Measuring Brand Equity – How to get started

Measuring brand health is fundamental to understanding how to build and manage equity over time. So it’s not surprising that the questions we hear from our clients often concern measuring brand equity.

Deciding on appropriate measures of ‘brand equity can be a tricky proposition. Market share can be misleading (after all, share can be bought) and attitudes often don’t relate directly to business results. Even loyalty has its limitations as a measure of equity, because it gives few clues as to what is driving the loyal behavior. If you’re feeling confused, that’s understandable. Even experts don’t agree on the best way. Consequently, brand measurement practices are ‘all over the board’.

There are some agreed fundamentals. For instance, using a variety of behavioral and perceptual measures is agreed to provide deeper insights to brand health than market share alone. And framing brand equity as a function of consumer perceptions that drive positive brand behaviors makes it much easier to understand what matters to brand health and track changes.

Our recommended approach is based on the insight that brand equity is the result of three factors:


1) how consumers think about your brand relative to other brand choices in terms of quality and price/value,

2) their behavior toward your brand and

3) their perceived ‘future trend’, that is whether or not they think they are buying more or less of your brand today than they were before.


All three measures are necessary because, after all, I can think very highly of brands I never buy (Steinway) and I buy brands I don’t really have much regard for (Chili’s is the only Mexican restaurant in my area). When analyzed on a longitudinal basis, these equity measures can provide helpful insights for improving brand programs, measuring ROI and developing effective brand strategies. It also makes it easier to relate equity to other business indicators such as revenue and profits.


Including equity measures as dependent variables in marketing modeling can provide even greater insights than simply modeling changes in absolute sales, market share or consumer perception. After all, a bottom line orientation with no line of sight to more enduring benefits can lead directly to the bottom.


For an example of how this approach works, let’s look at Coke and Pepsi, among the most recognized brand rivalries in all of marketing. Using data collected in September 2005 , we calculated six measures of equity (see Figure 19 below). According to this study, Pepsi somewhat lags Coke in market share (self-reported usage) but significantly lags its rival in all other measures of equity save one. Let’s look at each measure in turn to see what we can learn about these two famous brands.


1. “Top Box L” Contribution
This reflects the percent of sales contributed by loyal customers who believe the brand has “superior quality” and who are “price insensitive” (think price is not a barrier to purchase). It represents the most loyal “core” of each brand’s franchise and those most likely to be insulated from competitive marketing activities. They are what give brands their ‘resilience’ to withstand negative pressures like price or bad press. Here we see that Pepsi significantly lags both Coke and diet Coke as well as Diet Pepsi.


2. Overall “Loyalty Contribution”
This metric reflects the volume (percent) of a brand’s sales that is contributed by all the loyal customers in the category – that is, those who devote 4 out of 5 purchases to one brand. Here we see that again, Coke has the edge on Pepsi, with over 70% of its volume sourced from customers that are loyal to one brand compared to just 57.7% for Pepsi. This measure is directly related to sales and financial performance. (While not shown, this measure can be computed for the category as well as for each brand within it in order to provide norms.)


3. “Equity Share”
This metric is closely related to Loyalty Contribution in that it is based on the volume of all loyal customers in the category but it reflects the brand’s share of that volume. Consequently, equity share represents the brand’s ability to capture the category’s most desirable and profitable customers. Equity share is specific to brand performance and has no category equivalent. In our example Pepsi and Coke have similar equity share. While this may seem counter intuitive, one explanation is that Pepsi may have been doing an unusual amount of price promotion during this period. If so, this would have the effect of increasing its overall volume by enhancing the loyal behavior of occasional Pepsi users.


4. Leveragability Index
This metric reflects the relative importance of product quality with respect to price. If quality perceptions are much stronger than price perceptions there is a potential to leverage the brand into other areas beyond the immediate market. In this example, Coke’s index of 95 can be interpreted to mean very little of its volume is driven by price, whereas Pepsi has a somewhat higher proportion of its non-loyal volume driven by price.


5. Brand Equity Index and SQI

BEI index and SQI index are derived from comparing the other measures. In each case, Coke outperforms all other brands. This is vivid testimony to the equity of the Coke brand. (See full article for explanation of how these measures are calculated.


However interesting these point in time measures may be, real insights require repeated measurement. For example, it would be instructive to know whether Pepsi’s low top box “L” score is unusual or part of a long term pattern? Or is its high equity share due to aggressive price promotion?


Getting Started


Measuring brand equity is the first step toward actively managing your brand as an asset. There is no one right answer, but doing nothing is surely the wrong answer. Brand Equity measurement does not have to be complicated or difficult. The study we just examined can be easily replicated online for your category in a matter of weeks. Online panels make ongoing research techniques much more affordable and faster to execute. With sample sizes no longer the limiting factor, even small changes in consumer behavior and perceptions can detected.


To learn more about Tiered approaches to Brand Equity measurement, click here for our recent article appearing in Journal of Advertising Research (June, 2005).