building brand equity via product quality
TRANSCRIPT
This article was downloaded by: [University of New England]On: 27 October 2014, At: 19:45Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK
Total Quality Management & BusinessExcellencePublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/ctqm20
Building Brand Equity via ProductQualityAndreas Herrmann a , Frank Huber b , Alan T. Shao c & Yeqing Baod
a Universität St. Gallen, ZBM Institut , Switzerlandb University of Mainz , Welderweg, Germanyc University of North Carolina at Charlotte , USAd University of Alabama in Huntsville , USAPublished online: 20 Jul 2007.
To cite this article: Andreas Herrmann , Frank Huber , Alan T. Shao & Yeqing Bao (2007) BuildingBrand Equity via Product Quality, Total Quality Management & Business Excellence, 18:5, 531-544
To link to this article: http://dx.doi.org/10.1080/14783360701240030
PLEASE SCROLL DOWN FOR ARTICLE
Taylor & Francis makes every effort to ensure the accuracy of all the information (the“Content”) contained in the publications on our platform. However, Taylor & Francis,our agents, and our licensors make no representations or warranties whatsoever as tothe accuracy, completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verified with primary sourcesof information. Taylor and Francis shall not be liable for any losses, actions, claims,proceedings, demands, costs, expenses, damages, and other liabilities whatsoeveror howsoever caused arising directly or indirectly in connection with, in relation to orarising out of the use of the Content.
This article may be used for research, teaching, and private study purposes. Anysubstantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &
Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
Building Brand Equity via ProductQuality
ANDREAS HERRMANN,� FRANK HUBER,�� ALAN T. SHAO† &YEQING BAO‡
�Universitat St. Gallen, ZBM Institut, Switzerland; � �University of Mainz, Welderweg, Germany; †University
of North Carolina at Charlotte, USA; ‡University of Alabama in Huntsville, USA
ABSTRACT A practical approach is proposed to building brand equity via product quality. Itidentifies the relevant marketing activities and determines the extent to which these activitiescontribute to brand equity. Specifically, the proposed brand equity model relates marketingactivities to brand equity. This indicates a practical way to assess the importance and adequacyof a company’s daily operation in contributing to its brand equity. The importance-efficiency mixfurther provides management with feasible suggestions on adjusting their marketing activities.Then, based on an importance-efficiency matrix, company resources can be adjusted to enhancebrand equity. An empirical study with an insurance company was conducted to illustrate theproposed approach. Using this approach, the insurance company has successfully enhanced theirbrand equity. This clearly attests to the managerial value of the proposed approach. Researchimplications and future research avenues were discussed.
KEY WORDS: Brand equity, product quality, marketing mix, marketing activities
Building Brand Equity via Product Quality
Building brand equity has been an increasing important topic in recent years. As Keller
(2001), Keller & Lehmann (2003) advocated, building a strong brand with positive
equity establishes all sorts of benefits to a firm (e.g. customer loyalty, higher margins,
brand extension opportunities, more powerful communication effectiveness). To ensure
the brand makes a positive contribution to the overall value of the company, it is
crucial to implement a brand controlling procedure and to enhance brand equity over
time (Keller, 1998). Activities of the company must interact in a sustained and targeted
manner. However, not all actions make the same contribution to strengthening the
brand (Matzler et al., 2005). Drivers that are particularly effective need to be identified
and those that are ineffective need to be adjusted.
Total Quality Management
Vol. 18, No. 5, 531–544, July 2007
Correspondence Address: Andreas Herrmann, Universitat St. Gallen, ZBM Institut, Guisanstrasse 1a, CH-9010
St. Gallen, Switzerland. Email: [email protected]
1478-3363 Print/1478-3371 Online/07/050531–14 # 2007 Taylor & FrancisDOI: 10.1080/14783360701240030
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
With the aim of using resources as effectively as possible, this study proposes a practical
approach to enhancing the brand equity. It assesses the importance of salient marketing
activities in strengthening the brand. This is necessary as evidenced in claims by Yoo
et al. (2000) and Shocker et al. (1994):
Despite tremendous interest in brand equity, little conceptual development or empiri-
cal research has addressed which marketing activities build brand equity. (p. 195)
. . .(M)ore attention is needed in the development of more of a ‘systems view’ of
brands and products to include how intangibles created by the pricing, promotional,
service, and distribution decisions of the brand manager combine with the product
itself to create brand equity and affect buyer decision making. (p. 157)
Yoo et al. (2000) have made great advancing efforts in this regard by exploring
the relationships between selected marketing efforts and brand equity. They found that
the brand assets expressed as the dimensions of brand equity are related to customer’s hol-
istic perception of brand equity. Further, their results showed that certain marketing mix
elements such as the frequent use of price promotions would harm the brand equity, while
other elements such as high advertising spending, high price, distribution through retailers
with good store images, and high distribution intensity would help build brand equity. The
current study is similar to the one by Yoo et al. (2000) in that both investigate the relation-
ships between selected marketing mix variables and the creation of brand equity.
However, the current study also differs from theirs in several ways.
First, while Yoo et al. (2000) used various brands to assess the normative relationships
between marketing mix and brand equity, the current study advocates that such relation-
ships might vary from company to company. Accordingly, companies should adjust their
resources disbursement among marketing mix elements to improve their brand equity. We
propose a theoretical approach for such adjustment. Second, in Yoo et al. (2000), reflective
indicators were used to measure marketing mix. In the current study, formative indicators
were used to measure marketing mix. Several recent studies showed that the latter
measurement offers unique perspectives compared to the former measurement
(e.g. Diamantopoulos & Winklhofer, 2001). Third, the study by Yoo et al. was conducted
in the product context (i.e. shoes, film, and TV), while the current study was in the service
context (i.e. insurance company). In summary, Yoo et al. opened an intriguing research
avenue by exploring the relationships between selected marketing efforts and brand
equity. The current study further advances their work by proposing a managerially appli-
cable method to assess and build brand equity via designated marketing mix elements.
In the following sections, we first present a theoretical approach to building brand equity.
Then, an empirical study with an insurance company is analyzed to illustrate the approach.
Finally, implications of the approach and directions for further research are discussed.
Conceptual Framework
Brand Equity Model
The elements of the marketing mix can greatly affect a company’s brand equity. The price
of a brand often indicates something about the quality or benefits of a product. It usually
532 A. Herrmann et al.
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
creates associations in the mind of consumers (Keller, 2001). In general, high-priced
brands tend to be perceived as higher quality and are not as susceptible to price cuts as
lower priced brands (Dodds et al., 1991; Kamakura & Russell, 1993). Promotion may
add or take away from a brand’s equity. Researchers have revealed that advertising
often creates brand equity whereas sales promotion tends to detract from brand equity
(Boulding et al., 1994; Chay & Tellis, 1991). Distribution can create considerable
brand equity when consumers can locate a product in several stores since the product
will be available when it is desired (Aaker, 1996; Ferris et al., 1989; Smith, 1992).
Keller (2001) indicated that the product is the heart of brand equity. He advocated that
‘. . .the product is the primary influence of what consumers experience, what they hear
about, and what the firm tells customers about the brand’ (p. 15). These elements are
mainly pertinent to companies producing goods. For companies providing services, mar-
keting mix elements such as the external brand communications and customer experience
with the company can also have tremendous impact on brand equity (Berry, 2000). Exter-
nal brand communications refers to information customers absorb about the company and
its service that essentially is uncontrolled by the company. Word-of-mouth and publicity
are the typical forms of such communications. Customer experience with a company is a
powerful source for customers to develop brand meaning. Such experience has dispropor-
tionate influence positively or negatively in that it can supersede the influence by adver-
tising or external communications (Berry, 2000). In general, marketing mix can influence
brand equity either positively or negatively.
Each marketing mix element can be embodied by various marketing activities, all of
which are not equal in contributing to brand equity. For example, advertising and price
deals all belong to the promotion element, yet the former often improve brand equity
while the latter often harm brand equity (Yoo et al., 2000). Therefore, a brand equity
model is proposed in which marketing activities relate to the company’s brand equity,
with its facets of the consumers’ cognitive, emotional and conative focus on the brand
(Figure 1). The model is divided into three parts: marketing activity, marketing mix,
and marketing consequence. In order to arrive at a desirable marketing consequence
(i.e. strong brand equity), companies should exhibit solid performance in the marketing
mix (e.g. product, pricing). In order to improve performance in the marketing mix (e.g.
product), companies may act on the corresponding marketing activities (e.g. product
design, payment, etc). Several points need to be noted.
(1) Elements in the model are not exhaustive. The number and the content of the elements
may vary from one company to the other. Figure 1 uses an insurance provider as an
example. A manufacturing company such as an automobile manufacturer could
have very different features from what is in the figure.
(2) Brand equity is expressed in the willingness of individuals to form an emotional, cog-
nitive and conative bond with the product. The stronger the bond, the more likely con-
sumers are to purchase the brand (Rossiter & Percy, 1987; Solomon, 1983).
(3) Across the industry, the relevance of the respective marketing element to brand equity
varies considerably according to the sector and company. In some sectors, the type and
content of the advertising message may contribute significantly to the brand equity,
whereas in other sectors the technical sophistication of the products might be the
most important (Dawar & Parker, 1994). There is no generally valid information on
the importance of individual activities or drivers for strengthening the brand
Building Brand Equity via Product Quality 533
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
(Smith, 1992). Therefore, it is crucial for each company to determine the importance
of elements individually.
(4) Within a specific company, various marketing elements may have very different
effects on brand equity. Some particularly strengthen the brand whereas others do
not have any effect and some are in fact detrimental to the brand (Smith, 1992).
Thus, companies should try to discern elements that are functioning from those that
are dysfunctional or even destructive so that they can adjust accordingly.
Since the contribution of marketing elements to brand equity can vary greatly by
company, the important question becomes how can a company decide whether their mar-
keting elements are functioning properly? If they are not, how can they adjust them so that
brand equity can be enhanced?
Enhancing Brand Equity
The model can be estimated with a cause analysis. The characteristic level and its contri-
bution to brand equity can be determined for each activity forming the marketing mix.
Essentially, results of the parameter estimate can be presented as a two-dimensional Import-
ance–Efficiency matrix. The importance refers to the relative significance of a marketing
activity in strengthening the brand. It is numerically determined by the contribution of
each marketing activity to the brand equity. The efficiency indicates whether and to what
extent the company can boost a marketing activity’s performance in view of consumers. It
is numerically determined by consumers’ assessment of the company’s marketing activities.
Based on the Importance–Efficiency matrix, four possible courses of action may be
derived to monitor and enhance brand equity. In principle, companies should reduce
resources on all activities that exhibit low importance and little efficiency. For those activi-
ties that possess high importance and high efficiency, companies should try to maintain the
resources level spent on them. Assessment is critical for activities showing low importance
Figure 1. A brand equity model
534 A. Herrmann et al.
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
yet high efficiency. After verification, the brand manager may be better off by relocating
resources spent on these activities. The resources that may be freed up should be used to
speed up those activities that have high importance yet low efficiency in strengthening the
brand. In addition to this, the brand equity change over time should be determined to track
whether and to what extent the adjusted marketing activities have actually contributed to
strengthening the brand (Srivastava & Shocker, 1991). If needed, the brand equity model
should be evaluated again and resources be further adjusted until the brand equity develops
to the desired level.
Empirical Illustration
Method
Subjects. A study was conducted with existing customers of a leading insurance
company in Germany, with German as the instruction language. In accordance with the
research agreement, the name of the company is not disclosed here to ensure anonymity.
A pilot test was administrated to 67 subjects to check the initial draft of the questionnaire.
A few items were modified accordingly. The final study had 376 respondents, of whom
52% were male, 96% held high school or above degree, 74% had a household income
of E30,000 or above.
Measures. Given the vast amount of literature, the measures for brand equity were
drawn and adapted from past research. Whenever needed, scales were professionally
translated from English to German with back translation to ensure conceptual equivalence
(Mullen, 1995). In accordance with Keller (1993), brand equity is defined as ‘the differ-
ential effect of brand knowledge on consumer response to the marketing of the brand’
(Keller, 1993: 12). It includes consumers’ cognitive, emotional and conative focuses on
the brand. The indirect approach proposed by Keller is used to measure the brand
equity. For marketing mix variables, exploratory interviews were conducted to establish
proper measures given that different companies have different forms of marketing activi-
ties. The marketing mix variables in this context refer to consumers’ evaluation of the com-
pany’s performance in each area. They are formed by the marketing activities the company
conducts (Fornell & Bookstein, 1982). In the final questionnaire, measures for all con-
structs were on a five-point scale with 1 ¼ ‘Strongly Disagree’ and 5 ¼ ‘Entirely Agree’.
Cognitive Focus reflects the extent to which the brand is anchored in the world as envi-
saged by the consumer. The seven-item scale in Beatty & Kahle (1988) was adapted to
measure this construct. Exemplar items are ‘This insurance company is an advertisement
for German business’ and ‘The management of the company is exemplary’.
Emotional Focus records consumer’s emotional bonds with the brand triggered by feel-
ings. Nine indicators are selected from past research to measure this dimension (Rossiter
& Percy, 1987). Exemplar items are ‘My impression of this insurance company is that it is
friendly’ and ‘I am very pleased to wear a pullover bearing this company’s logo’.
Conative Focus often reflects consumer’s behavioral intention toward the focal brand
(Mahajan et al., 1994). Four items from the literature (e.g. Yoo et al., 2000) were
adapted to measure this dimension. Exemplar items are ‘I would be pleased to purchase
all financial services from this company’ and ‘I recommend the products of this
company to friends and acquaintances’.
Building Brand Equity via Product Quality 535
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
Marketing Mix variables are the drivers of brand equity. Several researchers have advo-
cated the use of formative rather than reflective indicators to measure marketing mix (e.g.
Diamantopoulos & Winklhofer, 2001; Fornell & Bookstein, 1982). Their suggestions were
followed in this study. To establish the full spectrum of marketing activities that would
form the marketing mix variables, the vast amount of literature on marketing mix were
reviewed. In addition, a series of five exploratory workshops were conducted with a
total of 110 customers of the insurance company. During the workshops, participants in
groups discussed the important attributes of insurance products and they explained why
these attributes are important for them. They explained how and what they talk about
regarding insurance products in their social environment. They proposed how they
would change insurance products in order to gain competitive advantage if they were man-
agers. They also described the purchasing process of insurance products for themselves
and for their relatives. Further, they indicated what a competitor of their insurance
company should do in order to make them switch. Through these workshops, five
salient performance areas corresponding to the company’s marketing mix were identified:
product, field personnel, communications, in-house personnel, and company resources.
The product performance area includes such indicators as ‘Attractiveness of the price-
performance ratio’ and ‘Consideration of individual requirements’. The area of field
personnel includes items such as the ‘Technical knowledge of the adviser’ and the ‘Friend-
liness of the adviser’. The communications performance area includes indicators such as
‘Presence of the company in the relevant media’ and ‘Convincing arguments in communi-
cations’. The area of in-house personnel is measured by items such as ‘Reliability of the
administration’ and ‘Goodwill in the event of a claim’. Finally, the area of company
resources subsumes items such as ‘Careful handling of insurance premiums’ and
‘Serious style of senior managers’.
Analysis. LISREL was run to purify the reflective measurement of the dependent vari-
able brand equity while the partial least squares (PLS) approach was applied to estimate
the structural model because of the formative nature between marketing mix variables and
their indicators (Fornell & Bookstein, 1982; Fornell et al., 1991; Lohmoller, 1989).
Results
Measurement calibration of brand equity. As previously discussed, brand equity has
three dimensions. An exploratory factor analysis was first administrated to eliminate those
items with low factor loadings, resulting in the selection of two items for the cognitive
dimension, three items for the emotional dimension, and three items for the conative
dimension. A second-order confirmatory factor analysis was further run to validate the
measurement for this construct. Fit indices indicated a fair fit between the measurement
model and the data (x 2(18) ¼ 85.24; GFI ¼ 0.94; CFI ¼ 0.92; TL ¼ 0.87). Table 1
further presents the measurement validation information for the brand equity construct.
Measurement for the cognitive focus and the conative focus showed relatively low
reliability, which probably further weakened the overall fit between the model and the
data. Nevertheless, we chose to proceed with the analysis provided that (1) this study is
one of only a few of its kind in the literature; and (2) should solid research findings be
obtained with weak measurement then it is probable that improved results would be
found with stronger measurements.
536 A. Herrmann et al.
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
Table 1. Measurement validation of the brand equity construct
Std factor loading t-value Composite reliability Coefficient reliability
First OrderCognitive Focus 0.63 0.66
I pay considerable attention to the annual reportand other communications
0.65a
The management of the company is exemplary 0.70 9.22Emotional Focus
The company’s insurance is the best product inthe market.
0.79a 0.71 0.77
My impression of this insurance company is thatit is friendly
0.56 9.18
The company provides best value to customers. 0.65 10.59Conative Focus
Even though the terms are not always the best, Iintend to remain a customer in the long tem
0.58a 0.55 0.60
I would be pleased to purchase all financialservices from this company
0.52 7.21
I stand up for the interests of this insurancecompany vis-a-vis third parties
0.52 7.27
Second OrderBrand equity
Cognitive Focus 0.92a 0.96Emotional Focus 0.99 9.60Conative Focus 0.90 7.96
Goodness-of-fit statisticsx2 (18) 85.24 RMSEA 0.09
GFI 0.94 NFI 0.90CFI 0.92 TLI 0.87
Note: a Fixed parameter.
Bu
ildin
gB
rand
Eq
uity
via
Pro
du
ctQ
uality
53
7
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
Measurement calibration of marketing mix. The procedure illustrated by Diamanto-
poulos & Winklhofer (2001) was closely followed to establish the formative measures
for marketing mix elements. Specifically, attention was focused on content specification,
indicator specification, indicator collinearity, and external validity. Content wise, the lit-
erature review and the workshops resulted in five salient performance areas including
product, field personnel, communications, in-house personnel, and company resources.
Further, the exploratory workshops helped identify the appropriate indicators for each
of those five areas. The number of indicators range from 4 (company resource perform-
ance) to 9 (in-house personnel performance). Participants of the workshops agreed that
these indicators have sufficiently covered the scope of each performance area for the
focal insurance company. The iterative regression analysis recommended in Hair et al.
(1998) was run to detect potential indicator collinearity. Of all the regressions, no variable
appears to be a perfect linear combination of the rest of the indicators. Further, the lowest
tolerance value was 0.37 which is far above the cut-off threshold of 0.10. Thus, indicator
collinearity was not an issue for any of the five identified marketing mix constructs.
To assess the external validity, multiple indicators and multiple causes (MIMC) models
were conducted with the Partial Least Square (PLS) method. Following Diamantopoulos
& Winklhofer (2001), in each MIMC model, the marketing mix construct was formed by
its indicators, and was further measured by two reflective indicators (see Table 2). Esti-
mation of the models yielded good fit for all five models. The lowest fit was for the in-
house personnel performance with x(5)2 ¼ 7.68, RMSEA ¼ 0.04, GFI ¼ 0.99,
CFI ¼ 1.0, NFI ¼ 1.0. On the other hand, some of the gs turned out to be non-significant,
which suggested that perhaps not all indicators should be included to form the constructs.
Thus, models were re-estimated after eliminating non-significant indicators. The new
models still yielded a good fit and indicator elimination did not alter the nature of con-
structs. The final indicators of the marketing mix constructs are presented in Table 2.
Finally, the correlations between the five marketing mix variables were examined for
discriminant validity. The bivariate correlations range from 0.36 to 0.61, all in the mid
range. Further tests (Kanji, 1993: 34) indicated they are all significantly smaller from
1.0 (Z score ranging from 33.79 to 39.60). All the above information shows good validity
for the marketing mix constructs.
Model evaluation. Given that the model has factors with both formative and reflective
indicators, PLS method was applied for model evaluation (e.g. Diamantopoulos & Winkl-
hofer, 2001; Fornell & Bookstein, 1982; Wold, 1985). The deterministic fit index R 2 was
0.32 which is good. It suggests that the specified model explains a reasonably large amount
of variance in the brand equity construct. The magnitude of the path coefficients can be
further examined (Arnett et al., 2003; Chin, 1998). Results can be found in Table 2. It
appears that product performance has a crucial influence on the insurance company’s
brand equity (g ¼ 0.22, SE ¼ 0.07). In contrast, the communications performance has
hardly any effect on brand equity (g ¼ 0.03, SE ¼ 0.07).
Importance–efficiency matrix. PLS analysis gives the weight and loading information
of each indicator on its construct. The product of weight and loading represents the unity
contribution of the indicator to the construct. This is expressed as the impact coefficient in
Table 2. With this information, the contribution of each individual marketing activity to
the brand equity could be calculated as multiplying the impact coefficient and the effect
of the corresponding performance area on brand equity. This reflects the importance of
538 A. Herrmann et al.
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
Table 2. Efficiency and importance of brand equity drivers
Effect on
brand equity
(Std. Error)
Formative indicators
(reflective indicators in measurement calibration)
Impact
coefficientaImportance
scorebEfficiency
scorec
Product 0.22 (0.07) Consideration of individual requirements 0.62 0.14 2.81Understandability and transparency of conditions 0.56 0.12 2.53Options for terminating the policy 0.20 0.04 2.34(Attractiveness of the price-performance ratio) – –(Overall the product performance fulfils my expectations)
Field Personnel 0.16 (0.06) Personal relationship to adviser 0.76 0.10 1.99Explanation by the adviser 0.76 0.12 2.06Technical knowledge of the adviser 0.11 0.02 2.42Trust in the adviser 0.24 0.04 2.27Adviser gives advice in the customers’ interest 0.10 0.02 2.32Friendliness of the adviser 0.27 0.04 2.36(Relationship with customer like a partnership) – –(Overall field personnel performance fulfils my expectations)
Communications 0.03 (0.07) Convincing argument s in advertising 0.31 0.01 2.04Initial literature 0.57 0.02 2.09Corporate image to engender trust 0.40 0.01 2.10Company operates unobtrusively 0.01 0.00 2.19(Presence of the company) – –(Overall communication performance fulfils my expectations)
In-house Personnel 0.17 (0.07) Reliability of the administration 0.25 0.04 3.10Understandability of correspondence 0.56 0.10 3.46Fast payment in the event of a claim, without bureaucracy 0.37 0.06 3.15Transparency of insurance premium calculation 0.16 0.03 2.62Friendliness of administrative personnel 0.28 0.05 2.72Goodwill in the event of a claim 0.10 0.02 2.07(Competence of administrative personnel) – –
(Table continued)
Bu
ildin
gB
rand
Eq
uity
via
Pro
du
ctQ
uality
53
9
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
Table 2. (Continued)
Effect on
brand equity
(Std. Error)
Formative indicators
(reflective indicators in measurement calibration)
Impact
coefficientaImportance
scorebEfficiency
scorec
(Overall in-house personnel performance fulfils my expectations)Company Resources 0.06 (0.07) Serious style of the senior managers 0.72 0.04 2.83
Qualification of senior managers 0.23 0.01 2.57Careful handling of insurance premiums 0.39 0.02 2.47(Sensible investment of insurance premiums) – –(Overall company performance fulfils my expectations)
Note: aImpact Coefficient ¼ Weight � Loading, both available in the PLS result.bImportance Score ¼ Effect of the construct on brand equity � Impact coefficient.c Efficiency Score ¼ Mean of the indicator.
54
0A
.H
errma
nn
etal.
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
the individual marketing activities to brand equity. For instance, the technical knowledge
of the adviser has an effect of 0.11 on the field personnel performance area, which in turn
has an effect of 0.16 on the brand equity variable. Therefore, the influence of the adviser’s
technical knowledge on the company’s brand equity is 0.02. As shown in Table 2, different
performance areas have a dissimilar contribution to the insurance company’s brand equity.
Even within the same performance area, different marketing activities exhibit a different
effect on brand equity.
The mean of each marketing activity reflects consumers’ perception of the company’s
performance on that dimension. From the company’s perspective, this score indicates the
extent the company can further boost its performance on the dimension. Thus, this mean is
called the efficiency of the company’s marketing activity (see Table 2). For example, the
efficiency score for the item ‘explanation by the advisor’ is 2.06 (out of a maximum 5).
Thus, the company still has space to improve on this dimension. However, the priority
of such improvement should be determined by the joint consideration of its importance
and efficiency. Once the importance and efficiency scores were obtained for each market-
ing activity, an importance–efficiency matrix can be constructed as in Figure 2. The
matrix permits the identification of concrete marketing actions and the associated reallo-
cation of financial and human resources.
Resource reallocation to enhance brand equity. In principle, companies should reduce
resources on all activities that exhibit low importance and little efficiency, i.e. those in the
lower left area such as K1 and K2. For activities that possess high importance and great effi-
ciency, i.e. those in the upper right area such as I2 and P1, companies should try to maintain
the resources level spent on them. For activities showing low importance yet high efficiency,
i.e. those in the upper left area such as I1 and U1, companies may gradually reduce resources
spent on them. The freed-up resources should be relocated to activities with high importance
Figure 2. Importance–efficiency matrix for the insurance company
Building Brand Equity via Product Quality 541
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
yet low efficiency, i.e. those in the lower right area such as A1 and A2. In the current case, the
insurance company adjusted their marketing activities in line with the importance and effi-
ciency values. Attention was drawn to the activities in the product performance area, which
were all modified, amplified and, in some cases, redesigned at the start of 1999, taking
account of costs. In addition, the company’s communications were changed to the extent
that conventional advertising and the provision of unspecific information no longer
played a role. These activities – in interaction with the changed market conditions –
have brought about a considerable increase in the brand equity, which was measured in a
tracking study between 1998 and 2000. In the study, both scores of the overall brand
equity and the three dimensions were obtained, and all increased over time (Figure 3).
Discussion
All companies are striving to establish and maintain strong brand equity. It is essential to
find an effective approach to doing so. We proposed an approach to assess and further
enhance companies’ brand equity. Specifically, the proposed brand equity model relates
marketing activities to brand equity. This indicates a practical way to assess the import-
ance and adequacy of a company’s daily operation in contributing to its brand equity.
The importance-efficiency mix further provides management with feasible suggestions
on adjusting their marketing activities. Tracking brand equity over time allows managers
to evaluate the effectiveness of such adjustment. An empirical study with an insurance
company was conducted to illustrate the practical application of the proposed approach.
Using the approach, the insurance company has successfully enhanced their brand
equity. This clearly attests to the managerial value of the proposed approach.
Although our illustration uses data from the insurance industry, the proposed approach
is not limited to the insurance industry. With adaptations, it could be generalized to both
Figure 3. Brand equity development over time
542 A. Herrmann et al.
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
manufacturing sectors and other service areas. For example, when applying to the manu-
facturing sector, the traditional marketing mix (product, pricing, distribution, and pro-
motion) will be more relevant. In addition, the marketing activities relating to each
marketing mix could be very different from what we have in this study. The specific con-
tents of such marketing activities will greatly depend on the focal company. Exploratory
interviews with managers and customers, such as we did in this study, will be very useful
in identifying these activities.
The current empirical study was conducted with an insurance company in Germany.
This reduces the concern by many academicians and practitioners who feel that propor-
tionally too many studies are conducted in the US. The proposed approach is not con-
strained by any country specific variables (e.g. social, political, and cultural factors).
Thus, it holds sufficient flexibility to be applied in various countries.
Limitations and Future Research
The approach presented is among the early attempts of its kind, highlighting a few diffi-
culties that need to be explored by future research. First, the proposed approach only con-
siders the main effect of marketing activities on company’s brand equity. Potential
interaction effects between the individual measures were not taken into account. Numer-
ous interaction effects occur in the concrete implementation but, to date, these are not
recorded adequately. As a result, only a few approaches for modeling such occurrences
can be found in the literature. Future research should look into this issue.
Second, the current study was conducted with an individual company and it tracked the
effectiveness on a survey basis, which, strictly saying, is not sufficient to claim causality.
Suitable experiments are required to record the effect of individual measures on the change
of brand equity in the sense of a causal analysis. These must be designed so that all other
influencing factors are constant, thus ensuring that the effect that is of interest can be ana-
lyzed without any adulteration of data whatsoever occurring. This might be difficult in a
conventional sense. Thus, one aspect future research could improve on is to include mul-
tiple companies in the study. Should the approach yield positive results for all companies,
then the confidence on the proposed approach will surely increase. Further, in the current
study, only brand equity was included in the model. In the future, the model presented in
Figure 1 could be expanded to include other performance variables such as sales, market
share, or profit. In this way it can be more properly identified whether and to what extent
the activity concerned has a successful effect on brand equity.
Third, the current study only assessed the importance–efficiency matrix one time. It is
highly likely that the importance and efficiency values are not constant over time. Individual
performance dimensions may become less important for strengthening the brand, whereas
others may gain importance. Consequently, companies adopting the approach should carry
out studies every two to three years to reassess the importance and efficiency of the individual
measures, and resource adjustment should be done accordingly.
References
Aaker, D. A. (1996) Measuring brand equity across products and markets, California Management Review, 38,
pp. 102–120.
Building Brand Equity via Product Quality 543
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4
Arnett, D. B. et al. (2003) Developing parsimonious retailer equity indexes using partial least squares analysis: a
method and applications, Journal of Retailing, 79, pp. 161–170.
Beatty, S. E. & Kahle, L. R. (1988) Alternative hierarchies of the attitude-behavior relationship, Journal of the
Academy of Marketing Science, 16, pp. 1–10.
Berry, L. L. (2000) Cultivating service brand equity, Journal of the Academy of Marketing Science, 28, pp. 128–137.
Boulding, W. et al. (1994) Mastering the mix: do advertising, promotion, and salesforce activities lead to differ-
entiation?, Journal of Marketing Research, 31(2), pp. 159–172.
Chay, R. & Tellis, G. (1991) Role of communication and service in building and maintaining brand equity, in:
E. Maltz (Ed.) Managing Brand Equity, pp. 26–27 (Cambridge, MA: Marketing Science Institute).
Chin, W. W. (1998) Issues ad opinions on structural equation modeling, MIS Quarterly, 22, pp. 7–16.
Dawar, N. & Parker, P. (1994) Marketing universals: consumers’ use of brand name, price, physical appearance,
and retailer reputation as signals of product quality, Journal of Marketing, 58(2), pp. 81–95.
Diamantopoulos, A. & Winklhofer, H. (2001) Index construction with formative indicators: an alternative to scale
development, Journal of Marketing Research, 38, pp. 269–277.
Dodds, W. B. et al. (1991) Effects of price, brand, and store information on buyer’s product evaluation, Journal of
Marketing Research, 28, pp. 307–319.
Ferris, P. et al. (1989) The relationship between distribution and market share, Marketing Science, 8(2), pp. 107–127.
Fornell, C. & Bookstein, F. (1982) Two structural equation models: LISREL and PLS applied to consumer exit-
voice theory, Journal of Marketing Research, 19(4), pp. 440–452.
Fornell, C. et al. (1991) Direct regression, reverse regression, and covariance structure analysis, Marketing
Letters, 3, pp. 309–320.
Hair, J. F. et al. (1998) Multivariate data analysis, 5th edn (Upper Saddle River, NJ: Prentice Hall).
Kamakura, W. A. & Russell, G. J. (1993) Measuring brand value with scanner data, International Journal of
Research in Marketing, 10(3), pp. 9–21.
Kanji, G. K. (1993) 100 Statistical Tests (Delhi: Sage).
Keller, K. L. (1993) Conceptualizing, measuring, and managing customer-based brand equity, Journal of Market-
ing, 57(1), pp. 1–22.
Keller, K. L. (1998) Strategic Brand Management: Building, Measuring, and Managing Brand Equity (Upper
Saddle River: Prentice Hall).
Keller, K. L. (2001) Building customer-based brand equity; creating brand resonance requires carefully
sequenced brand-building efforts, Marketing Management, 10(2), pp. 15–19.
Keller, K. L. & Lehmann, D. R. (2003) How do brands create value?, Marketing Management, 12(3), pp. 26–31.
Lohmoller, J. B. (1989) Latent variables path modeling with partial least squares (Heidelberg: Springer).
Mahajan, V. et al. (1994) An approach to assess the importance of brand equity in acquisition decisions, Journal
of Product Innovation Management, 11, pp. 221–235.
Matzler, K. et al. (2005) The relationship between customer satisfaction and shareholder value, Total Quality and
Business Excellence, 16(5), pp. 671–680.
Mullen, M. R. (1995) Diagnosing measurement equivalence in cross-national research, Journal of International
Business Studies, 26(3), pp. 573–596.
Rossiter, J. R. & Percy, L. (1987) Advertising and Promotion Management (New York: McGraw-Hill).
Shocker, A. D. et al. (1994) Challenges and opportunities facing brand management: an introduction to the
special issue, Journal of Marketing Research, 31, pp. 149–158.
Smith, D. C. (1992) Brand extensions and advertising efficiency: what can and cannot be expected, Journal of
Advertising Research, 32(6), pp. 11–20.
Solomon, M. R. (1983) The role of products as social stimuli: a symbolic interactionism perspective, Journal of
Consumer Research, 10, pp. 319–329.
Srivastava, R. & Shocker, A. D. (1991) Brand equity: a perspective on its meaning and measurement (Marketing
Science Institute Working Paper Series, Report No. 91-124, Cambridge).
Wold, H. (1985) Partial least squares, in: S. Kotz (Ed.) Encyclopedia of Statistical Sciences, pp. 481–491
(New York: Wiley).
Yoo, B. et al. (2000) An examination of selected marketing mix elements and brand equity, Journal of the
Academy of Marketing Science, 28(2), pp. 195–211.
544 A. Herrmann et al.
Dow
nloa
ded
by [
Uni
vers
ity o
f N
ew E
ngla
nd]
at 1
9:45
27
Oct
ober
201
4