Brand equity valuation: a global perspective
| Pages | 275-290 |
| Published date | 01 August 1998 |
| Date | 01 August 1998 |
| DOI | https://doi.org/10.1108/10610429810229799 |
| Author | Reza Motameni,Manuchehr Shahrokhi |
| Subject Matter | Marketing |
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 4 1998, pp. 275-290 © MCB UNIVERSITY PRESS, 1061-0421 275
Introduction
As far back as 5000BC, identity marks were used on pottery. However, these
ancient marks identified the owners of the goods rather than the manufacturer.
In the twelfth century, the use of trademarks became widespread. Craft guilds
required that members mark their goods so that the quantity and quality of
products could be controlled (Sudharshan, 1995). Brand names and
trademarks usually guarantee that products bearing the marks will be of
uniform quality. Branding also enables a producer to obtain the benefits of
offering products with unique or superior quality and provides an opportunity
to transfer this identifiable relationship to other products or services.
The value of brand is indicated by the money paid by firms that have
acquired consumer package goods with strong brand names. Procter and
Gamble paid 2.6 times Richardson-Vicks’ book value, Nabisco sold for 3.2
times book value, and General Foods sold for 3.5 times book value
(Business Week, 1995). The enduring nature of brands is illustrated by brand
names such as Coca-Cola, Phillip Morris, Levi’s, McDonald’s, Nabisco,
Kellogg, Kodak, Del Monte, Wrigley, Gillette, Campbell, Lipton, and
Goodyear – all among brand leaders in the USA in both 1925 and 1985
(Financial World, 1996; Wurster, 1987).
New brands in a global marketplace have little chance of rivaling established
brands. To create a brand from scratch requires huge investments. The
process may take years, and its probability of success is slim. Empirical
research has shown that massive sums spent on advertising are not always
justified by short-term sales. The return on this investment is translated into
other less tangible brand awareness, image, and loyalty. The above examples
illustrate why, in recent years, a great deal of attention has been devoted to
the concept of brand equity (e.g. Ambler, 1995; Baldinger and Rubinson,
1997; Blackston, 1995; Cook, 1997; Johnson, 1996; Meer, 1995; Upshaw,
1995). The dominant model of branding in the twentieth century was the
manufacturer as mega-advertiser. McKinsey (1994) believes that the
traditional model of branding is no longer the only way, nor can it dominate
in the future. According to Murphy (1990), brand is a complex phenomenon:
“not only it is the actual product, but it is also the unique property of a
specific owner and has been developed over time so as to embrace a set of
values and attributes – both tangible and intangible – which meaningfully
and appropriately differentiate products which are otherwise very similar.”
The primary capital of many businesses is their brands. The notion that a
brand has an equity that exceeds its conventional asset value was developed
by financial professionals. The escalation of new product development costs,
and the high rate of new product failure, has led manufacturers to engage in
brand extension (Tauber, 1988).
Brand equity valuation: a global
perspective
Reza Motameni
Professor of Marketing, Department of Marketing and Logistics, Craig
School of Business, California State University-Fresno, California, USA
Manuchehr Shahrokhi
Professor of Finance, Department of Finance, Craig School of Business,
California State University-Fresno, California, USA
An executive summary
for managers and
executives can be found
at the end of this article
Brand is a complex
phenomenon
This paper, has several objectives. First, the marketing and finance
perspectives of brand equity will be presented and integrated, and their
interrelationships will be shown. Second, the different measurements of brand
equity will be presented. Next, a comprehensive model of global brand
equity, which we believe is capable of both estimating the brand equity more
accurately and showing the sources of the equity, will be presented.
Different perspectives of brand equity
Brand equity has been viewed from a variety of perspectives. The first
perspective has used the concept of brand equity in the context of marketing
decision-making. The second perspective is financially based and views
brand equity in terms of incremental discounted future cash flows that would
result from a branded product revenue, in comparison with the revenue that
would occur if the same product did not have the brand name (Simon &
Sullivan, 1993).
Marketing perspective
Aaker (1991) has provided the most comprehensive definition of brand
equity to date:
A set of brand assets and liabilities linked to a brand, its name and symbol, that
adds to or detracts from the value provided by a product or service to a firm and/or
to the firm’s customers.
Aaker has also synthesized some contemporary thinking about marketing and
depicted a comprehensive yet parsimonious set of factors that contribute to the
development of brand equity (Aaker, 1996a). He has contemplated that, to a
greater extent, the equity of a brand depends on the number of people who
purchase it regularly. Hence, the concept of brand loyalty is established as a
vital component of brand equity. Strong effects of brand recognition on choice
and market share are discussed and documented extensively in marketing
literature. That is why Aaker regards the concept of brand awareness as a
second component of brand equity. Considering the PIMS findings (Buzzell
and Gate, 1987), perceived quality is included as another significant
component. Other proprietary brand assets – such as patents, trademarks, and
established channel relationships – constitute the final component.
Shocker (1993) has contended that the above components are accepted
largely on the basis of their face validity and little attempt is made to
demonstrate their relative importance or possible interrelationship. The
impression left is that higher brand loyalty, awareness, and perceived quality
are necessary for creating and maintaining brand equity. Tradeoffs among
the factors of the models are not discussed. Also lacking are substantial
references to the financial or accounting aspects of brand equity, or even to
the controversy that has characterized attempts to value brands as assets on
balance sheets. Measuring a brand’s value means identifying the sources of
this value. Marketers, therefore, are interested in the process by which the
value of a brand was created.
Financial perspective
Simon and Sullivan (1993) have presented a financial-market-value-based
technique for estimating a firm’s brand equity. The stock price is used as a
basis to evaluate the value of the brand equities. Brand equity is defined as
“the incremental cash flows which accrue to branded products over
unbranded products”. The estimation technique extracts the value of brand
equity from the value of the firm’s other assets. First, the macro approach
276 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 7 NO. 4 1998
A comprehensive model
of global brand equity
Measuring a brand’s
value
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