The Theoretical Separation of Brand Equity and Brand Value

1. The Theoretical Separation of Brand Equity and Brand Value 2006 Winter AMA Marketing Educator’s Conference February 18, 2006 Randy Raggio raggio@cob.osu.edu The Ohio State University Bob Leone leone_7@cob.osu.edu The Ohio State University

2. Motivation • In 1994, Honda introduced the Passport, an Isuzu Rodeo that cost $5,000 more than the Rodeo, without a roof rack, and a 1-year vs. 5-year warranty • The first author bought the Rodeo • How does Honda recognize value from this action? • How do we distinguish brand equity, customer equity and brand value? Raggio/Leone 2006 Winter AMA

3. Equity vs. Value • Firms A and B bid on Brand 1 Brand 1 Firm A Firm B $ Valuation $ Valuation Consumer-Based Brand Equity • Equity and Value are distinct constructs • Value is idiosyncratic to the bidding firm • Each firm attempts to objectively measure equity Raggio/Leone 2006 Winter AMA

4. Brand Valuation Follow the Money: A firm’s perspective Aggregate up to: Outcomes have become the measure of brand equity Individual-level Outcomes Brand-level Outcomes Impact: Shareholder Value Brand Value: Sale or replacement price of the brand Estimates will vary with capabilities and resources Brand Value Aggregate up to: Raggio/Leone 2006 Winter AMA

5. Moving Upstream • What drives Individual-Level Outcomes? Generates: The consumer’s perspective Environment Brand Knowledge Leads to: Individual-level Outcomes Brand: A promise of benefits Consumer-Based Brand Equity Brand Equity: Perception or desire that a brand meets a salient promise Impacts: Raggio/Leone 2006 Winter AMA

6. Equity ≠ Outcomes Marketing Actions - Product offering - Advertising - Promotion, etc. Mktplace Info., etc. Consideration Purchase WOM Loyalty Commitment, etc. Input Individual-level Outcomes Salience Consumer-Based Brand Equity Strength Brand Equity: Perception or desire that a brand meets a salient promise Brand: A promise of benefits Raggio/Leone 2006 Winter AMA

7. Customer Equity • Passport vs. Rodeo example: • The Rodeo lasted 11 years • Next purchase: • Honda Odyssey • Isuzu may have received value from my purchase, but motivation indicated more equity and a higher CLV for Honda • Honda now needs to leverage existing equity to capture Customer Equity • C.E. is the customer-based portion of brand value Raggio/Leone 2006 Winter AMA

8. Leverage Equity Separate Constructs • The goal is to build and leverage equity. Consumer-Based Brand Equity Environment Brand Knowledge Individual-level Outcomes Build Equity (4 P’s) Shareholder Value Company-Based Brand Value Brand-level Outcomes Raggio/Leone 2006 Winter AMA

9. So What? • Confusing Equity and Value is like confusing the likelihood and loss functions • Individuals may have threshold levels that must be passed before Brand Equity impacts behavior • Promise of benefits is context-specific, so Brand Equity may exist within individuals, but may only be “active” when the promise is salient • “Leveraging” opens for consideration other segments, markets, products/services (e.g., IBM, Scotts) Raggio/Leone 2006 Winter AMA

10. Brand Value • At a point in time, for a particular firm, there are two levels of brand value Given fully-leveraged Brand Equity Appropriable value Brand Value Gap is a function of a firm’s ability to leverage Brand Equity Current value Given current strategy, management, etc. Raggio/Leone 2006 Winter AMA

11. Brand Value • Over time, both current and appropriable value can change Sale of Cracker Jack to Frito-Lay Appropriable value Appropriable value Chasing appropriable value Chasing appropriable value Current value F-L’s “system” value Borden “max” Current value P&G time ADA approval of Crest time Borden Frito-Lay Raggio/Leone 2006 Winter AMA

12. What This Means… • Managerial goal is to build and leverage equity to generate (chase) value • Brand Value also comes from sources not directly related to consumers(e.g., HR) • Effective strategy is based on a comprehensive understanding of the relationship between equity and value • Tactical decisions follow analysis of the drivers of equity and the linkage between equity and value • Optimization methodologies (e.g., CRM) should always be considered in the context of the larger framework Raggio/Leone 2006 Winter AMA

13. New Framework Raggio/Leone 2006 Winter AMA

14. Thank you! Raggio/Leone 2006 Winter AMA