Measurement: Brand Value vs. Brand Equity

  

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Today's blog comes from brand expert Ron Strauss. Many businesses have a difficult time knowing their brand, but also measuring their brand value. In this blog Ron explains value and how a brand is measured by their brand value and brand equity.

There’s lots of confusion between what measuring brand value is versus what measuring brand equity is. The purpose of this article is to clearly define each, and establish why they are quite different, even though most marketing professionals use them interchangeably.

First, let’s establish some basic definitions.

Value = benefits – costs.

Attributes are things or values associated with a brand.

Values are ideals, beliefs, principles and standards which are subjective and, therefore, somewhat unique to each individual. Values are the stars that shape our choices and guide our way.

Brand: An intangible asset (or liability) that creates (and/or destroys) future cash flows. To understand the liability part, ask yourself ‘What would I pay to own and use the Enron brand?’

Equity: In a financial sense it’s defined as ‘an ownership interest.’ What’s left over after all claims against a property/interest have been satisfied. We use a different yet similar definition which we’ll explain.

Since value is benefits less costs, then it follows that brand value is benefits associated with the brand less the costs of acquiring and owning the brand.  Expressed as Brand Value (BV) = Benefits – Costs.

Brands are special since they consist of many attributes, both tangible, performance based and intangible emotionally based. These two bundles of attributes are available at a price, which represents the cost of obtaining and using those benefits. That’s expressed as BV = Tangible brand attributes (TA) + Intangible brand attributes (IA) – Price. This is expressed as BV = TA + IA – P.

Our other name for the bundle of emotional, emotive attributes described as IA is brand equity, or BE. Why is that? Well, most tangible performance attributes (TA) are easily copied and replicated by competitors. In most industries and product/service categories, they offer little to no competitive advantage or differentiation. Therefore, the bulk of the value is created by the intangible, emotional, emotive attributes, or BE. Yes, you always need the tangible performance attributes, and they are necessary but not sufficient for value creation. Therefore, BE plays a critical role in value creation. So, our final expression is BV = TA + BE – P.

So, how does this all work? Most purchasers/users/consumers buy based on knowing the product/service category for which they have a need. Sometimes they know all the available choices in the category, but in most cases they are aware of only a few. From those they create a choice hierarchy based on which brand gives them the greatest perception of value.

So, brand value is the overall value equation that consumers assign to each brand in their consideration set on their brand ladder or hierarchy, with those with the highest value being highest on the hierarchy. Brand equity is the pivotal factor in creating perceptions of value. Brand equity is a subset of brand value, however it plays a critical role in creating perceptions of brand value.

So, if you want to know what’s creating or driving brand value, for the greatest insight look to brand equity.

Note: This article is based on ideas contained in the book ‘Value Creation: The Power of Brand Equity,’ by Neal and Strauss, SouthWestern Learning div. of Cengage and available online at http://www.amazon.com/Value-Creation-Ron-Strauss/dp/1587992043/ref=sr_1_1?s=books&ie=UTF8&qid=1321404275&sr=1-1

Ron Strauss is founder and Senior Executive Officer of Brandzone, LLC, the Atlanta-based brand-guidance firm.  Strauss is co-author of “Value Creation: The Power of Brand Equity.”  Strauss works with CEO’s and their staffs in deploying the unique power of brands to motivate employees, suppliers, customers and other network partners to create meaning and purpose for all, sustainable competitive advantage, and economic value-added outcomes.