bavmodel.pdf

Brand Has Great ValueA brand is the most valuable asset a company can own. It can also be the most confounding because, while

products have a tangible, physical reality, brands are all about perceptual reality. Brands exist in the minds andhearts of consumers.

Brand Valuation Has Not Been ScientificBrand management in the 20th century is replete with many success stories. Brand analysis, however, cannot

make the same claim. Its tendency to focus on lagging indicators often means that corporations spot brand problems after they have taken root in consumers’ minds. That’s often too late. After all, driving is tough when you only look at the rearview mirror. But they are all meaningful and marketers are constantly facing new questions. These can be little (“What kind of brands should an airline be serving on board its planes?”), big(“Which country should we expand this brand to next?”) or positively critical (“What strategic partnerships willadd to our brands, rather than dilute them?”)

Y&R Approach Has Been RevolutionaryIt is important to assess a brand’s current achievements and stature. It is even more powerful when the future

potential of a brand can be measured as well. Young & Rubicam’s BrandAsset® Valuator offers this opportunity.Combining exhaustive amounts of consumer data with a proven model of brand-building, BrandAsset® Valuatortracks future operating earnings and operating margins. This can enhance the marketing-decisions process in avariety of substantive ways. BrandAsset® Valuator can help managers understand marketplace opportunities andthe types of risk that go with them. It can provide a deeper understanding of consumer behavior: for example, shed-ding light on why some segments are willing to pay a higher price for a highly differentiated brand.

BrandAsset® Valuator stands apart from other brand study aids in a number of ways. It’s predictive, focusing onleading indicators instead of lagging. It’s exhaustive in every way, size and scope. And, importantly, it evaluatesbrands in the entire world of brands, not in “categories,” which is the way marketers, not consumers, view the worldof brands. Moreover, BrandAsset® Valuator is not just useful for creating a brand. It is useful for managing brandsin the long term — through ups and downs.

©2000 Young & Rubicam Inc. All rights reserved.“BrandAsset®” and “BrandAsset® Valuator” are registered trademarks, and “BAV” and are trademarks, of Young & Rubicam Inc.

The Four Key Brand Metrics of BrandAsset® ValuatorBrandAsset® Valuator demonstrates that brands are built in a very specific progression of four consumer

perceptions: Differentiation, Relevance, Esteem and Knowledge. More than 100,000 consumer interviews conducted across the globe, measuring more than 50 different consumer perceptions with regard to brands, haveshown these four measures — the Four Pillars of BrandAsset® Valuator — to be consistently linked to a brand’s ability to deliver revenue and profit for its owner — no matter the category, no matter the country, no matter theage of the brand. These Pillars measure a brand’s strength and stature — its value as an asset capable of creatingwealth. To appreciate the diagnostic advantages of BrandAsset® Valuator, it is worthwhile to examine the fundamental nature of brands.

Brand Value Lies in Consumers’ MindsBrands are intangible. They are difficult to isolate, hard to measure. There are no simple formulas for

measuring a brand’s “return,” or—when cared for poorly —measuring its drag on financial performance. But abrand’s intangibility is also what makes it so valuable (and in turn makes a sensitive measurement tool for brandsall the more valuable).

A brand is not finite, like a machine, and therein lies its power to deliver an infinite return. Consider the enormous wealth that has been created in the stock market in the last two decades. Over that period, few companies have delivered a higher return for shareholders than Coca-Cola Co. At the end of 1997, Coca-Colaranked second among all public companies in the ratio of its market capitalization to capital employed (Source:Stern Stewart). Yet Coca-Cola’s physical assets—plants, equipment and such—are unremarkable.

Or consider the hyper-driven stock market of the late ’90s. One of the highest fliers in the market,Amazon.com owns a brand that hasn’t created any real profits yet. But investors see the potential, and Amazon’scareful brand management has created a brand that now reflexively stands for huge investment returns.

Because brands are intangible, one might ask how science can be applied to the study of brands. The only wayis to focus the microscope on the places where brands live—and keep it there. That means talking to the peoplein whose minds the brands exist. It means talking to a lot of people, and talking to them a lot.

How Brands Are BuiltFour Primary Aspects

• The culmination of brand building efforts:relates to consumer experiences

• Consumer respect, regard, reputation:relates to fulfillment of perceived consumer promise

• Relates to usage and subsumes the 5P’s of marketing:relates to sale

• The basis for consumer choice:the essence of the brand, source of margin

Knowledge

Esteem

Relevance

Differentiation

BrandAsset® Valuator Mirrors How Relationships Are BuiltStudying brands means studying relationships—the relationships between brands and the people who buy

them. Or don’t buy them. It means studying the inner workings of relationships, not just assessing whether thoserelationships are healthy. As just about every individual knows from personal experience, relationships are hard tobuild and maintain. There’s a real balancing act to a good relationship, and a progression to the way it develops.Consider the start of a relationship: Something catches a person’s eye. Something different, something that standsout. Something that makes a person think, “Hey, this is worth investigating more.” Which is when they decidewhether it’s appropriate or relevant to their life. Then there’s esteem— the more a person gets to know someoneor something, the more respect develops. Finally, there’s the knowledge that comes from intimacy,really knowing the brand.

BrandAsset® Valuator demonstrates that brands are built this way, too. And the four pillars, like the stages ina relationship described above, provide the cornerstone to understanding brands.

The Four Pillars Diagnose Brand HealthThe Four Pillars of BrandAsset® Valuator —Differentiation, Relevance, Esteem and Knowledge — were

selected because movement in these, more than any other combination of dimensions, explains why brands grow,how they can get sick and how they can be managed back to health. The quantitative relationships among thesedimensions provide the basis of brand diagnosis.

Out of more than 50 consumer perceptions measured by BrandAsset® Valuator for 13,000 brands, the FourPillars have shown themselves to be consistently meaningful to brand growth. Brands can be evaluated by theseindividual measures, but it is the relationships between the measures that show the true picture of a brand’shealth—its intrinsic value, its capacity to carry a premium price and its ability to fend off competitors. Similarly,brands can be measured against other brands within a category, but it is by measuring them across all categoriesthat a brand’s true strengths and weaknesses become clear. BrandAsset® Valuator differs from other typical brandstudies by reporting how well a brand performs on key measures vs. all the other brands in a particular country.Thus, a brand’s score on a pillar such as Differentiation is the percentile rank the brand achieved vs. all others.Amazon.com, for example, had a percentile rank of 88 in the United States in 1999, which means that it rankedhigher than 88 percent of the 1,909 brands covered by BrandAsset® Valuator.

Amazon.com

Base: 1999 USA Adults

By plotting all four measures —Differentiation, Relevance, Esteem and Knowledge — and ranking brandsacross all categories, BrandAsset® Valuator serves as an exceptional diagnostic tool for building and managingbrands.

Differentiation“Different is good.” Burger King told consumers that a few years back, and it’s true. Differentiation, the perceived

distinctiveness of a brand, is a critical aspect of a brand’s success. It’s also the first aspect of a brand’s success. It definesthe brand and distinguishes it from all others. BrandAsset® Valuator shows clearly that Differentiation is how brands areborn. Leading new brands of the 1990s, for example, have consistently shown high rankings for Differentiation.Expanded nationally for the first time in 1992, Snapple ranked in the 99th percentile for Differentiation by 1993.Starbucks ranked above 80% in Differentiation early on, and Yahoo! ranked above 80% in 1999.

Differentiation is the catalyst for action in brand development. It’s the first step to the other Pillars. As inhuman relationships, the first step is an attraction to something different, something intriguing — a look, an attitude, a behavior — something that makes a person want to know more.

Differentiation doesn’t lose its importance. It remains crucial, even as a brand’s rankings on the other Pillarsgrow and remain strong, and even as a brand achieves market leadership. Yet, as brands mature, BrandAsset®Valuator finds that Differentiation often declines. A low or declining level of Differentiation is a clear warning —often the first warning — that a brand is fading. Frequently, this warning will appear in BrandAsset® ValuatorDifferentiation measures well before weakness appears in a brand’s business results or other, more traditionalresearch. It’s a sure sign that weakness is coming. But this doesn’t have to happen to brands that achieve longevity. Even after reaching maturity, a brand can perpetuate its Differentiation.

RelevanceThe second step in brand development is Relevance. If a brand isn’t relevant, or personally appropriate to

consumers, it isn’t going to attract and keep them. Again, the progression mirrors human relationships.Differentiation can lead to a fling, but without a belief that another person has a relevant connection to one’s ownlife, a person won’t engage in a serious relationship. Successful new brands tend to show higher Differentiation thanRelevance. This indicates that consumers perceive the brands as distinctive, and there is room for the brands tobecome even more relevant to the ways they live.

StarbucksYahoo!Snapple

Base: 1993 USA Adults Base: 1999 USA Adults Base: 1995 USA Adults

Intuitively, Relevance would seem to come first in a brand’s progression. If it’s not relevant, why would consumers bother with it in the first place? But BrandAsset® Valuator shows that Differentiation is what catchesthe eye — if a brand doesn’t stand out, you can’t judge its Relevance. Without Differentiation, a brand just getslost in the crowd. But once Differentiation has been achieved, Relevance is the source of a brand’s staying power.The lack of Relevance is the reason so many fads come and go.

The relationship between Relevance and Differentiation varies to significant degrees by country. Generallyspeaking, the more advanced a country’s level of economic development, the greater its excess productive capacity or its excess supply of goods and services, then the more crucial a brand’s Differentiation becomes. Excesscapacity is related to a higher number of brands within categories. There are more than 1,200 hair-care brands inthe United States, for example. With so many brands to choose from, consumers have to rely on Differentiationin the first stages of forming a brand relationship. In such an environment, too, Relevance is not a natural outgrowth of Differentiation. In the United States, there is essentially zero correlation between the two pillars. Fora marketer, the second Pillar does not come automatically upon having achieved the first.

Together, Relevance and Differentiation are the key elements of Brand Strength. Differentiation gives birth tothe brand and is critical for its continued reason for being, while Relevance drives franchise size. BrandAsset®Valuator shows that Relevance is the key to household penetration. It also can differ substantially among variousconsumer groups, even when those groups agree on the brand’s Differentiation. Niche brands that achieve highDifferentiation and modest total Relevance, but high Relevance among a specific audience, tend to be among thehighest-margin brands in the marketplace. This relationship between the first two Pillars can create a compellingbusiness opportunity. Many of the premium cosmetics, fragrance and fashion brands fall into this type.

Creating Relevant Differentiation is critical and the central challenge for all brands. Generally, brands thathave managed to achieve high levels on both measures lead — or even define — their category or subcategory.

Base: USA Adults

Brand Relevance and Penetration

EsteemThe third key measure identified by BrandAsset® Valuator is Esteem — the extent to which consumers like a

brand and hold it in high regard. Esteem relates to how well a brand fulfills its implied or overtly stated consumer promise. It doesn’t occur without Differentiation and Relevance having preceded it, but it can outlive those Pillarsby many years. Brands that show high Esteem even after losing ground on Differentiation and Relevance tend tobe older brands that have grown static in their development.

Esteem is influenced by two factors: perceptions of Quality and Popularity. As expected, Quality has a strong relationship with Esteem. But, when Popularity is added in, the relationship becomes even stronger. In a sense,Quality can be thought of as representing one’s own experience with the brand, and Popularity as representing howyou think others experience the brand. Much can be learned about a brand’s consumers by studying which of thesefactors is dominant for a particular brand or category. Quality-driven Esteem indicates a consumer tendencytoward inward, self-directed brand choice, whereas Esteem driven by popularity indicates a tendency toward following others’ lead.

KnowledgeIf a brand has established its Relevant Differentiation and consumers come to hold it in high Esteem, brand

Knowledge is the outcome. High Knowledge means consumers understand and have internalized what the brandstands for. High Knowledge cannot be attained only by higher levels of spending. It has to be achieved, and it generally takes time. Knowledge is the end result of all of the marketing and communications efforts and experiences consumers have had with a brand.

The relationship between Knowledge and Esteem is an important diagnostic indicator of brand health. Forexample, Esteem tends to be higher than Knowledge for a growing brand. If percentile rankings show the opposite relationship, a problem has been identified. BrandAsset® Valuator has shown that brands with higher levels of Knowledge than Esteem are in a situation where too much Knowledge is a dangerous thing. Marketingefforts must break down these high levels of Knowledge before repairing the other Pillars, such as Esteem.

Esteem Influencers

Base: USA Adults

Correlation = 0.80

Correlation = 0.91

Quality Quality & Popularity

Est

eem

Est

eem

These brands are often losing their customer bases. These brands are finding themselves selling more and moreto the same consumer. Some marketers will perceive this apparent increase in loyalty as a sign of Brand Strength,when in fact it’s masking brand weakness. Typically, these brands are selling more to the same consumer, at lowerand lower prices. Knowledge — or understanding of the brand — combined with lower prices may be enough tocontinue stimulating purchase, but if Esteem continues to drop, profitability will erode.

Brand Strength and Brand StatureAs you may have noticed, we look at Differentiation and Relevance together, and Esteem and Knowledge

together. These two pairs of Pillars have very important meanings for understanding different aspects of brandgrowth and decline.

Differentiation and Relevance together form Brand Strength — a brand’s ability to exist as a viable entry,defend itself from competition and its potential source for margin and earnings. As we’ve seen in the Pillar Patternsfor Snapple, Home Depot and Starbucks, Brand Strength is a leading indicator since brands develop this aspectfirst. And when brands start to fade, Brand Strength is what they lose first.

Esteem and Knowledge together form Brand Stature, which captures a brand’s familiarity, and the extent towhich a brand has been successful in building a base of Knowledge along with respect. These are lagging indicators, since brands tend to develop these after Differentiation and Relevance, and keep them even after they’vestarted losing their Brand Strength.

Brands such as TWA or Greyhound are examples of brands that have lost much of their Brand Strength, butstill retain some of their Brand Stature.


GreyhoundTWA

Leading LaggingBrandAsset®Valuator

Brand Strength Brand Stature

Differentiation Relevance Esteem Knowledge

Brands that have achieved high levels on both Brand Strength and Brand Stature we call Leadership Brands.Hallmark is an example of this type.

Profits Follow Healthy BrandsThe real power of BrandAsset® Valuator to inform marketing decisions lies in its linkage of brand profitabil-

ity to the Pillars. With more than 60 brands from many categories, BrandAsset® Valuator has plotted Pillar dataagainst revenue growth and profitability measures and discovered consistent patterns of results. The patterns showthat generally Differentiation is the margin driver — the higher a brand’s Differentiation, the higher its marginpotential. Brands that grow their Differentiation on average have about a 50 percent higher operating margin thanthose that allow their Differentiation to decay.

Relevance is the key to market penetration—brands with high Relevance and Differentiation tend to be mar-ket leaders or headed in that direction. Most brands work on growing their Relevance. Those brands that have theforesight to grow both their Relevance and their Differentiation show increases on operating earnings and deadnet earnings. Those letting their Differentiation decline, show decreases on both of these key financial measures.

Besides measuring Brand Strength and Brand Stature on the basis of financial results, there are several charac-teristics of BrandAsset® Valuator that make it an exceptionally useful tool for enhancing brand value. Thesecharacteristics, too, are grounded in the realities of the marketplace.

page 8

Growth in DifferentiationHeightens Margin

Hallmark

Growth in Relevance Offers No Assurance of Success

Brands Whose Relevance Grew Over a 4 Year Period

Differentiation Declined over a 2 Year Period

Differentiation Grewover a 2 Year Period

Operating Margin

10.5%

7.0%

Operating Margin


Source:Stern StewartBase: USA Adults

Source:Stern StewartBase: USA Adults

Dec

lined

Diff

eren

tiatio

nG

rew ∆ Operating earnings =

195%∆ Dead Net Earnings =

129%

∆ Operating earnings =-105%

∆ Dead Net Earnings =-201%

BrandAsset® Valuator Is Essential in a World of ConvergenceTraditional forms of marketing research evaluated brands by category: soft drinks or fast-food restaurants or

toothpaste. Today, driven by technological change, social change (the way goods are consumed) and economicchange (mergers and consolidations), category perspectives are not only limiting, they’re often useless.

What’s happening? Brands are being leveraged across multiple product categories. Categories are converging.Take, for example, the Sony Corporation. Sony makes movies and records, which places them in entertainment. ButSony also manufactures cell phones, which puts them in the communications category. And alarm clocks, which arecategorized as small appliances. Category definitions cannot possibly keep up with the dynamics of brands today.

Distribution channels are diffuse. Where consumers buy is continually changing and, with it, the competitiveframework. Consumers can buy computers, tires and fresh shrimp in a single store. They can shop on the phone,by catalog and, increasingly, on the Internet.

Brand extensions spill over traditional category definitions. And, further, categories have lost their boundariesin the context of multitasking products. For instance, consumers use their computers to play CDs. All of whichmeans that it is no longer wholly meaningful to evaluate brands by category.

But perhaps the most compelling reason that brands should be studied across the entire brandscape is that consumers don’t live, act or make purchase decisions in categories. They live in, and consume, a world of brands.They hold opinions about brands that leap across the category boundaries imposed by marketers. And every day,they make choices between brands in different categories.

For all these reasons, BrandAsset® Valuator ranks brands against all other brands studied in a country. Thismakes BrandAsset® Valuator enormously revealing in a number of contexts. For starters, there are brands that lookquite strong when measured simply against their own categories. On the brandscape, though, it can be quite clearthat the category is ripe for revolution. For example, if you look at the rental car category, you will find some brandsthat appear to be strong and some that appear to be weak. But set against the entire brandscape it is apparent that a brand could relevantly differentiate itself in a way that would redefine the whole category.

BrandAsset® Valuator is also a particularly useful tool for assessing brand elasticity — the ability of a brand tohelp a company enter new product/service categories successfully. Because it looks at 200 categories, BrandAsset®Valuator can help determine if a brand has the necessary hand to win. BrandAsset® Valuator can assess consumers’willingness to accept a brand’s participation in a new category. Also, BrandAsset® Valuator can find those placeswhere brands have the potential to deliver what is both Relevant and Differentiated in a category, even when consumers would never have made that leap. For example, RCA has re-invented itself and become a major playerin satellite dishes. They could do it because the brand attributes were right.

• Alamo

• Dollar

• National

• Avis• Budget

• Hertz

Bra

nd S

tren

gth

Brand Stature

Rental Car Category:Traditional View

Alamo•Dollar • • National

Avis •• Budget• Hertz

Bra

nd S

tren

gth

Brand Stature

Rental Car Category:BrandAsset® Valuator

Perspective

Base: USA Adults

BrandAsset® Valuator Constructs Work GloballyWith measurements in 32 countries, BrandAsset® Valuator uniquely gauges the nature of international

marketing opportunities. There has been much discussion and interest in the last decade in global branding — theidea that a brand can develop with nearly equal strength around the world by marketing in one voice everywhere.BrandAsset® Valuator shows that brand development across cultures is more complicated than that. The researchindicates that there are two dimensions to global brands: 1) Brand Strength and Stature together, as measured bya brand’s consistency on the Four Pillars from country to country; and 2) consistency of brand meaning, whichBrandAsset® Valuator measures by clustering brands on dozens of imagery dimensions, across all countries.Preliminary analysis teaches that brands that are strong around the world and have consistent meaning globallyperform better financially than strong brands with inconsistent meaning.

Not surprisingly, Disney is the brand with the most consistent meaning from country to country. In each country, Disney’s Imagery Profile falls into the same Global Brand Paradigm cluster of “Fun”. Coca-Cola,another powerful global brand, is the brand with the most consistent brand strength around the world. This is seenon the Power Grid for Coca-Cola, which represents the Brand Strength and Brand Stature summary measures forthe four Pillars.

BrandAsset® Valuator analysis of brands’ Pillar patterns in different countries, and of other brands in the countries being considered for expansion, can greatly enhance strategic decision-making with regard to globalbrand development. In addition, BrandAsset® Valuator’s assessment of common meanings is also important for global development.

ClassicStatus Fun Basic

StandbysFriendly

Responsives Unfocused ValueDriven

CurrentStyle

LittleKnowns

LeaderInnovators

ArgentinaAustraliaBrazilCanadaColombiaCzech Rep.FranceGermanyHollandHungaryItalyJapanMexicoPRCRussiaSouth AfricaSpainSwedenSwitzerlandThailandUKUSAVenezuela

Disney

Coca–Cola:Worldwide Power Grid

Base: Adults

Base: AdultsBrand Stature

Brand Strenth

BrandAsset® Valuator Is Forward LookingMost of the time, consumer perceptions are way ahead of typical tracking data. The enhanced ability of

BrandAsset® Valuator to guide marketing decisions and investments comes from its early signals. Traditional consumer survey techniques have focused on lagging indicators: Esteem and Knowledge. These techniques canmask the very real problem a brand has with low or declining Differentiation. By the time traditional measurementtechniques pick up this problem, it may be too late to deter its impact on sales and profitability.

Older brands that don’t keep refreshing their Differentiation are often confronted with higher Knowledge thanEsteem. That means people know them better than they like them. They are cases of too much knowledge becoming a dangerous thing. Once a brand reaches this point, the pressure becomes mighty on the people in product development. They must come forward with product attributes so different that consumers can be madeto say, “Hey, maybe I don’t know this brand as well as I thought I did.” Of course, for this to happen, marketingcommunications must also succeed in being unique or arresting, or the consumers will never have a reason to discover the new product attributes.

Consider Kmart, a retail brand under attack on all sides in the past decade. The brand maintained strong ratings for Relevance, Esteem and Knowledge in the 1990s. But as early as 1993 (and probably much earlier) Kmart’s Differentiation had dipped dramatically. (But, fortunately, Kmart has rebuilt some of its Differentiation.)The competition would still have been just as tough, but earlier detection of this drop in Differentiation could havemade a difference in Kmart’s ability to withstand competitive pressures.

The stock market values companies’ stocks for their potential to deliver profits in the future — that’s why future estimates play such a prominent role on Wall Street. Brand assets should be valued in the same way — not for theirpast results. The sensitivity of BrandAsset® Valuator gives us a more forward-looking way of valuing brands, anda useful tool for the creation of profitable growth through the building, leveraging, protecting and managing ofthose brands. Part of the valuation of a brand is its potential — and BrandAsset® Valuator helps a brand determinewhat new categories it can compete in, for example.

1993 1997 1999

Kmart Begins to Rebound After Dropping the Ball

Base: USA Adults

BrandAsset® Valuator Informs Today’s Marketing IssuesIn addition to projecting a brand’s prospects for margin growth, earnings growth and global development,

BrandAsset® Valuator can be used for a variety of other assessments and analytical pursuits. It has been useful in thestudy of price elasticity, and also for sales modeling. It offers insights that have proved immensely valuable in analyz-ing all sorts of growth and investment options: from identifying the best alliance partners to co-branding initiativesto investing in sub-brands or line extensions. Y&R also has been successful in integrating BrandAsset® Valuator dataand methods into clients’ own databases, thereby combining useful tools with more focused or proprietary sources ofdata. BrandAsset® Valuator also has its own line extension: Media BrandAsset® Valuator, which applies BrandAsset®Valuator data and techniques to brand media planning, thereby offering better rationales for selectivity, both in mediatype and media content. BrandAsset® Valuator show it’s not enough to be a “.com” brand. Internet brands such asYahoo! and Amazon.com have become powerful, established brands almost overnight. A BrandAsset®Valuator analysis of e-commerce brands has shown that almost all have yet to become more than what the whole category iscurrently known for being — innovative and daring. This won’t be enough going forward.

BrandAsset® Valuator Is Becoming Even More PowerfulAnd more initiatives are in development. Y&R is committed to investing in BrandAsset® Valuator on an ongo-

ing basis with the same vigor that leading brand companies invest in product R&D, for the benefits of better data andanalytical tools can match—or exceed—those provided by better products, colors or flavors.

BrandAsset® Valuator Tool KitGeneral Positioning WorkAlliances and Co-BrandingMaster and Sub-Brand RelationshipsMedia Planning BrandAsset® ValuatorBrand ElasticityGlobal BrandingInternet Branding

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