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The Theoretical Separation of Brand Equity and Brand Value

The Theoretical Separation of Brand Equity and Brand Value. 2006 Winter AMA Marketing Educator’s Conference February 18, 2006. Randy Raggio raggio@cob.osu.edu The Ohio State University. Bob Leone leone_7@cob.osu.edu The Ohio State University. Motivation.

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The Theoretical Separation of Brand Equity and Brand Value

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  1. The Theoretical Separation of Brand Equity and Brand Value 2006 Winter AMA Marketing Educator’s Conference February 18, 2006 Randy Raggio raggio@cob.osu.edu The Ohio State University Bob Leone leone_7@cob.osu.edu The Ohio State University

  2. Motivation • In 1994, Honda introduced the Passport, an Isuzu Rodeo that cost $5,000 more than the Rodeo, without a roof rack, and a 1-year vs. 5-year warranty • The first author bought the Rodeo • How does Honda recognize value from this action? • How do we distinguish brand equity, customer equity and brand value? Raggio/Leone 2006 Winter AMA

  3. Equity vs. Value • Firms A and B bid on Brand 1 Brand 1 Firm A Firm B $ Valuation $ Valuation Consumer-Based Brand Equity • Equity and Value are distinct constructs • Value is idiosyncratic to the bidding firm • Each firm attempts to objectively measure equity Raggio/Leone 2006 Winter AMA

  4. Brand Valuation Follow the Money: A firm’s perspective Aggregate up to: Outcomes have become the measure of brand equity Individual-level Outcomes Brand-level Outcomes Impact: Shareholder Value Brand Value: Sale or replacement price of the brand Estimates will vary with capabilities and resources Brand Value Aggregate up to: Raggio/Leone 2006 Winter AMA

  5. Moving Upstream • What drives Individual-Level Outcomes? Generates: The consumer’s perspective Environment Brand Knowledge Leads to: Individual-level Outcomes Brand: A promise of benefits Consumer-Based Brand Equity Brand Equity: Perception or desire that a brand meets a salient promise Impacts: Raggio/Leone 2006 Winter AMA

  6. Equity ≠ Outcomes Marketing Actions - Product offering - Advertising - Promotion, etc. Mktplace Info., etc. Consideration Purchase WOM Loyalty Commitment, etc. Input Individual-level Outcomes Salience Consumer-Based Brand Equity Strength Brand Equity: Perception or desire that a brand meets a salient promise Brand: A promise of benefits Raggio/Leone 2006 Winter AMA

  7. Customer Equity • Passport vs. Rodeo example: • The Rodeo lasted 11 years • Next purchase: • Honda Odyssey • Isuzu may have received value from my purchase, but motivation indicated more equity and a higher CLV for Honda • Honda now needs to leverage existing equity to capture Customer Equity • C.E. is the customer-based portion of brand value Raggio/Leone 2006 Winter AMA

  8. Leverage Equity Separate Constructs • The goal is to build and leverage equity. Consumer-Based Brand Equity Environment Brand Knowledge Individual-level Outcomes Build Equity (4 P’s) Shareholder Value Company-Based Brand Value Brand-level Outcomes Raggio/Leone 2006 Winter AMA

  9. So What? • Confusing Equity and Value is like confusing the likelihood and loss functions • Individuals may have threshold levels that must be passed before Brand Equity impacts behavior • Promise of benefits is context-specific, so Brand Equity may exist within individuals, but may only be “active” when the promise is salient • “Leveraging” opens for consideration other segments, markets, products/services (e.g., IBM, Scotts) Raggio/Leone 2006 Winter AMA

  10. Brand Value • At a point in time, for a particular firm, there are two levels of brand value Given fully-leveraged Brand Equity Appropriable value Brand Value Gap is a function of a firm’s ability to leverage Brand Equity Current value Given current strategy, management, etc. Raggio/Leone 2006 Winter AMA

  11. Brand Value • Over time, both current and appropriable value can change Sale of Cracker Jack to Frito-Lay Appropriable value Appropriable value Chasing appropriable value Chasing appropriable value Current value F-L’s “system” value Borden “max” Current value P&G time ADA approval of Crest time Borden Frito-Lay Raggio/Leone 2006 Winter AMA

  12. What This Means… • Managerial goal is to build and leverage equity to generate (chase) value • Brand Value also comes from sources not directly related to consumers(e.g., HR) • Effective strategy is based on a comprehensive understanding of the relationship between equity and value • Tactical decisions follow analysis of the drivers of equity and the linkage between equity and value • Optimization methodologies (e.g., CRM) should always be considered in the context of the larger framework Raggio/Leone 2006 Winter AMA

  13. New Framework Raggio/Leone 2006 Winter AMA

  14. Thank you! Raggio/Leone 2006 Winter AMA

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