Understanding Brand Value - Ipsos

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Understanding Brand ValueA Review of Price, Performance, Equity, andCategory DynamicsJohn HallwardDirector, Global Research and DevelopmentIpsos-ASI, Inc.

Understanding Brand ValueA Review of Price, Performance, Equity, andCategory DynamicsJohn HallwardTherefore, the objective of this paper isto summarize our work in finding a useful measure of brand value; using this measure of value in thecreation of a predictive model of brandsize, and brand growth/decline; determining the relationships betweenvalue and other key equity measures; learning about this combination ofmeasures and how they can be used toimprove the successful management ofbrands.EXECUTIVE SUMMARYArriving at an improved understandingof the role of price and value in influencinga brand’s success is a critical component inmeasuring a brand’s in-market performance.Most brand equity models do a reasonablejob in describing the attitudinal componentsof a brand’s profile, but it is often the casethat a brand with strong equity scores cansuffer a decline in market shares. Likewise,a brand with weak-looking equity canincrease in share over time, or become amajor player in its category. Store brandssometimes fall into this latter category.Usually, when these exceptions occur, itseems that the proper relationship betweenthe forces of price, quality, and relativeproduct performance, are playing criticalroles. In other words, how close a brand’sproduct performance comes to the “best inclass” brand, when weighed against itsrelative price, is being reflected in its shareperformance.The purpose of this paper is to explorethese dynamic forces, in order to improveour understanding of brand value. We willshow that it is possible to combine price andquality into a highly predictive measure ofvalue. We will also demonstrate that whenvalue is combined with other criticalmeasures of a brand’s success, we can betterunderstand why certain brands grow tolarger shares. We believe that this work canhelp improve a brand manager’s process ofmanaging his brand asset.The work described here is based on heEquity*Builder R&D database of 400 brands and 400,000 individual brandassessments, measured between 1998 and2003, including FMCG and non-FMCGbrands; and a new Price/Value database of100 FMCG brands, measured in 2003. Thequestions included in the dataset are:behavioral measures (incidence, constantsum of last five purchases), equity ty,andquality),categoryinvolvement, price measures (perception,price comparison), and dependent variables(purchase interest and price sensitivity).–2– 2005, Ipsos February 2005

words, brand choice is not a function ofprice alone. It is a function of brand value.Definitions:Loyalty: The behavior of buying thesame brand many timesEquity: The attitudes, imagery, andemotions associated with a brandHealth: The in-market competitivenessor strength of the brand; equity in thecontext of pricing, category, sensitivity,and brand substitutabilityMEASURING BRAND VALUEValue is a simple equation. It is basedon what you get for what you pay:What you getWhat you payFor premium priced brands, we find that“what you get” is often equivalent to abrand’s equity. However, for lower-pricedbrands, “what you get” is better defined byproduct performance because these brandslack much attitudinal equity. Thus, the“simple equation” above is not so simple.The numerator changes in its meaningbetween the premium quality brands(equity) versus the cheaper price-brands(product performance).We have chosen to separate theconcepts of behavior and attitudes into twodifferent measures. This is helpful becausealthough attitudinal equity correlates withbehavioral loyalty, we observe that not allbrands with good equity provide goodbehavioralloyalty,andvice-versa.OUR APPROACHFirst, we chose market share (usage) tobe the dependent variable for our analysis.That is, usage behavior is what we want toexplain and describe. A standard measure ofbehavior in the Ipsos Equity*Builder suite isthe constant sum (for example, “Pleasedivide your last five purchases in thiscategory among the brands.”) A constantsum question has been standard inEquity*Builder projects since the inceptionof the model. We have found that theconstant sum acts as an excellent predictorof brand behavior and market share.We have learned that equity needs to bemodified or adjusted by pricing, categoryinvolvement, and substitutability, to betterunderstand purchasing. Overall, price alonehas little relationship on purchase interest orpurchase loyalty.Constant Sum vs. Market Share2R 0.0660.050.0% Market ShareBrand Size (ConstantSum)Relative Price vs Brand Size40.0R2 0.873930.020.010.0Price Perception0.0Constant SumMany of the largest and most-successfulbrands are premium-priced. Marketers spendmillions of dollars supporting these brands,not only in the form of advertising supportof strong brand positions, but in the form ofproductdevelopmentandrelatedenhancements, to ensure that perceptions ofproduct quality match the reality. In otherBase: 543 brands in the Equity*Builder database–3– 2005, Ipsos February 2005

The next step in our modeling processwas to attempt to improve the predictivepower of our measures by combining themetrics of price and quality into onemeasure. In other words, it was ourobjective to define brand value, inoperational terms, as follows:DEFINING “WHAT YOU GET”A brand supplies a variety of consumerwants and needs. We have found that themeasures that best replicate this are found ina combination of product performance andmeasures of equity. As one example, wehave found that— at least in the categoriescomprising the 2003 R&D database—product performance and perceived qualityare highly related, at an R2 of .95. Rawproductperformancemeasuresandperceived quality measures correlate highly.Brand Value What you getWhat you pay QualityPriceIt is possible to greatly increase thepredictive power by the use of thesemeasures. Value explains 76% of thevariance in brand size.Quality vs. Product Performance-- Food2R 0.95Constant SumQualityMarket Share vs. ValueProduct PerformancePREDICTING BRAND SIZEValueThe next step in our exploratory processwas to determine the extent to which ourmeasures could be used to predict brandshares, as estimated by the constant sum.We have already reviewed that the constantsum measure correlates well with marketshare. So what drives this constant sum?First, we determined that there is areasonably strong relationship betweenmeasures of perceived quality (and/orperceived product performance) with brandsize. In fact, it was also interesting that therelationship was not linear. Perceivedquality, as a single measure, is able topredict 54% of the variance in marketshares.CAN THE FIT BE IMPROVED?We also knew, based on prior R&Dwork, that not all variations in brand size orgrowth are likely to be explainable byperceptions in brand value alone. Othermeasures of equity also come into play. Thisprior work had indicated that, on average,measures of equity are influenced by avariety of contributing marketing and brandbuilding effects, including the product’sperformance, its packaging, the brand name,and its advertising.Explanation of Variance44%Product Performance15%Pack Performance10%Brand Name8%Artwork23%Advertising100%TOTAL EQUITYBrand Size (Constant Sum)Quality vs Brand SizeR2 0.54Quality–4– 2005, Ipsos February 20052R 0.76

As well, each of the key measures ofequity has a strong and positive predictiverelationship to brand size, but none is asstrong as value. Here are the yFamiliarityRelevanceValue (Perf/Equity/Price) vs. Brand SizeBrand Size (Constant Sum)R Squared coefficientsto Brand Size.44.54.59.65.7450100Market Share (Con. Sum)2R 0.86Mid Priced2.00.00-50050100Low Priced BrandModerately Priced BrandHigh Priced BrandExpon. (Low Priced Brand)Expon. (Moderately Priced Brand)Expon. (High PriceWHYPRICEBRANDSSOMETIMES SUCCESSFULAREAs part of this work, we also wanted toimprove our understanding of the success oflow-priced brands and store brands. Therewere 17 food categories in our 2003 dataset.In order to determine the extent to whichlow-priced/store brands were more or lesslikely to be successful, we asked consumersto tell us, in each category, whether or notthey felt that low-priced /store brands were“good enough” to be considered. As you cansee here, 60% to 80% of respondents,depending on the category, said that price orstore brands perform “well” or “very well.”And this affects consumers’ willingness tobuy them.150We have also been able to confirm thatthis relationship holds true across categoriesand across geographic boundaries. Here arethe coefficients when this formula wasapplied to our original R&D databases, incategories such as household products,health & beauty aids (HBA)/personal care,and over-the–counter (OTC) ictive Relationship in:.72.92.76In addition, the relationship holds truefor premium priced brands, to a slightlygreater extent than mid-priced brands. Andthe weakest predictive relationship, at a stillhigh 79%, is observed for the lowest-pricedbrands.–5– 2005, Ipsos February 2005150Value & EquityValue Plus EquityHousehold ProductsHBA/ Personal CareOTC MedicationsR 0.793.00-100R2 0.83022R 0.894.001.00Value & Equity vs. Brand Size-50HighestPriced5.00When a variety of Equity-relatedmeasures, including these, are weighted withbrand value, it is possible to improve themodel’s predictability, to .83.-100LowestPriced6.00Store Brandsperform“well” or“very well”(%)In categories where price brands are notperceived to perform well, the averagequality of brands is perceived to be stronger.In other words, there is a category-leveleffect when it comes to quality perceptions.And as can be imagined, price brands andstore brands tend to perform at a belowaverage level on the critical equitymeasures.

The following graph is the result ofdividing the brands into three groups: (1)brands in categories where consumers feelthat price/ store brands do not perform well,(2) brands in categories that are average onthis question, and (3) brands in categorieswhere price/ store brands do perform well.The average brands are not shown here,since their average indices were almostalways close to 100. There wereapproximately 30 brands in each of the twogroups of brands displayed here. As you cansee, there is evidence of a clear categorylevel effect. In categories in which price andstore brands are “good enough,” there wassignificant erosion in the key equity andvalue metrics for the main (national) brands.98103105107Smaller brands are arrayed along the twobottom quadrants, with the larger brands ontop.-1 15 17 1510694Q u a lityV a lu e112112102Premium Price, Large BrandLow Price, Large Brandhigher-priced brands10893919792Low Price, Small Brand92PriceQualityValue8589Premium Price, Small BrandEquityPrice itself does not drive brand growth,neither among lower-priced brands noramong premium priced brands. Quality,value, and equity, however, all drive growth:all three metrics show significantly higherindices among larger brands than amongsmaller brands, regardless of overall pricepoint. When the indices are comparedbetween the lower and higher-priced brands,it can be seen that the key driver of brandgrowth for lower-priced brands is value. Onthe other hand, the key driver of brandgrowth for premium–priced brands is equity.Thus, in both cases, it appears that it isbetter to improve “What you get” than it isto minimize price89V a lu e E q u ityThe next question in our investigationwas whether or not this learning could beused in the prediction of brand growth. Todo that, we took the Ipsos-ASI database andidentified two basic groups of brands: the100 brands with the highest perceived priceswithin their categories, and the 100 brandswith the lowest perceived prices. We thensubdivided these two groups of brands intotwo further subgroups of fifty brands each,based on their brand size (market share).Thus we were able to identify four groups,each comprised of 50 brands:Low Priced BrandsPriceQualityPremium Priced Brands-1Price15Equity15Price120Quality17Value1. Large premium priced brands2. Small premium priced brands3. Large low-priced brands4. Small low-priced brandsValue17EquityQualityValueEquityBUILDING A BRAND DEPENDSON A FEW BASICSBrand familiarity is the first step inbuilding equity. Familiarity is a measure,which goes beyond simple awareness.Consumers must gain a fully developedunderstanding of the brand and its marketposition.Then we calculated average indices ofprice, quality, value, and equity within eachgroup. In the following graph, the twogroups of lower priced brands are shown onthe left side of the chart, while the premiumpriced brands are shown on the right.–6– 2005, Ipsos February 2005109lower priced brandsP ric e / s to re b ra n d s P ric e / s to re b ra n d s"n o t a s g o o d ""g o o d e n o u g h "P ric e 1 20 17 23107921039611423

leading provider of brand equity andadvertising research, and works with moretop 100 advertisers than any other brand/advertising research company, with afocused goal of helping our clients buildstrong brands with strong perceived equity.Uniqueness is somewhat important. Abrand needs distinctiveness to justify andcreate its demand. Uniqueness can be basedon price, but the brand needs to distinguishitself on more than price alone to besuccessful. A brand that is too unique runsthe risk of becoming a niche brand.ABOUT THE AUTHORRelevance has the highest load factor inour model. There must be a close fitbetween the needs in the category and thebrand positioning. If so, brand relevance willgrow. For price brands, uniqueness is oftenlow. Relevance must be driven by a strongvalue equation for the brand to grow.John Hallward co-founded TandemarResearch in 1986 after working at Procter &Gamble and Johnson & Johnson. Tandemarjoined the Ipsos Group in 2000, and wasaligned with Ipsos-ASI to specialize inadvertising research. John is nowresponsible for product development withinIpsos-ASI worldwide, focusing on copytesting, Equity*Builder for brand health, andin-market tracking.CONCLUSIONManaging a brand represents a carefulbalancing act among the three basicelements: performance and quality (versusthe “good enough” brand alternatives);advertising/emotional equity/salience; andprice/price gap and value.Price is not as important as value. Apremium priced-brand can be ity gap with cheaperalternatives. Attitudinal equity can often bebuilt by advertising. Advertising has thepower to differentiate the brand viaemotions and imagery. But there is a limit tohow much of a price gap a premium-pricedbrand can maintain before the price gapcreates an impression that the brand is tooexpensive. In such a case, the cheaper pricebrands (and store brands) can grow based ontheir value perceptions. It is important tomonitor the relative performance of pricebrands over time, and the balance of overengineering the premium brand in order toanticipate the point at which value tips.Over-engineering a brand and raising pricesto justify it may erode the brand’s valueequation.ABOUT IPSOS-ASIIpsos-ASI, the Advertising ResearchCompany, is the Ipsos Group’s dedicatedbrand and advertising research arm, whichprovides global and regional marketers a fullrange of brand equity and advertisingresearch services in North America, Europe,Latin America, and Asia. Ipsos-ASI is a 2005, Ipsos February 2005–7–

measuring a brand’s in-market performance. Most brand equity models do a reasonable job in describing the attitudinal components of a brand’s profile, but it is often the case that a brand with strong equity scores can suffer a decline in market shares. Likewise, a brand with weak-looking equity can increase in share over time, or become a

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