Are You Managing Brand Equity Incorrectly?

Lance A. Bettencourt, PhD
AMA Scholarly Insights
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Key Takeaways

What? Companies spend billions of dollars to build brand equity but may not be allocating investments optimally.

So What? Research shows that the brand equity dimensions of awareness, relevance, esteem, and differentiation have a distinct impact on consumer sales response depending on characteristics of the product category.

Now What? Brands in fragmented product categories (e.g., frozen dinners) with high social value (e.g., beer) and less emphasis on experiential attributes (e.g., diapers) should focus on awareness, relevance, and esteem. Differentiation should be a primary focus for brands in product categories with the opposite characteristics.

​Brand equity refers the value of a brand beyond what can be explained by a product’s functional features. Brand equity leads to greater consumer preference, loyalty, and, ultimately, profits. So, not surprisingly, companies spend billions of dollars to build the equity of their brands.

They use advertising, celebrity endorsers, high-profile events, sales promotions and more to generate awareness of the brand and its identity, to create understanding of the relevance of the brand in consumers’ lives, to build esteem for the quality of the brand among consumers, and to develop perceived differentiation of the brand from competitive offerings.

In fact, awareness, relevance, esteem, and differentiation are four critical dimensions of consumer perceptions of brand equity that are measured in one form or another by Young & Rubicam, Harris Interactive, IPSOS, and other marketing research and consulting organizations.

But should equal emphasis be given to each brand equity dimension? Is each dimension equally beneficial to all product categories? Do the same marketing mix benefits result from each brand equity dimension?

Research to See If All Brand Equity Dimensions Are Created Equal

These are the questions that prompted the research published in a May 2017 article in the Journal of Marketing, “How Well Does Consumer-Based Brand Equity Align with Sales-Based Brand Equity and Marketing-Mix Response?

The article written by Hannes Datta, Kusum Ailawadi, & Harald van Heerde of Tilburg University and Dartmouth College presents the results of an analysis of 290 brands across 25 consumer packaged goods categories over a ten-year time span (2002 - 2011). Brands included in the analysis, for example, included both well-known and emerging brands such as Coke, Lysol, Doritos, Budweiser, Tide, Fat Tire, Axe, Ajax, Marlboro, Secret, and Folgers.

The research team brought together consumer perceptions of brand equity from Young & Rubicam’s Brand Asset Valuator (BAV) with sales-based brand equity and marketing mix elasticities that were estimated from SymphonyIRI scanner data.

Research Shows: Some Brand Equity Dimensions Matter More than Others

What the researchers found from their analyses is interesting. Rather than finding that all dimensions of brand equity are equally impactful on sales response in all situations, the research reveals that which dimensions matter most depends on characteristics of the product category. This has important implications for marketing mix investments.

Specifically, the research shows that whereas perceived product differentiation has little impact on sales response overall, it has a considerable positive impact in highly concentrated product categories (e.g., diapers) and in experiential product categories in which sensory attributes and overall image drive consumer choice rather than function (sodas and coffee, for example, in comparison to razor blades and laundry detergent).

In contrast, the analyses revealed that the three brand equity dimensions of awareness, relevance, and esteem have a bigger impact on sales response in more social/visible product categories (i.e., beer and cigarettes, for example, in comparison to condiments and soup) with many competitors (beer and cereal, for example). And the analyses demonstrated that these same three dimensions were less critical to sales success for highly experiential product categories.

The researchers also investigated the impact of the brand equity dimensions on marketing mix elasticities. They found that brands with higher awareness, relevance, and esteem get more bang for the buck with added investments in advertising, retail displays, and promotional price changes. The authors conclude that brands high on these three brand equity dimensions have a large pool of potential customers in the market who are ready to buy when the brand is brought more to their attention. In contrast, these same brands benefit less from additional investments in distribution coverage, perhaps because consumers are willing to expend effort to acquire them.

Brands high on perceived differentiation, in contrast, face a very different marketing scenario. These brands also get more bang for the buck from investments in advertising, but they get less return from promotional price reductions because they appeal to buyers who value their differences more than low price.

Building Brand Equity Through Wise Marketing Mix Investments

Overall, the results make it clear that the brand equity focus should be awareness, relevance, and esteem for brands in fragmented product categories (e.g., frozen dinners) with high social value (e.g., beer) and less emphasis on experiential attributes (e.g., diapers). These brands should also emphasize price discounts and retail display prominence.

Greater attention should be given to differentiation, however, among brands that are higher in experiential attributes (e.g., coffee), lower in social value (e.g., mustard, ketchup), and higher in competitive concentration (e.g., razor blades). These brands will benefit more from investments in advertising while also ensuring adequate distribution coverage for their target market.


Author Bio:

 
Lance A. Bettencourt, PhD
Lance A. Bettencourt is Associate Professor of Professional Practice in Marketing at the Neeley School of Business at Texas Christian University, and author of Service Innovation: How to Go from Customer Needs to Breakthrough Services.
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