Customer Based Brand Equity

Customer Based Brand Equity If all Coca Colas assets were destroyed overnight , whoever owned the Coca Cola name would walk into a bank the next morning and get a loan to rebuild everything. VP Corporate Communications, Coca Cola Abstract: The Purpose of this paper is to highlight the major contributions in the process of developing and measuring customer based brand equity (CBBE) models by looking into the contributions of different researchers in this field. From the outset this paper, then, becomes a comparison of different CBBE models. Starting from Aaker (1991) to Keller (2003), it compares four CBBE models. This paper considers Agarwal and Raos (1996) model to be the best suited one for Pakistani environment because it integrates the customers decision making process with customer based brand equity. Introduction: This paper highlights major contributions in the process of understanding different customer based brand equity models. The focus on customer based brand equity is because of three reasons: 1. it allows the assessment of equity at the brand level; 2. researchers in marketing heavily use this concept; and 3. marketing practitioners find this concept of brand equity easier to understand than other brand equity concepts (Agarwal Rao, 1996). Literature Review: A traditional definition of a brand was: the name, associated with one or more items in the product line, which is used to identify the source of character of the item(s) (Kotler, 2000) (p.396). The American Marketing Association (AMA) definition of a brand is a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors (p. 404). Keller (2003) defines brand as technically speaking, whenever a marketer creates a new name, logo, or symbol for a new product, he or she has created a brand (Keller, 2003) (p. 3). Before the shift in focus towards brands and the brand building process, brands were just another step in the whole process of marketing to sell products. For a long time, the brand has been treated in an off-hand fashion as a part of the product (Urde, 1999) (p. 119). Kotler (2000) mentions branding as a major issue in product strategy (p. 404). Aaker and Joachimsthaler (2000) mention that within the traditional branding model the goal was to build brand image; a tactical element that drives short-term results (Aaker Joachimsthaler, 2000). Kapferer (1997) mentioned that the brand is a sign -therefore external- whose function is to disclose the hidden qualities of the product which are inaccessible to contact (Kapferer, 1997) (p. 28). The brand served to identify a product and to distinguish it from the competition. The challenge today is to create a strong and distinctive image (Kohli Thakor, 1997) (p. 208). Concerning the brand management process as related to the function of a brand as an identifier, Aaker and Joachmisthaler (2000) discuss the traditional branding model where a brand management team was responsible for creating and coordinating the brands management program. In this situation, the brand manager was not high in the companys hierarchy; his focus was the short-term financial results of single brands and single products in single markets. The basic objective was the coordination with the manufacturing and sales departments in order to solve any problem concerning sales and market share. With this strategy the responsibility of the brand was solely the concern of the marketing department (Davis Aaker, 2000). In general, most companies thought that focusing on the latest and greatest advertising campaign meant focusing on the brand (Davis Dunn, 2002). The model itself was tactical and reactive rather than strategic and visionary (Aaker and Joachimsthaler 2000). The brand w as always referred to as a series of tactics and never like strategy (Davis and Dunn 2002). Kapferer (1997) mentions that before the 1980s there was a different approach towards brands. Companies wished to buy a producer of chocolate or pasta: after 1980, they wanted to buy KitKat or Buitoni. This distinction is very important; in the first case firms wish to buy production capacity and in the second they want to buy a place in the mind of the consumer (p. 23). In other words, the shift in focus towards brands began when it was understood that they were something more than mere identifiers. Brands, according to Kapferer (1997) serve eight functions shown in Table 1 below: the first two are mechanical and concern the essence of the brand: to function as a recognized symbol in order to facilitate choice and to gain time (p. 29); the next three are for reducing the perceived risk; and the final three concern the pleasure side of a brand. He adds that brands perform an economic function in the mind of the consumer, the value of the brand comes from its ability to gain an exclus ive, positive and prominent meaning in the minds of a large number of consumers (p. 25). Therefore branding and brand building should focus on developing brand value. Table 1 The Functions of the Brand for the Consumer Function Consumer Benefit Identification To be clearly seen, to make sense of the offer, to quickly identify the sought-after products. Practicality To allow savings of time and energy through identical repurchasing and loyalty. Guarantee To be sure of finding the same quality no matter where or when you buy the product or service. Optimization To be sure of buying the best product in its category, the best performer for a particular purpose. Characterization To have confirmation of your self-image or the image that you present to others. Continuity Satisfaction brought about through familiarity and intimacy with the brand that you have been consuming for years. Hedonistic Satisfaction linked to the attractiveness of the brand, to its logo, to its communication. Ethical Satisfaction linked to the responsible behavior of the brand in its relationship towards society. Adapted from Kapferer (1997) Kapferers view of brand value is monetary, and includes intangible assets. Brands fail to achieve their value-creating potential where managers pursue strategies that are not orientated to maximizing the shareholder value (Doyle, 2001) (p. 267). Four factors combine in the mind of the consumer to determine the perceived value of the brand: brand awareness; the level of perceived quality compared to competitors; the level of confidence, of significance, of empathy, of liking; and the richness and attractiveness of the images conjured up by the brand. In Figure 1 the relationships between the different concepts of brand analysis, according to Kapferer (1997), are summarized. Figure 1 From Brand Assets to Brand Equity Brand Awareness + Image + Perceived Quality + Evocations + Familiarity, liking Brand Assets Brand added value perceived by customers Costs of branding Costs of invested capital Brand financial value (BRAND EQUITY) Kapferer (1997), P 37 Brand Equity Many researchers, while discussing brand building models, have referred to brand equity. Urde (1999) in his model of brand orientation, Aaker and Joachimsthaler (2000) in their model of brand leadership, Davis (2002) in his model of brand asset management, de Chernatony in his model of corporate branding (De Chernatony, 1999), and Kapferer (1997) have discussed brand equity in their respective models of brand building. But what exactly is brand equity? Brand equity, as first defined by Farquhar , is the added value with which a given brand endows a product (Farquhar, 1989) (p.24). Apart from Farquhars first definition of brand equity, other definitions have appeared. According to Lassar, Mittal, and Sharma (1995), brand equity has been examined from a financial perspective (Farquhar, Han, Ijiri, 1991), (Simon Sullivan, 1993), Kapferer 1997, Doyle 2001), and a customer-based perspective ((Keller 1993; (Shocker, Srivastava, Ruekert, 1994); and (Chen, 2001)) (Lassar, Mittal, Sharma, 1995). In other words, financial meaning from the perspective of the value of the brand to the firm, and customer-based meaning the value of the brand for the customer which comes from a marketing decision-making context (Kim, Kim, An, 2003). Brand equity has also been defined as the enhancement in the perceived utility and desirability a brand name confers on a product (Lassar, Mittal and Sharma 1995, p.13). High brand equity is considered to be a competitive advantage since: it implies that firms can charge a premium; there is an increase in customer demand; extending a brand becomes easier; communication campaigns are more effective; there is better trade leverage; margins can be greater; and the company becomes less vulnerable to competition (Bendixen, Bukasa, Abratt, 2004). In other words, high brand equity generates a differential effect, higher brand knowledge, and a larger consumer response (Keller 2003), which normally leads to better brand performance, both from a financial and a customer perspective. Financial value-based techniques extract the brand equity value from the value of the firms other assets (Kim, Kim, and An 2003). Simon and Sullivan (1993) define brand equity as the incremental cash flows which accrue to branded products over and above the cash flows which would result from the sale of unbranded products (p. 29). These authors estimate a firms brand equity by deriving financial market estimates from brand-related profits. Taking the financial market value of a firm as a base, they extract the firms brand equity from the value of the firms other tangible and intangible assets, which results in an estimate based on the firms future cash flows. Along the same line of thought, Doyle (2001) argues that brand equity is reflected by the ability of brands to create value by accelerating growth and enhancing prices. In other words, brands function as an important driver of cash flow. Customer Based Brand Equity (CBBE): Aaker (1991) provided conceptual scheme which link brand equity with various customer response variables. He suggested using repurchase rates, switching costs, level of satisfaction, preference for brand, and perceived quality on various product and service dimensions as potential measures of CBBE (Aaker, 1991). Aaker and Joachimsthaler (2000) define brand equity as brand assets linked to a brands name and symbol that add to, or subtract from, a product or service. According to them, these assets, shown in Figure 2, can be grouped into four dimensions: brand awareness, perceived quality, brand associations, and brand loyalty. Figure 2 Aakers Model of Customer Based Brand Equity Brand Equity Brand Awareness Perceived Quality Brand Associations Brand Loyalty These dimensions have been commonly used and accepted by many researchers (Keller 1993; (Motameni Shahrokhi, 1998); (Yoo Donthu, 2001); Bendixen, Bukasa, and Abratt 2004; Kim, Kim, and An 2003). Brand awareness affects perceptions and taste: people like the familiar and are prepared to ascribe all sorts of good attitudes to items that are familiar to them (Aaker and Joachimsthaler 2000, p. 17). Perceived quality influences brand associations and affects brand profitability. Brand associations are anything that connects the consumer to the brand, including user imagery, product attributes, organizational associations, brand personality, and symbols (p. 17). Brand loyalty is at the heart of brands value. The concept is to strengthen the size and intensity of each loyalty segment (p. 17). The simplest way in which the brand equity can be considered is that it can be understood as the incremental value a brand name grants a product (Srivastava Shocker, 1991). According to Lassar, Mittal and Sharma (1995), brand equity can be configured against five dimensions: 1) performance, 2) value, 3) social image, 4) trustworthiness, and 5) attachment. They agree to the views of Srivastava and Shocker (1991) who believe that customers evaluate brand equity on the basis of two components; 1) brand strength and 2) brand value. Since they believe that the source of brand equity is customer perceptions, as described by Keller (1993), it is important for the managers to be able to measure and track it at the customer level (Keller, 1993). Figure 3 below explains the model. Figure 3 Lassars Model of Customer Based Brand Equity Brand Equity Performance Social Image Value Trustworthiness Attachment Keller (2003) introduced the Customer-Based Brand Equity (CBBE) model, which approaches brand equity form the perspective of the consumer -whether an individual or an organization (Keller 2003, p. 59). The model is based on the premise that the power of a brand lies in what customers have learned, felt, seen and heard about the brand as a result of their experiences over time (p. 59). He defines CBBE as the differential effect that brand knowledge has on consumer response to the marketing of that brand (p. 60), which emerges from two sources: brand awareness and brand image. According to Keller (2003), brand awareness consists of brand recognition -the consumers ability to confirm prior exposure to the brand when given a brand as a cue (p. 67)- and brand recall -the consumers ability to retrieve the brand form memory when given the product category, the needs fulfilled by the category, or a purchase or usage situation as cue (p. 67). On the other hand, brand image is created by marketing programs that link strong, favorable, and unique associations to the brand in the memory (p. 70). These associations are not only controlled by the marketing program, but also through direct experience, brand information, word of mouth, assumptions of the brand itself -name, logo-, or with the brands identification with a certain company, country, distribution channel, person, place or event. The way to build a strong brand, according to the CBBE model, is by following four sequential steps, each one representing a fundamental question that customers ask about brands: 1. Ensuring the identification of the brand with a specific product category or need in the customers mind -who are you? 2. Establishing the meaning of the brand in the customers mind by strategically linking tangible and intangible brand associations with certain properties -what are you? 3. Eliciting customer responses to the brand identification and meaning -what about you? 4. Converting the response into an active, intense and loyal relationship between the customers and the brand -what about you and me? The CBBE model is built by sequentially establishing six brand building blocks with customers (Keller 2003 p. 75), that can be assembled as a brand pyramid, shown in Figure 4. Brand salience relates to the awareness of the brand. Brand performance relates to the satisfaction of customers functional needs. Brand imagery relates to the satisfaction of customers psychological needs. Brand judgments focus on customers opinions based on performance and imagery. Brand feelings are the customers emotional responses and reactions to the brand. Brand resonance is the relationship and level of identification of the customer with a brand. Figure 4 Kellers Model for CBBE Resonance Feelings Judgments Imagery Performance Salience Identity Who are you? Meaning What are you? Response What about you? Relationships What about you and me? Another model of customer based brand equity was presented by Agarwal and Rao (1996), who linked various components of CBBE to examine their convergent validity. To measure CBBE, they used a framework based on the perception-preference-choice paradigm and the hierarchy of effects model of McGuire (McGuire, 1972). This framework measures the stages through which a consumer passes before making a purchase decision (Agarwal Rao, 1996). The hierarchy model for CBBE is shown in figure 5 below. Figure 5 Agarwal and Raos Model for CBBE Awareness Actual Choice Perceptions and Attitudes Preferences Choice Intentions Unaided Recall Familiarity Value of Money Quality of Brand Name Explicit Preference Implicit Preference Likelihood of Buying Past Purchases Current Purchases Customer Based Brand Equity The model suggests appropriate indirect brand equity measures as conceptualized by Aaker (1991) and Keller (1993). These measures can be considered as the sources that can lead toward creation of brand equity. Conclusion: After discussing above four models to measure customer based brand equity (Aaker 1991; Lassar et al 1995; Agarwal and Rao, 1996; Keller, 2003) it is concluded that the model presented by Agarwal and Rao (1996) seems to be more appropriate to fit Pakistani environment. In addition to measuring CBBE, It seems to incorporate recent theoretical advances and managerial in understanding and influencing consumers decision making process. They have also provided a validated instrument (with Cronbachs Alpha above 0.85) to support their model of customer based brand equity.