In 1991, almost 60 years after P&G introduced the practice of “brand management,” David Aaker published Managing Brand Equity. He defined brand equity as “the commercial value derived from consumer perception of the brand name of a particular product or service, rather than from the product or service itself.” Marketers loved this because it made things easier to justify investment for brand-building. And so, the concept of brand equity took off.
Google Ngram Viewer is one way to see just how popular brand equity became. This application measures the popularity of words based on their usage in publications. It gives us a way to visualize the lifecycle of fads, fashion, ideas, concepts, movements, and more.
When you enter “brand equity,” here’s what you see (call-outs added):
Keen viewers of the chart above will spot that brand equity topped out around 2010. This is also when digital marketing blasted off, as you can see in this graphic from Google Ngram Viewer:
Digital marketing – and its close cousin, performance marketing – have become voracious consumers of marketing budgets in large part because they are perceived to be much more connected to measurable business results.
Meanwhile, the typical brand measurement system produces brand equity metrics with no direct connection to Aaker’s “commercial value.” This does little favors for the concept of brand equity as a financially valuable asset in its own right, or for brand management as a prioritized business process that deserves top billing in the C-suite and boardroom.
So, perhaps it’s no coincidence that brand equity peaked in the chart further above at the same time that digital marketing has taken the world by storm.
The problem with brand equity metrics
Most brand experts start with the question, “How should we define brand equity and therefore measure it?” The problem is, there seems to be as many definitions of brand equity as there are brand experts.
For example, here’s a sample from a much longer list:
- The added value endowed by the brand to the product (Farquhar, 1989)
- The differential effect of brand knowledge on consumer response to the marketing of the brand (Keller, 1993)
- Favorable impressions, attitudinal dispositions, and behavioral predilections (Rangaswamy et al., 1993)
- The utility that the consumer associates to the use and consumption of the brand (Vazquez et al., 2002)
- The set of characteristics that make a brand unique in the marketplace (Clow and Baack, 2005)
The proliferation of definitions like these has produced a blizzard of brand equity metrics – from awareness, consideration, and preference to satisfaction, trust, quality, NPS, availability, salience, loyalty, and on and on. The effect is a cacophony of never-resolved arguments over what brand metrics really matter. Sadly, some companies have given up while others stick with how they’ve always measured their brands because, well, that’s how they’ve always done it.
The solution starts with recognizing that the question posed above is backwards! It should be, “What measure of brand equity makes it a reliable leading indicator of revenue, value, and returns, and therefore how should we define it?”
Why? Because the purpose of measuring brand equity should be to help us make better decisions about how much and how to invest in fortifying a brand’s financial contribution. And the best way to measure brand equity for that purpose should tell us how we define it, not the other way around.
So, how should we measure brand equity?
The measurement of brand equity must meet four essential requirements. First, brand equity is measured as a composite of familiarity, regard, meaning, and uniqueness. BERA’s research on 4,000 brands over a nine-year period (and counting) confirms what other researchers have found: that when you measure brand equity this way, you get a measure that is the strongest, most reliable leading indicator of financial growth and returns.
Why? Because consumers form relationships with a brand based on their familiarity with it, regard for it, the meaning it has in their lives, and the unique contribution it makes to their lives. These relationships evoke powerful emotions toward a brand such as love, infatuation, commitment, and respect, or hate, boredom, indifference, and contempt.
The emerging field of neuroeconomics (for example, see the work of Stanford professor Baba Shiv) tells us that these emotions matter. A lot. In fact, emotions account for more than 90% of consumer decision-making. They have an enormous impact on purchase, consumption, usage, pricing power, repeat purchase, referral, acquisition costs, employee loyalty, and consumer permission to offer new products and enter new categories.
This is how brand equity drives current revenue and long-term value, and why familiarity, regard, meaning, and uniqueness are its key ingredients.
Next, brand equity is measured relative to all brands in a culturally defined landscape of brands. Why? Because, for example, people don’t just ask, “Should we go to McDonalds’, Wendy’s, or Burger King for dinner tonight?” Just as often, the customer asks, “Should we go out to McDonald’s, order take-out from a local restaurant through DoorDash, buy a Blue Apron meal kit, or take a Swanson’s Dinner out of the freezer?” In that moment, the perceptions of these brands compared to each other influences the choice of what to do for dinner tonight, and that choice will affect their financial performance.
In other words, someone might choose McDonald’s over Wendy’s, but not over Blue Apron. You have to measure McDonald’s against Blue Apron, not just against other hamburger chain brands. In fact, you have to measure McDonald’s against Amazon and Apple and Nike and Peloton and so on. This is because consumers’ perceptions of these brands – for example, Amazon’s service, Apple’s store design, Nike’s social activism, and Peloton’s health halo – affect their perceptions of the McDonald’s brand (and vice-versa, by the way).
More generally, every brand is competing with all brands for customers’ time, attention, affection, and money. By definition, the winning brands represent what’s important to consumers – for example, brands that demonstrated competence rose to the top during Covid. And in many cases, brands influence what is important as well. For example, Nike led the way in making social activism more important to consumer choices and Apple turned beautiful, functional design into a cultural value.
In other words, “brands are culture.” From product brands to celebrity and entertainment brands to non-profit and cultural institution brands – they all influence and reflect the values, norms, and beliefs that define consumer culture at any point in time and which continuously evolve over time.
Moreover, categories are constantly changing (entrants in and incumbents out), converging (like content and distribution in media) and competing (such as spirits versus beer, wine, and hard seltzers). Category-centric measurement of brand equity misses all these dynamics.
Finally, studies have shown that category-centric measurement has an inherent bias toward big brands. Consumers often conflate the awareness and size of a brand with other attributes like differentiation. This can lead to a measure of strong brand equity when the brand itself is really just a bigger tree in a forest of diminutive ones.
All this is why you must measure your brand in a “category agnostic” way – that is, relative to all brands that comprise consumer culture and which influence perceptions of your brand, regardless of category. And it’s why BERA, when collecting data on brand perceptions, presents each consumer with a unique list of 12 brands, no more than two of which come from the same category.
Requirement three: brand equity is measured continuously on a weekly, monthly, and quarterly cadence. Why? Because things happen every day that affect a brand relative to other brands overnight. These can be exogenous events, including competitor moves, socio political movements, and environmental shocks like Covid (think Corona beer and Purel sanitizer) and Ukraine (Stoli vodka, anyone?). They can also be specific to your company, from introducing new products to new packaging, pricing, advertising, purchase options, service levels, and more.
All these things affect a brand’s equity and the financial difference it makes. That’s why you need high periodicity to get a strong link between brand equity and its financial contribution.
Before moving on, it’s worth noting another important reason for continuous measurement: it gives you a truer picture of how your brand equity is trending. Episodic measurement is prone to false signals about changes in brand equity and can send brand strategies down the wrong path.
Finally, brand equity is measured across the total population, with census-matching resolution and no weighting. Measuring brand equity for a narrower audience can miss important signals. For example, measuring it with only current customers misses potential opportunities (or lack thereof) with non-customers. It can also miss those who might have a role in the customer’s buying decision even though they are not the buyer. Misses like these are no small potatoes. They seriously damage brand equity metrics as leading indicators of revenue growth, profitability, and stability.
This is why you have to measure brand equity for the entire population with census-matching resolution. This includes by customers versus non-customers, loyals versus switchers, winbacks versus prospects, lapsed versus rejecters, and unawares – all by gender, ethnicity, income, age, marital status, family size, orientation, and location, including country, state, metro, and postal code.
To produce this kind of audience precision with accuracy, you need consumer panels in each country that are matched to the census across all these demographics. Any hint of weighting survey results from panels that don’t match census will introduce noise that disrupts the predictive power of brand equity.
To be sure, none of this is to say that the target audience for a brand is the total population. Some brands might get close to that over time, but no brand ever starts that way. Every brand begins with a well-defined target audience. From there, a brand can stretch into new audiences or not, depending on the strengths and weaknesses of its brand equity. This is yet another reason for measuring your brand’s equity across the entire market with census-based granularity.
In sum, to get brand equity right, these four requirements tell us what to measure and how. And they explain why the typical short-cuts – episodic, category-centric, narrow audience, and weighting survey results – undermine the purpose and power of measuring brand equity in the first place.
Defining brand equity
Because the four requirements described above tell us the best way to measure brand equity, they also give us the best way to define it: “the strength of a brand’s familiarity, regard, meaning, and uniqueness with a particular audience relative to all brands that are competing for consumer hearts, minds, and wallets.”
Any other definition of brand equity will fail to produce a predictive connection to financial contribution. And without that connection, Aaker’s premise that brand equity should be managed as a valuable corporate asset loses its punch. Even worse, the whole concept of brand equity loses its status and credibility in the C-suite and boardroom. That’s not good for brands or the companies that own them.
What’s in it for you?
Though digital and performance marketing are here to stay, there are signs that their debutante moment is passing. You see this in the imploding stock prices of tech platforms that are dependent on digital marketing’s growth. And you see it in the declining results of performance marketing at companies where it’s taken over budgets at the expense of investing in brand equity. This opens the door to putting brand management back in charge, and that starts with the right measurement and definition of brand equity.
Getting brand equity right makes it possible to create a North Star metric that completes the chain of cause and effect from brand strategy to financial outcomes. It looks like this:
With such a brand measurement system, marketers can answer hard-nosed questions like these:
- What is the financial difference brand equity makes to our business?
- How will our revenues and value grow if we increase brand equity by X% with audience Y?
- What positioning and activation is most likely to lift our brand equity by X% with audience Y?
- How does the ROI of growing our brand equity by X% compare between audience Y and Z?
- What digital or performance marketing campaign is most likely to increase our brand equity by X%?
This is how you recharge the concept of brand equity and put brand management at the heart of everything an organization does. It’s also how you rejuvenate and ensure the return on digital and performance marketing because these are only as strong as the brand equity they work with.
Ready to learn more? Request BERA’s free brand assessment to better understand how your brand performs, areas where it can grow, and how you can upgrade your brand measurement system.