be interested in merchandise with this brand’s name on it. • I like to visit the website for McDonalds. • Compared to other people, I follow news about McDonalds closely. Community • I really identify with people who use this brand. • McDonalds is often frequented by people like me. • I feel a deep connection with others who use this brand.

37. Brand Equity Management System • A brand equity management system is a set of organizational processes designed to improve the understanding and use of the brand equity concept within a firm: • Brand equity charter • Brand equity report • Brand equity responsibilities

38. Brand Equity Charter • Provides general guidelines to marketing managers within the company as well as key marketing partners outside the company • Should be updated annually

39. Brand Equity Charter Components • Define the firm’s view of the brand equity • Describe the scope of the key brands • Specify actual and desired equity for the brand • Explain how brand equity is measured • Suggest how brand equity should be measured • Outline how marketing programs should be devised • Specify the proper treatment for the brand in terms of trademark usage, packaging, and communication

40. The Knicks Brand Charter The Knicks The Fans Emotional Bond • Sensory fulfillment • Looks, feels, and sounds • Visceral thrill • Eager anticipation/excitement • War: winning/losing • Psychological benefits • Personal identification (with heroes) • Social currency/belonging • Emotional awards • Intense experience • Childhood • Sustaining • Exceeds • Uniquely authentic • An incomparable event, scene and energy • Relentless, resourceful, and tough • Championship caliber • A vital part of New York City • Unlimited in its possibilities An intensely passionate, professional, unparalleled New York City experience

41. Brand Equity Report • Assembles the results of the tracking survey and other relevant performance measures • To be developed monthly, quarterly, or annually • Provides descriptive information as to what is happening with the brand as well as diagnostic information on why it is happening

42. Brand Equity Report • In particular, one section of the report should summarize consumerperceptions on key attribute or benefit associations, preferences, and reported behavior asrevealed by the tracking study. Another section of the report should include more descriptivemarket level information such as:

43. Brand Equity Report 1) Product shipments and movement through channels of distribution. 2) Relevantcostbreakdowns. 3) Price and discount schedules where appropriate. 4) Sales and market share information broken down by relevant factors, e.g.,geographic region, type of retail account or customer, etc. 5) Profitassessments.

44. Brand Equity Responsibilities • Organizational responsibilities and processes that aim to maximize long-term brand equity • Establish position of VP or Director of Equity Management to oversee implementation of Brand Equity Charter and Reports • Ensure that, as much as possible, marketing of the brand is done in a way that reflects the spirit of the charter and the substance of the report

45. InternalBranding • Internal brand management makes sure that employees and partners appreciate andunderstand basic branding notions and how these can affect the equity of the brandsthat they are working with. The ultimate goal is to make everyonein the organization, from the CEO to the trainees, to become passionate brandadvocates. This can be achieved, according to Davis, by following a threestepcourse: “Hear It, Believe It, Live It”. To get employees to “live the brand”,

46. Brand AssimilationProcess-ScottDavis Principle 1: Make the Brand Relevant One of most critical principles is to make sure the brand is relevant to employees. Each employee in each functional group or unit of the company must understand not just what the brand stands for, but how they as individuals can embrace its meaning and represent it publicly. Only employees who understand the brand can help support it and use it to guide decision making. Principle 2: Make the Brand Accessible If employees are to live and breathe the organization’s brand, they must be equipped with the information and tools they need to understand it. Giving employees the ability to make brand-supporting decisions means that they must have ready access to answers to questions.Without creating that kind of access, the organization risks creating employees who are disinterested or frustrated with the task.

47. Brand AssimilationProcess-ScottDavis Principle 3: Reinforce the Brand Continuously For brand to become a cultural underpinning of the organization, employees must be continuously exposed to its meaning, far beyond the initial rollout of the internal branding program.Take Southwest Airlines as an example. In seeking to internally apply the attributes of its brand promise,“A symbol of freedom,” Southwest’s people (or HR) department teamed with other such departments as public relations and marketing to create an internal branding campaign around employee freedom.As part of the campaign, support was fostered through tactics such as having the carrier’s in-house publication highlight employee freedoms, having employees write about how they personally took advantage of freedoms, and renaming the intranet site “Freedom Net.” Newsletters and the intranet can be invaluable communication tools that help keep brand identity elements, successes, and updated information on the brand strategy top-of-mind for employees. Other tactics can include the rollout of such brand-related tools as laminated identity cards and brand trading cards.

48. Brand AssimilationProcess-ScottDavis Principle 4: Make Brand Education an Ongoing Program It’s particularly important that new employees are grounded in the brand culture and inspired to believe in what the brand represents. Putting these processes in place helps newcomers better understand the brand’s role and impact on the business, and it gives them the tools and the frameworks they need for their day-to-day decision-making. Additionally, the investment the company makes in training new employees speaks volumes about its level of commitment to them. The hotel chain has emphasized training because its top priority was the satisfaction of its guests—and it knew that employees were critical to delivering on that promise. Each new employee went through an intensive orientation called The Gold Standard, which was comprised of principles created to support the brand.These brand precepts were reinforced in daily departmental meetings attended by all employees. The Gold Standard provided the basis for all ongoing employee training. Not so coincidentally, Ritz-Carlton became a hospitality industry leader in training, providing 120 hours of training per employee per year.

49. Brand AssimilationProcess-ScottDavis Principle 5: Reward On-Brand Behaviors An incentive system rewarding employees for exceptional support of the brand strategy should be tied to the rollout of the internal branding program. This not only helps create and maintain excitement in the program, but it underscores, through individual recognition, the kinds of behaviors that need to be supported. Rewards also help demonstrate the organization’s commitment to the brand and the program while creating a tangible model that helps employees better understand how they, too, perform on-brand. Continental Airlines created an employee reward program called “Working Together” under its new emphasis of promising on-time service as a key component of its brand promise to customers.

50. Brand AssimilationProcess-ScottDavis Principle 6:Align Hiring Practices Because the success of a brand assimilation program hinges on employees’ ability and capacity to embody the brand spirit, it’s also important that HR and marketing work together to develop basic screening procedures that ensure new hires will fit with and support the company’s brand culture. This can be accomplished through a variety of tactics, starting with the incorporation of the core and extended brand identity elements into the process of evaluating prospective employees. Over time, job descriptions should be rewritten to incorporate these same brand identity traits into the list of expected employee behaviors.