Wednesday, October 3, 2007

Interbrand’s Brand Equity Model

As an asset, a brand is a symbol of the expected future profits of a company; the problem is how to determine the earning power of a brand. Interbrand, a UK-based branding consultancy, has led the way in defining an appropriate method for brand strength assessment and publishes a yearly chart of the top performers. Its set of criteria, chosen subjectively, includes the business prospects of the brand and the brand’s market environment, as well as consumer perceptions. Interbrand’s seven core criteria consist of the following:
Leadership. A brand that leads its market sector is more stable and powerful than other market entrants. This criterion reflects economies of scale for the first-place brand in communication and distribution, as well as the problems also-rans have in maintaining distribution and avoiding price erosion.
Stability. Long-lived brands with identities that have become part of the fabric of the market—and even of the culture—are particularly powerful and valuable.
Market. Brands are more valuable when they are in markets with growing or stable sales levels and a price structure in which successful firms can be profitable. Some markets, such as consumer electronics, are so rife with debilitating price competition that the prospects of any brand being profitable are dim.
International. Brands that are international are more valuable than national or regional brands, in part because of economies of scale. More generally, the broader the scope of a brand, the more valuable it is.
Trend. The overall long-term trend of the brand in terms of sales can be expected to reflect future prospects. A healthy, growing brand indicates that it remains contemporary and relevant to consumers.
Support. Brands that have received consistent investment and focused support are regarded as stronger than those that haven’t; however, the quality of the support should be considered along with the level of support.
Protection. The strength and breadth of a brand’s legal trademark protection is critical to the brand’s strength.
As evinced by these criteria, Interbrand takes a business-oriented rather than consumer-oriented view of brand. This approach is useful, part, because it’s a step closer to putting a financial value on the brand—in fact, Interbrand uses its brand ratings to determine a multiplier to apply to earnings. The subjectivity of both the criteria and assessment of the brands, however, makes the dimensions difficult to defend and affects the reliability of the resulting measures. Moreover, the Interbrand method treats different types of brands in the same way. For example, it treats Gillette as a single entity, even though it has many sub-brands and extensions, and treats Marlboro, which is a single brand, by the same rules. This flaw reinforces the need to develop more refined and rigorous methods of brand analysis.
Young & Rubicam’s Brand Asset Valuator
The premier advertising agency Young & Rubicam (Y&R) has developed a multiple criteria method to assess brand equity growth. The company used its Brand Asset Valuator to assess the brand equity of 450 global brands and more than 8,000 local brands in 24 countries. Each brand was examined using a 32-item survey that included, in addition to a set of brand personality scales, four distinct measures:
Differentiation—Measures how distinctive the brand is in the marketplace.
Relevancy—Measures whether a brand has personal relevance for the potential customer.
Esteem—Measures whether a brand is held in high regard and considered best in its class. Closely related to perceived quality and the extent to which the brand is growing in popularity.
Familiarity—Measures the degree to which potential customers understand what a brand stands for.
According to this approach to brand equity, brand differentiation is the core of a successful brand proposition with a distinctive position in the marketplace that will promote long-term growth. Y&R defines it as the power of a brand to express its uniqueness and reach top-of-mind status with target consumers.
Once consumers are aware of the brand, it needs to be relevant to their needs, satisfying and exceeding their expectations. The way that the brand manager is able to express that relevancy in a language consumers appreciate will determine its success. Once consumers understand what the brand can do for them, they need to aspire to own it, or have esteem for it. Finally, when the brand has communicated its unique, relevant and aspirational message, it will be able to achieve familiarity through repurchase and re-use.

These four measures form the basis of two equations:
Differentiation x Relevance = Brand Strength (or vitality)
Esteem x Familiarity = Brand Stature

The equations represent an attempt to overcome issues with other methods that assess brands solely in terms of present earning power. They suggest that scores relating to brand differentiation and relevance indicate the potential for growth, while those relating to brand esteem and familiarity indicate its present stature. The results, however, are dependent on subjective analyses of the four criteria in relation to the market, the consumer and the company; although there are market research techniques that can better ensure the necessary analyses accurate reflect the competitive milieu.
This grid allows for a quick and simple comparison among competitors along the two key dimensions identified by Y&R. Brands that are high on both dimensions (the upper-right quadrant) have the greatest equity to protect and exploit. The bottom-left quadrant is generally made up of brands that are just getting started; however, a brand that stays too long in this quadrant is not likely to be successful in the long run. According to the Y&R hypothesis, the brands in the upper-left quadrant are either strong niche brands or brands with a significant opportunity to grow by increasing their stature (knowledge in particular). The lower-right quadrant, in contrast, is populated by brands that are tired, but still retain some esteem and knowledge.


donglin said...

Thanks for the article! It is good, but would like to see more in-depth analysis/criticism on these models.

Author -- Rishi Dwesar said...

thanks a lot for this article.. helped a lot a night before exam of brand

chandra said...

Thank you so much for your professional and effective help.
Brand Questionnaire

jennifersign said...

Great information about brand asset. It was very helpful.