MARKET R ESEARCH EXECUTIVE BOARD S EPTEMBER 2005 www.marketresearchexecutiveboard.com EXECUTIVE SUMMARY Overview of Brand Equity Measurement Approaches Catalog No.: MRC13LPFB1 © 2005 Corporate Executive Board UNDERSTANDING THE VALUE OF BRAND EQUITY RESEARCH Progressive companies se eking to utilize their brand as an effective bu siness drive r increasingly util ize brand equity research to help t hem understand which brand attributes imp act comp any performance. Through bran d equity research, companies can identify the brand drivers that build long-lasting customer loyalty and enhance company value. Research departments can justify resource expenditures on brand equity studies by citing the following bottom-line benefi ts of a brand equity focus. 1 Brand Valuation —As the intangible aspects of the brand remain key contributors to company assets, many organizations include the b rand’s financial value in their calculations. Utilizin g research to u ncover the financial value of its brands can boost the ma rket va lue of a company by an average of 70% of its tang ible net asset value. 2 Price Premium Analysis—By strengthening the key brand drivers identified through brand equity research, companies may develop the ability to charge a premium for their products, a nd thereby realize significant financial gains. Research finds that 72% of customers are will ing to pay a 20% premium for their brand of choice ov er the closest competitor. Additionally, in certain industries, increasing custome r loyalty by 2% impacts the bottom-line in the same way as a 10% reduction in costs. 3,4 Stock Performance Correlation—A comparison of companies’ financial performances finds that branded companies outperform and have low er volatility than industry benchmarks. Indeed, a composite of companies with brands deemed by business leaders as “superior” grew 402% in the 1990s while the Dow Jones Industrial Average rose only 308 %. Furthermore, research finds that companies with the largest gains in brand equity generated an average current -ter m stock re turn o f 30%, while companies with decreases in brand e quity lost 1 0%. 5, 6 1 Thomas Madden, Frank Fenle, and Susan Fournier, “Brands Matter: An Empirical Investigation of Brand-Building Activities and the Creation of Shareholder Value,” NYSE Composite Index (May 2002). 2 Tom Duncan and Sandra Moriarty, Driving Brand Value , New York: McGraw Hill (1997). 3 S. M. Davis, “Brand Asset Management for the 21 st Century,” Kuczmarsk i & Associates (1995). 4 R. Passikoff, “Brand Keys Customer Loyalty Index,” www.brandkeys.com (accessed 7 July 2005). 5 Kevin Keller, Strategic Brand Management: Building, Measuring, and Managing Brand Equity , Prentice Hall: New Jersey (1997). 6 Author Unknown, “Communicating Your Brand,” IR Guide (October 2000). Coca-Cola Microsoft IBM GE Intel $67 B $61 B KEY FINDINGS v Research indicates that companies engage in brand equity re search to enhance com pany value and bu ild long-lasting customer loyalty. Furthermore, researchers may gauge the bottom -line benefits of brand equity investments by assessing stock performance correlation, brand valuation, and price premiums. v Experts agree that brand equity consists of assets and liabilities associated with brand names and symbols. Companies seeking to build brands typically measure equity using qualitative consumer -driven factors, while companies seeking to understand current brand profitability may focus on quantitative data-driven factors. v Leading companies combine the complementary consumer- and dat a-driven approaches and integrate regular financial valuation with consumer perceptions of the brand to reach a more holistic view of brand equity.
