Brand Equity and Ockham’s Razor

January 4, 2011 at 9:31 am 1 comment

by Rob Wolfe – Connected Places Global

Brand equity is a set of assets (and liabilities) linked to a brand’s name and symbol that adds to (or subtracts from) the value provided by a product or service to a firm and/or that firm’s customers.
David Aaker, consultant and author on brand strategy

There are many different ways of measuring brand equity, but keep in mind that higher equity scores are not an end in and of themselves, says Randall Beard of Branding Strategy Insider. What’s needed is a more direct cause and effect quantification of how changes in brand equity actually cause changes in sales or market share, he says.

First of all, there’s the debate about whether fewer more powerful metrics are better than many different metrics that provide a broader picture of the equity of the brand. Brand managers and marketers might consider applying the “law of parsimony,” also known as Ockham’s Razor, attributed to the 14th-century English logician, William of Ockham who wrote “entities must not be multiplied beyond necessity” or “plurality should not be posited without necessity”. The Razor is a principle that suggests we should tend towards simpler theories until we can trade some simplicity for increased explanatory power. According to this tenet, when providing an explanation for an observed effect, the simple explanation consisting of a few “causes” is more reliable than the more complicated explanation that invokes many causal variables.

Imagine a world where we launch products but since we can’t measure the impact of brand equity on sales and market share, we stop trying to build brand awareness. This scenario is posed by Sandeep Khullar, Business Development Manager, Chicago. “We stop trying to differentiate our products and thus products become commodities. Retailers demand discounts that we can’t afford to give. I am sure no CFO will ever like that scenario. Thus we have no choice but to build brands. “ Khullar contends, “Measuring brand equity and linking that to sales and market share is an inexact science. I think in this time starved society, it is hard enough to get simple answers out of people, forget about measuring brand equity by surveying consumers. There are too many other factors going into sales and market share on a daily basis.”

So, then, how many and which brand equity measures should we use to relate improvements in sales and market share? Following are some common measures of brand equity highlighted in the book, Marketing Metrics: 50+ Metrics Every Executive Should Master.

Young and Rubicam Brand Asset Valuator:
Y&R maintains that four major dimensions dominate consumers’ beliefs about brands: perceived differentiation in the market, relevance to consumer lifestyles, the esteem in which consumers hold the brand, and the perceived degree of knowledge of the brand that consumers possess. Y&R claims that stronger brands attain high values across all four measures. Growing brands show higher values for differentiation and relevance. Declining brands show relatively higher values for esteem and knowledge.

David Aaker’s Brand Equity Evaluators:
This brand evaluation technique uses 11 unweighted tracking measures to diagnose brand strength: Differentiation, Satisfaction/Loyalty, Perceived Quality, Leadership/Popularity, Perceived Value, Brand Personality, Organizational Associations, Brand Awareness, Market Share, Market Price, and Distribution Coverage.

Interbrand’s Brand Valuation Model:
This proprietary measure is designed to separate tangible product value from intangible brand value. A figure for earnings associated with the brand is isolated by removing estimated earnings attributable to tangible assets from total earnings. Thus, this measure draws upon financial analyses or residual earnings forecasts, as well as market analysis of the role of brands in creating those earnings, in order to estimate the portion of profits attributable to the brands. This portion of the profits is then combined with growth and discount rates to estimate a value for the brand.

But the question still remains, how do you truly quantify the effect of brand equity on sales and market share? Casper Gorniok, MBA, MCIM, marketing and business development manager from the UK, says “I’m going to stick my neck out and say in a recession for many consumers, price rules. I’ve worked in Consumer Packaged Goods (CPG) for over 13 years. Retailers are only interested in rate-of-sale and profit per square foot. This is the key metric of the moment. “ As a classically trained marketer navigating the new world of digital marketing, Jim Matorin, Owner of Smartketing in Philadelphia feels “there are too many factors that come it to play. It depends/varies by the industry, products, services and time line (age) of the brand. “

Most marketing professionals would probably agree that measuring brand equity should involve a mix of perceptual, financial, and behavioral measures, tied to brand strategy. However, what is the right approach to quantifying brand equity? I’d like to hear your ideas or thoughts on this issue.

 

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Entry filed under: BRANDING, MARKETING STRATEGY, SALES. Tags: , , , , .

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1 Comment Add your own

  • 1. Jim Matorin  |  January 4, 2011 at 10:19 am

    Rob:

    I had to cut and save Aaker’s evaluators. Great list. Thank you for sharing. Differentiation is an area of focus for me these days thanks to all the clutter out there and one size no longer fits all. Youngme Moon’s book Different worth checking out and Google Stephen Brown’s old WSJ article Beyond Products where he advocates that product companies now need to provide services in addition to products.

    Jimmy

    Reply

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