Managing Brand Equity

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9780029001011: Managing Brand Equity

In a fascinating and insightful examination of the phenomenon of brand equity, Aaker provides a clear and well-defined structure of the relationship between a brand and its symbol and slogan, as well as each of the five underlying assets, which will clarify for managers exactly how brand equity does contribute value.

The most important assets of any business are intangible: its company name, brands, symbols, and slogans, and their underlying associations, perceived quality, name awareness, customer base, and proprietary resources such as patents, trademarks, and channel relationships. These assets, which comprise brand equity, are a primary source of competitive advantage and future earnings, contends David Aaker, a national authority on branding. Yet, research shows that managers cannot identify with confidence their brand associations, levels of consumer awareness, or degree of customer loyalty. Moreover in the last decade, managers desperate for short-term financial results have often unwittingly damaged their brands through price promotions and unwise brand extensions, causing irreversible deterioration of the value of the brand name. Although several companies, such as Canada Dry and Colgate-Palmolive, have recently created an equity management position to be guardian of the value of brand names, far too few managers, Aaker concludes, really understand the concept of brand equity and how it must be implemented.

The author opens each chapter with a historical analysis of either the success or failure of a particular company's attempt at building brand equity: the fascinating Ivory soap story; the transformation of Datsun to Nissan; the decline of Schlitz beer; the making of the Ford Taurus; and others. Finally, citing examples from many other companies, Aaker shows how to avoid the temptation to place short-term performance before the health of the brand and, instead, to manage brands strategically by creating, developing, and exploiting each of the five assets in turn

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About the Author:

David A. Aaker is the Vice-Chairman of Prophet, Professor Emeritus of Marketing Strategy at the Haas School of Business, University of California at Berkeley, Advisor to Dentsu, Inc., and a recognized authority on brands and brand management. The winner of the Paul D. Converse Award for outstanding contributions to the development of the science of marketing and the Vijay Mahajan Award for Career Contributions to Marketing Strategy, he has published more than ninety articles and eleven books, including Strategic Market Management, Managing Brand Equity, Building Strong Brands, and Brand Leadership (co-authored with Eric Joachimsthaler).

Excerpt. © Reprinted by permission. All rights reserved.:

Chapter 1: What Is Brand Equity?

A product is something that is made in a factory; a brand is something that is bought by a customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless.

Stephen King

WPP Group, London

THE IVORY STORY

One Sunday in 1879 Harley Procter, one of the founders of the candle and soap firm Procter & Gamble (P&G), heard a sermon based on the Forty-fifth Psalm, "All thy garments smell of myrrh, and aloes, and cassia, out of ivory palaces." The word "ivory" stuck in his mind -- and became the name of the firm's white soap.

In December, 1881, P&G ran their first Ivory ad in a religious weekly, stating that the soap "floated" and that it was "99 44/100% pure," a dual claim which has become one of the most famous ad slogans ever. That ad is shown in Figure 1-1. Figure 1-2 shows a 1920 Ivory ad illustrating the consistency of the positioning over time. Note the imagery created by the forest, the barefoot girl, and the clear water.

The purity claim was supported by a chemist, who had tested Ivory and found that only 56/100% contained impurities. The flotation property, first created by a production mistake which fed air into the soap mixture, was discovered by customers -- who attempted to reorder the "floating" soap.

Ivory was a remarkable product in a time in which most soaps were yellow or brown, irritated skin, and damaged clothes. The fact that it floated had practical value to those used to being frustrated by trying to find their soap in the bath water. It was thus well positioned -- a soap that was pure, was mild, and floated. From the outset, the fact that it was mild enough for babies was stressed, and babies were often featured in the advertising. The claims of purity and mildness were supported by the white color, the name Ivory, the twin slogans, and the association with babies. The soap's brand name, along with its distinctive wrapping, gave customers confidence that they were getting the mild, gentle soap they wanted. The "aggressive" 1882 national advertising budget of $11,000 provided a start toward high brand awareness, and customer confidence that the manufacturer was backing the product and would stand behind it.

Ivory, now over 110 years old, is a prime example of the value of creating and sustaining brand equity. Brand equity will be carefully defined and detailed later in this chapter. Briefly, it is a set of assets such as name awareness, loyal customers, perceived quality, and associations (e.g. being "pure" and "it floats") that are linked to the brand (its name and symbol) and add (or subtract) value to the product or service being offered.

Curiously, in 1885 a yellow soap named Sunlight, when introduced to dreary, sun-starved England, became the start of Unilever, now one of the largest firms in the world. Unlike Ivory, however, Sunlight gave way to other brands, such as Lifebuoy, Lux, and Rinso.

Nearly thirty years later, in 1911, P&G introduced Crisco, the first all-vegetable shortening, using an ad showing a woman in her kitchen admiring a freshly baked rhubarb pie. The ad was the precursor of the "slice of life" type of advertising (linking brands to people's life contexts) that was to be a P&G staple over the years. By 1933 the firm had added Chipso, a washing-machine soap; Dreft, a synthetic detergent; Ivory Flakes; Ivory Snow; and Camay, a competitor to Ivory.

pardP&G demonstrated its commitment to Ivory's brand equity during the depression. In the face of tremendous economic hardships, P&G resisted pressures to reduce advertising. In fact, in part by sponsoring "The O'Neills," a radio "soap opera," Ivory doubled its sales between 1933 and 1939.

The loyalty and market presence that Ivory had built was challenged in 1941 by an Ivory clone called Swan from Lever Brothers. It was billed as "The first really new floating soap since the Gay Nineties." P&G reacted with aggressive advertising to protect Ivory. Without any clear product difference, Lever could not dislodge Ivory, and ultimately withdrew from the market.

In May of 1931 a memo by Neil McElroy, then working on P&G's Camay account and frustrated by being in the shadow of Ivory, put forth the idea of developing a brand management team. He argued that there were not enough people caring about Camay. The marketing effort (and the effort to create and maintain equity) was diffused and uncoordinated, and lacked a budget commitment. The solution, creating a brand management team responsible for the marketing program and its coordination with sales and manufacturing, was a key event in the history of branding.

During the late 1940s and 1950s the firm added Spic & Span cleaner, Tide detergent, Prell shampoo, Lilt home permanent, Joy dishwashing detergent, Blue Cheer, Crest toothpaste, Dash low-sudsing detergent, Comet cleanser with bleach, Duz soap, Secret cream deodorant, Jif peanut spread, Duncan Hines, Charmin, and Ivory Liquid. The sixties and seventies saw the addition of Pampers disposable diapers, Folger's coffee, Scope mouthwash, Bounty paper towels, Pringles potato chips, Bounce fabric softener, Rely tampons, and Luv disposable diapers.

In the late 1980s, P&G had 83 advertised brands and annual sales of nearly $20 billion. In the U.S. it had the No. 1 brand in 19 of the 39 categories in which it competed, and one of the top three brands in all but five. In these 39 categories, P&G commanded an average market share close to 25%.

Most firms will focus efforts upon one brand, protecting its position by pursuing a given positioning strategy. New segments are usually therefore uncovered by competitors who are attempting to gain a position in the market. One striking aspect of P&G has been its willingness to develop competing brands in order to serve new segments, even if the new brands pressure (or even threaten) existing brands. The mature, fragmented laundry detergent category is an excellent example of how a set of brands can combine to reach a variety of segments and result in a dominant position: P&G holds a 50%-plus share of the market.

P&G's ten brands use different associations to target different market segments. Thus:

Ivory Snow -- "Ninety-nine and forty-four one-hundredths percent
pure," the "Mild, gentle soap for diapers and baby clothes"

Tide -- For extra-tough family laundry jobs -- "Tide's in, dirt's out"

Cheer -- Works in cold, warm, or hot water -- "All-temperature Cheer"

Gain -- Originally an "enzyme" detergent but now a detergent with a fragrance -- "Bursting with freshness"

Bold 3 -- Includes fabric softener -- "Cleans, softens, and controls static"

Dash -- Concentrated power, less suds to avoid clogging washing machines

Dreft -- With "Borax, nature's natural sweetener" for baby's clothes Oxydol -- Contains bleach -- for "Sparkling whites -- with color-safe bleach"

Era -- Concentrated liquid detergent -- with proteins to clean stains

Solo -- Heavy-duty, with a fabric softener

In few other companies is the power of branding so apparent. Without question the key to the success of P&G is its commitment to the development of brand equity, the brand management system that supports it, and the ongoing investment in marketing that sustains it.

There are a few publicly available numbers that allow a crude estimate of the profits that the Ivory brand name has provided to P&G over the past century. We know that just over $300 million was spent on U.S. measured media during the 10-year period from 1977 to 1987. It is estimated that during this period measured media was about 75% of total advertising at P&G. If similar ratios hold for Ivory products, the total Ivory advertising expenditures would be around $400 million.

Assuming an ad-to-sales ratio of 7% (the ratio for P&G as a firm ranged from 6% to 8% during this period), worldwide sales of Ivory products would have been $5.7 billion. Assuming an exponential sales-growth curve since 1887, the total sales of Ivory products since Ivory was first introduced would be around $25 billion. Assuming an average profitability of 10% (the average profitability for laundry and cleaning products from 1987 to 1989 was 10%), a reasonable estimate of total Ivory profits would be $2 to $3 billion.

Interestingly and not coincidentally, P&G is known on Wall Street as a firm which takes a long-term view of its brand profitability. Although this can be frustrating and risky in the short term for an investor, P&G is patient with brands even when they absorb losses over a long time period. Their persistence with Pringles chips, Duncan Hines ready-toeat soft cookies, and Citrus Hill orange juice in the face of substantial losses are examples. The long-term perspective of P&G may in part be due to the fact that it is 20% owned by its employees.

In this book we shall explore brand equity. As the P&G example illustrates, the development of brand equity can create associations that can drive market positions, persist over long time periods, and be capable of resisting aggressive competitors. However, it can also involve an initial and ongoing investment which can be substantial and will not necessarily result in short-term profits. Payoffs, when they come, can involve decades. Thus, management of brand equity is difficult, requiring patience and vision.

In the following pages we will define brand equity and suggest that it is based on a set of dimensions each of which potentially needs to be managed. Several perspectives on how to place a value on a brand will then be detailed. First, however, several basic questions must be addressed. For example: What exactly is a brand? Have brand equities been eroding? How do price promotions affect brands? What is behind the pressures for short-run financial results? Can a focus on brand equity provide a counterpoint to the tyranny of short-term financials?

THE ROLE OF BRANDS

A brand is a distinguishing name and/or symbol (such as a logo, trademark, or package design) intended to identify the goods or services of either one seller or a group of sellers, and to differentiate those goods or services from those of competitors. A brand thus signals to the customer the source of the product, and protects both the customer and the producer from competitors who would attempt to provide products that appear to be identical.

There is evidence that even in ancient history names were put on such goods as bricks in order to identify their maker. And it is known that trade guilds in medieval Europe used trademarks to assure the customer and provide legal protection to the producer. In the early sixteenth century, whiskey distillers shipped their products in wooden barrels with the name of the producer burned into the barrel. The name showed the consumer who the maker was and prevented the substitution of cheaper products. In 1835 a brand of Scotch called "Old Smuggler" was introduced in order to capitalize on the quality reputation developed by bootleggers who used a special distilling process.

Although brands have long had a role in commerce, it was not until the twentieth century that branding and brand associations became so central to competitors. In fact, a distinguishing characteristic of modern marketing has been its focus upon the creation of differentiated brands. Market research has been used to help identify and develop bases of brand differentiation. Unique brand associations have been established using product attributes, names, packages, distribution strategies, and advertising. The idea has been to move beyond commodities to branded products -- to reduce the primacy of price upon the purchase decision, and accentuate the bases of differentiation.

The power of brands, and the difficulty and expense of establishing them, is indicated by what firms are willing to pay for them. For example, Kraft was purchased for nearly $13 billion, more than 600% over its book value, and the collection of brands under the RJR Nabisco umbrella brought over $25 billion. These values are far beyond the worth of any balance sheet item representing bricks and mortar.

An even clearer example of the value of a brand name is licensing. For example, Sunkist in 1988 received $10.3 million in royalties by licensing its name for use on hundreds of products such as Sunkist Fruit Gems (Ben Myerson candy), Sunkist orange soda (Cadbury Schweppes), Sunkist juice drinks (Lipton), Sunkist Vitamin C (Ciba-Geigy), and Sunkist fruit snacks (Lipton). Lipton used the name Sunkist Fun Fruits to overcome an established Fruit Corner line of fruit snacks from General Mills. The Fruit Corner tag line, "Real fruit and fun rolled up in one," was overshadowed by Sunkist Fun Fruits, a name that said it all.

The value of an established brand is in part due to the reality that it is more difficult to build brands today than it was only a few decades ago. First, the cost of advertising and distribution is much higher: One minute commercials and sometimes even half-minute commercials are now considered too expensive to be practical, for example. Second, the number of brands is proliferating: Approximately 3,000 brands are introduced each year into supermarkets. There were at this writing 750 nameplates of cars, over 150 brands of lipstick, and 93 cat-food brands. All this meant, and continues to mean, increased competition for the customer's mind as well as for access to the distribution channel. It also means that a brand often is relegated to a niche market, and so will lack the sales to support expensive marketing programs.

BRAND-BUILDING NEGLECT

Despite the often obvious value of a brand, there are signs that the brand-building process is eroding, loyalty levels are falling, and price is becoming more salient. The accompanying insert suggests a series of indicators of a lack of attention to brands which most firms will find familiar.

Indicators of an Underemphasis on Brand-Building

* Managers cannot identify with confidence the brand associations and the strength of those associations. Further, there is little knowledge about how those associations differ across segments and through time.

* Knowledge of levels of brand awareness is lacking. There is no feel for whether a recognition problem exists among any segment. Knowledge is lacking as to top-of-mind recall that the brand is getting, and how that has been changing.

* There is no systematic, reliable, sensitive, and valid measure of customer satisfaction and loyalty -- nor any diagnostic model that guides an ongoing understanding of why such measures may be changing.

* There are no indicators of the brand tied to long-term success of the business that are used to evaluate the brand's marketing effort.

* There is no person in the firm who is really charged with protecting the brand equity. Those nominally in charge of the brand, perhaps termed brand managers or product marketing managers, are in fact evaluated on the basis of short-term measures.

* The measures of perfo...

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