Behaviorally-Oriented Brand Valuation Models

Some 10 years ago, among both marketing practitioners and theoreticians, criticism grew louder that financial models were failing to do complete justice to the essential qualities of strong brands, since they concentrated on quantities such as stock market capitalization, earning-capacity value, license revenues, acquisition costs, price premiums or the customer contribution margin, when brand is not the only calculation of value in quantitative terms. Aaker defines brand equity as a set of assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by a product or service to a firm and/or to that firm customers. Aaker identifies five determinants of brand equity: Brand loyalty, brand awareness, perceived quality, brand associations and other brand assets. It is seen not only as determinants but also as outcomes of brand equity. These parameters, with help of few other important factors, give a new concept of incorporating brand strength as a demand-oriented component. They endeavor to explain what goes on in customers’ hearts and minds and what determines the value of brands from their point of view. Almost on the same lines, Keller defines brand value as the differential effect of brand knowledge on consumer response to the marketing of the brand. That is, customer-based brand equity involves consumers’ response to an element of the marketing mix for the brand in comparison with their reactions to the same marketing mix element attributed to a fictitiously named or unnamed version of the product or service.

Calculation of brand value based on Price Premium method, compares the revenues of an unbranded competing product with the brand. Revenues of an unbranded competing product are deducted from the revenues of a comparable branded product to establish the excess or premium revenue of the brand. This excess or premium gives the value of brand. BPL, Nike, United Color of Benaton, Lotto and Bata, for example, are able to command a higher price even when the product is outsourced. The suppliers to these companies cannot charge the same price if they sell their products directly to the consumers.

Based on the principle that consumer commitment is at the foundation of brand equity and loyalty, the Chicago research firm Market Facts has developed a “Conversion Model”. This model is designed to measure the psychological commitment between brand and consumer. The model segments users of a brand into four groups: Entrenched, Average, Shallow, and Convertible. This model also predicts brand’s future fortunes. Walker and Chip in their paper ‘how strong is your brand’ discusses example, “in measuring the carbonated soft-drink category in the summer of 1991, Market Facts detected weaknesses in consumer commitment to Coke and Diet Coke. At the same time, growth potential was found for several non-cola soft dinks. By the first quarter of 1992, Seven-Up’s shipment volume climbed 8%, and other brands showed directional strengths and weaknesses as predicted.”

Prominent among ‘Behaviorally-oriented’ brand valuation model is, the Young & Rubicam model which is based on the principles of behavioral science. The Young & Rubicam brand model, Brand Asset Valuator (BAV) can be used as a diagnostic tool. The BAV model is the result of a large-scale study Y&R conducted in 1993-94, encompassing 30,000 consumers and 6,000 brands in 19 countries. It is an attempt to value brand by breaking consumer connection into its two parts—brand stature and brand strength, the marketer can assess the health of the brand. Brand strength is a measure of brand distinctiveness that measures how distinctive the brand is in the marketplace and brand relevance measures whether a brand has personal relevance for the respondent. Brand stature, on the other hand, is a combination of brand esteem, which measures whether the brand is held in high regard and considered the best in its class and knowledge is a measure of brand understanding, which measures as to what a brand stands for.

Walker and Chip in their paper “How strong is your brand” discusses brands in the study with high familiarity include Coca-Cola, Jell-O, McDonald’s and Kellogg’s. Brands with high esteem include Rubbermaid, Philadelphia Cream Cheese, Reynolds Wrap, and Band-Aid.

BV = f {[Brand strength (differentiation, relevance)] and [brand stature (esteem, knowledge)]}

McKinsey defines the three Ps of the brand and gives a function “Quantitative brand strength elements = f (the 3 Ps of a brand)”, when three Ps stand for performance, personality, and presence. McKinsey’s method for determining brand value operates on the assumption that brand strength is definitively quantifiable. However, the system does not determine aggregate brand value, but rather
quantifies as target values for individual benefit components of brands from a brand management perspective and can be viewed as a model based on behavioral science only in terms of the drivers of the three Ps of the brand.

Other consumer-focused models essentially value brands along similar lines with varying degrees of sophistication. Some of the measures used are: Price premium, customer preference, replacement cost of brand, and the price premium that the name supports. The Icon Research and Consulting Brand Trek approach is yet another model for determining brand value based purely on the tenets of behavioral science.