MEASURING BRAND EQUITY

MODULE 4
Brand Equity can be based on one of
the following:

Cost Based
Price Based
Consumer Based

Brand Equity
Cost Based Price Based
Consumer Based

Historical Cost
Replacement Cost
Market Value
Method
Discounted cash
flow method
Brand Contribution
method
Interbrand Method

Price Premium
Equalization Price
Indifferent Price

Brand Knowledge
Attribute rating
Blind Test
COST BASED METHODS

Historical Costs: This is the money that has been spent on the
brand till date. Suppose $100 million have been spent so far in
creating a brand called X. The value at which the brand can be
sold to another organization should be $100 million.

Replacement Costs: This is the cost of how much would it cost
to create a brand with similar turnover, profitability, distribution
reach, brand loyalty, etc.? This cost is its brand equity

Replacement Cost= Launch cost + production & administrative
costs incurred over the years + brand premium acquired over the
years due to brand loyalty, distribution etc.


- Market Value Method: The brand value for a particular brand is
obtained by comparing it with the value that has been realized in a
comparable, current merger or acquisition.
PRESENT
Brand Taken Over By Price
Eveready Mcleod Russel 66
Kelvinator Whirlpool 57
Farex, Glucon-D etc. Heinz 47
Thums Up, Gold Spot Coca Cola 41
Cibaca Colgate 30
Transelektra Godrej 18
(in million $)



Discounting Cash Flow Method
This method consists of
estimating the cash flows that would accrue to a brand in future;
converting these to present value using the time value of
money.
For eg.: For ABC Fans the estimate of Sales for the next 10
years is S1, S2,S3S10 and a discount of 15% is
applicable to these amounts, the present value of cash flows
is as given below:
P= S1/(1.15)+S2/(1.15)2+ S3/(1.15)3+S10/(1.15)10
Where P is the value at which the brand can be sold off to
another organisation, or the measure of brand equity. The
method is predictable when companys turnovers are stable
and predictable.

Brand Contribution
This method tries to identify the value that is added
by the Brand to the product. Brand contribution
compares the profits earned by an unbranded or
generic product in the same category. The difference
between the two is treated as a measure of brand
value.
Brand Equity= K x (profits from the brand -profits for
an unbranded product in the same category)
K is a suitable integer to be decided at the time of sale.


Inter-brand Method
The Interbrand Co., UK developed a structured method for arriving at
brand equity. This method aims at arriving at a value at which a brand
can be sold by one company to another. The steps used in this method
are described below:
The weighted average of the last three years profits of the brand is
computed.
This figure when multiplied with a number gives the value of brand equity.
The number is arrived at by multiplying the P/E of the company or industry
in which the company operates and a factor called brand strength.
Brand strength is dependant on certain variables like leadership, stability,
internationality, etc. of the brand.

Brand Equity= (weighted average of brand profits x P/E of
the industry x Brand Strength)

Consider a Brand X whose profit is shown below:

Year
Profits ($ in million)
Weightage
1993 15 1
1994 20 2
1995 30 3

Average Profit = (15 x 1) + (20 x 2) + (30 x 3)/ 1+2+3
= $ 24.2 million
Brand Strength depends upon the variables given below.
The implication of the variables is also explained.
Factors
Implications
Maximum
Score
Score for
Brand X
Leadership

Is the brand a leader in market
share, pricing
Is there brand loyalty? Does the
brand have stable market share?
What is the brands acceptance
level internationally?
Is the brand actively promoted and
supported by the company?
Is it adequately protected by
trademark?
Is the market in which the brand
operates stable?
What is the future of the brand in
the long term?

Stability

Internationality

Support

Protection

Market

Trend
25
15
15
15
5
5
20
13
7
1
8
2
2
10
Total 100 43
Brand Strength Score = 43/100 = .43
Suppose the P/E value of the industry is 15, then the
multiple = brand strength score x P/E
= .43 x 15 = 6.45
Brand Equity = 6.45 x 24.2 = $156.09 million
PRICE BASED METHODS

Price Premium Method: This is done by comparing
the difference between the retail price of the brand
and the retail price of an unbranded product in the
same category. The difference will give an indication
of brand equity. Higher the retailer premium that a
brand can charge, greater is its equity in the mind of
the customer.
Market Share Equalization Method: This method
focuses on a given situation, where at what cost hike
will the customers switch to other competition brands.

Brand Prices- $ per 100 gm No. of People
Colgate 17.40 65
Close-Up 22.50 20
Whitedent 17.40 5
Crest 14.60 10
Brand Prices No. of People
Colgate 24.50 25
Close-Up 23.00 25
Whitedent 17.50 25
Crest 14.60 25
245 ------------------ Colgate

235 ----- ------------ Close-Up


175 ----- ----------- Whitedent

146 ------------------ Crest
Brand Equity Map
- Price Premium at Indifference: This method tries to
compare the free prices of brands at the point of
indifferences.
Brand Equity = {(Revised Price of Brand A/Price of Brand B) -
1} x 100
Brand Equity for Colgate = {(24.50/17.40)-1 }x 100= 40.8
Brand Equity for Crest = {(14.60/17.40)-1 }x 100= -16.09
43.6 ------------ Colgate 57.4 ----------- Colgate

0 ---------------- Whitedent 13.8 ----------- Whitedent

-13.8 ----------- Crest 0 ------------- Crest
CUSTOMER BASED BRAND EQUITY

Brand Knowledge Method: Brand
Knowledge can be expressed as a sum
of brand awareness and brand image.
Each of the parameters can be
measured on a scale of 1-10. A
weighted sum of these parameters will
be measure of brand equity.

Brand Knowledge
Brand Image Brand Awareness
Types of Brand
Association
Favourability of Brand
Associations
Strength of Brand
Associations
Uniqueness of Brand
Associations
Attributes
Benefits
Attitudes
Brand
Recall
Brand
Recognition
Non-product
related
Product
related
Price
Functional
Packaging User Imagery Usage Imagery
Experiential Symbolic
- Attribute Oriented Approach: Each attribute is ranked
on a scale of 1-10 and a weighted average is then taken.


DOVE IMPERIAL PALMOLIVE LUX
Freshness 8 7 8 9
Fragrance 7 7 7 8
Long Lasting 9 9 8 6
Appearance 8 7 6 5
Desirability 8 6 7 6
40 36 36 31
- Blind Test: A variant of the blind test is recommended by
researcher for measuring brand equity. Here a distinction is
sought to be drawn between subjective and objective attributes.
Brand Equity is this case is defined as the difference between
the overall performance of a brand and the sum of the scores it
obtains on the objective parameters.
Honda Suzuki Yamaha
Fuel Efficiency 6 9 8
Pick Up 6 6 7
Load Carrying 7 6 6



19 21 21
Out of 100 63 70 70
Brand Equity 82-63 87-70 72-70
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