Brand Equity

by

Sandra Moriarty, Giep Franzen

• LAST REVIEWED: 26 July 2016
• LAST MODIFIED: 26 June 2012
• DOI: 10.1093/obo/9780199756841-0085

Introduction

Brands, particularly superbrands like Ivory, Nike, and Mercedes-Benz, are important to companies because they add value for their owners, as well as for their customers. How does a brand add to a balance sheet? Brand equity measurement is defined, ultimately, by how one defines brand equity. That definition should have pragmatic value, effectiveness, and efficiency; the brand equity scores should give guidance to improve the branding. There are multitudes of ways in which brands can deliver different aspects of brand equity, and a brand might be strong on several counts. It is important, however, to identify which approach offers the most leverage for a specific brand. This will differ from brand to brand, category to category, and country to country. This review focuses on two basic approaches to brand equity: one explains the customer-focused brand equity dimensions, and the other explains market-focused brand equity factors. It concludes with an analysis of the way customer focus and market focus dimensions interact. A final section reviews various research methods used to analyze and calculate brand valuation.

Introductory Works

In 1988, Philip Morris paid $12.9 billion for Kraft, Inc. In financial terms, this was six times the value of the company’s tangible assets. So what was being purchased that justified this inflated price? The answer, as explained by Aaker and Biel 1993, is the intangible value of the Kraft brand, what it represented to its customers, its suppliers and distributors, its employees, its shareholders, and others that had some reason to value it—that is, its field of value. Philip Morris CEO Hamish Maxwell explained that his company needed a portfolio of brands with strong brand loyalty that could be leveraged to enable the tobacco company to diversify into the retail food industry. In other words, Kraft’s customer loyalty, as well as the investor, financial, and trade relationships tied to the brand, created the intangible value that led Philip Morris to pay billions more for Kraft than its physical assets could justify. As Duncan and Moriarty 1997 explains, Philip Morris was willing to pay billions for a set of relationships and for the anticipated support such relationships would provide. The accumulated value of these relationships is a measure of the brand’s financial equity.

• Aaker, D. A., and A. L. Biel, eds. 1993. Brand equity & advertising. Hillsdale, NJ: Lawrence Erlbaum.

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  An edited volume, this book is aimed at practitioners and focuses on the role of advertising in building strong brands.

• Duncan, T., and S. E. Moriarty. 1997. Driving brand value. New York: McGraw-Hill.

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  As products, pricing, and distribution are becoming commodities, companies are discovering that managing brand relationships through integrated marketing is the most effective way to increase brand equity.