Calculating brand equity: a new approach

A new approach for measuring, analysing and predicting a brand's equity in a product market allows managers to figure out how much more the company will earn if it invests in various kinds of branding activities.

by Management Science, Vol 51 No 9, September 2005
Last Updated: 23 Jul 2013

This is a significant contribution in a field in which the best that most researchers and marketing wizards alike have been able to do is measure consumers' preception of the brand, but not its effects in dollars and cents.

As part of the development of this mathematical model and market research method, brand equity is defined as the incremental contribution in monetary terms per year obtained by the brand in comparison to the underlying product (or service) with no brand-building efforts.

The incremental contribution is driven by the individual customer's incremental choice probability for the brand in comparison to his choice probability for the underlying product with no brand-building efforts.

The approach takes into account three sources of brand equity: brand awareness - simply getting your name to pop up in a consumer's mind when they think of a product category - is the most obvious. But there are also attribute perception biases: a consumer's belief that a brand is better than it really is; and non-attribute preferences: a consumer favouring a brand simply for the cachet of owning it.

The approach developed then reveals how much each of the three sources contributes to brand equity. This is done by taking into account not only the direct effects of these three sources on choice probabilities, but also the indirect effects through enhancing the brand's availability. The method provides 'what-if' analysis capabilities to predict the likely impacts of alternative strategies to enhance a brand's equity.

Applying the method to the digital cellular phone market in Korea, the survey-based results show brand awareness playing the largest role, followed by non-attribute preference, or the cachet of owning the brand. This means that a brand's 'image' provides a stronger incentive for buying even than the perception that it is a better product. But greater awareness of the brand is the major component driving brand equity.

Source: An approach to the measurement, analysis, and prediction of brand equity and its sources
V. Srinivasan, Stanford Graduate School of Business, Chan Su Park, Korea University Business School, Seoul and  Dae Ryun Chang, Yonsei Business School, Seoul
Management Science, Vol 51 No 9, September 2005

Review by Roger Trapp

Management Science, Vol 51 No 9, September 2005 recommends

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