Customer Based Brand Equity

“If all Coca Cola’s 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 Rao’s (1996) model to be the best suited one for Pakistani environment because it integrates the customer’s 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).

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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 brand’s management program. In this situation, the brand manager was not high in the company’s 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 was always referred to as a series of tactics and never like strategy (Davis and Dunn 2002).

Kapferer (1997) mentions that before the 1980’s 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 exclusive, 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)

Kapferer’s 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 Farquhar’s 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 firm’s 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 firm’s 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 firm’s brand equity from the value of the firm’s other tangible and intangible assets, which results in an estimate based on the firm’s 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 brand’s 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

Aaker’s 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 brand’s 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

Lassar’s 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 “consumer’s ability to confirm prior exposure to the brand when given a brand as a cue” (p. 67)- and brand recall -the “consumer’s 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 brand’s 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 customer’s mind -who are you?

2. Establishing the meaning of the brand in the customer’s 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

Keller’s 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 Rao’s 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 consumer’s decision making process. They have also provided a validated instrument (with Cronbach’s Alpha above 0.85) to support their model of customer based brand equity.