Brand Equity for Strategic
Advantage: Consumer
Decision Making
Professor Chip Besio
Southern Methodist University
Marketing 6215
Why the Interest in Branding?
Brands are assets
Pressure from Stockholders for
performance
Pressure from competitors
– Most products in a mature marketplace
– Price competition abounds
What is Brand Equity?
 The “added value” endowed by the brand
name
 Key elements: Associations, Awareness,
Perceived Quality, Loyalty
 Intangible, but measurable
Benefits of Brand Equity
 Asset management/leveraging
 Consumer franchise (facilitates loyalty)
 Lower communication costs
 Improved prices/margins/market share
 More power with the trade
More benefits of Brand Equity
Barrier to competitive entry
Effect of financial valuation of the firm
Value to your Consumer
– Recognition, consistency, confidence,
image/status, etc.
Managing Brand Equity
 It primarily involves managing the
consumer’s mind (associations)
 Firm must set objectives for the brand
 Brand equity measurement is a
management essential
 Marketing mix elements should be chosen
to build, not erode, brand equity
Overview
Brand Equity and
Decision Making
How Consumers
Cope
Stage 1:
Screening
Stage 2:
Comparing
Implications for
Brand Management
What does awareness and
image buy?
 Influences how consumers make
choices
 By changing how choices are made
we can change what is purchased
Overview
Brand Equity and
Decision Making
How Consumers
Cope
Stage 1:
Screening
Stage 2:
Comparing
Implications for
Brand Management
Consumers are overloaded.
 They have a vast array of
alternatives
 Each product has many attributes
 Everyone is under time pressure
The average supermarket
consumer:
 Does very little search: Average less than
12 second per item
 42% spent 5 seconds or less
 32% spent between 6 and 15 seconds
 Average number of brands handled:
1.21; 85% touched only one brand
Source: Pete Dickson and Stan Sawyer
Journal of Marketing
How Do Consumers Cope?
Choice has two phases
– Screening: Eliminate Alternatives
– Comparison: A small set of
alternatives (2-3) get intense scrutiny
Overview
Brand Equity and
Decision Making
How Consumers
Cope
Stage 1:
Screening
Stage 2:
Comparing
Implications for
Brand Management
Screening is important
 Elimination occurs
because:
– The brand lacks a
feature (attribute)
– The brand does not
meet some cutoff
(price?)
 Once eliminated a
brand is not
reconsidered.
How Does Brand Equity Effect
Screening?
 Awareness: Can I recall this brand?
Imagine that your sewer is
backing up, and you are about
to leave town on a business trip.
Who do you call?
(Services rarely purchased must
have high Top-of-Mind)
How Does Brand Equity Effect
Screening?
 Awareness: Can I recall this brand?
More commonly, a harried
or uncertain consumer will
eliminate brands with
which they are unaware.
How Does Brand Equity Effect
Screening?
 Image guides inference about the
brand.
 Inference substitutes for search
because:
– Search is expensive
– Available information is irrelevant or
tough to understand
What are your impressions of
this watch?
What are your impressions of
this watch?
How Does Brand Equity Affect
Screening? A Strategic Advantage
Powerful brands can set the agenda:
– Dictate the attributes used for screening
Examples:
– Volvo and Safety
– Crest with Tartar Control
– American Express Travelers Checks
Screening: Summary
Large product classes are screened.
Elimination = Death
Brand Equity influences screening
– Recall for the consideration set
– Inferences about product attributes
– Setting the agenda for screening
What Attributes are used for
screening in your product class?
Overview
Brand Equity and
Decision Making
How Consumers
Cope
Stage 1:
Screening
Stage 2:
Comparing
Implications for
Brand Management
Screening simplifies choice, but
does not do the whole job.
 Even when screening consumers seem to
examine 2-3 alternatives much more
carefully.
 Process involves intense comparisons on
a small set of attributes.
 How does this comparison process work?
How does this comparison
work?
 Consumers compare other brands to one
brand
 Often that brand serves as the reference
brand.
 Key concept: Loss aversion…when
compared to the reference brand, losses
loom large.
Consumers judge value by…
The observed price relative to reference
price for the product, and
The observed price relative to the normal
or ‘fair’ price of the product
– Examples:
• Restaurants on Friday nights…
• Super Bowl ticket prices.
This is Reference Dependence.
Implication
If you are the reference brand…
– Improvements on price, quality, etc. help
– But decreases hurt more…
If you are not the reference brand…
– You are judged relative to the reference
brand
– Any way you differ from the reference is
your loss
Implication
 Reference brands have competitive
advantages,
 Particularly on features which are the
most loss adverse
Q: What are the reference brands in your
product category?
Pricing Implication
 Price cuts will effect different brands
differently
 High quality brands can easily “steal”
market share from low quality brands by
cutting price.
 But lower quality brands will not steal
share from a high quality brands by
cutting price
Responses to price cuts are asymmetric, high
price brands can steal from the poor.
How do you become a
reference brand?
 ‘Strong’ brands with great awareness
(T.O.M.)
 First Mover Advantage
 Brand most recently purchased
 Sampling, particularly for higher quality
brands
Comparison: Summary
 Having high brand awareness can make
you the reference brand which can be a
significant advantage.
Overview
Brand Equity and
Decision Making
How Consumers
Cope
Stage 1:
Screening
Stage 2:
Comparing
Implications for
Brand Management
To create value…
 Brand must support a higher reference
price…
 Must maintain this over time, even in the
face of stiff competition…
 Applications:
– To raise price…
• New Models
• Price Bundling
• Etc…
What Strategic Element cannot
be duplicated?
 You lower price, they can eventually
lower price
 You can add a feature, they can
eventually ad that feature
 But…
They cannot use your brand name!!
Building Customer Based Brand
Equity
Kevin Lane Keller
Building Customer Based Brand
Equity
The Six Brand Building Blocks
Building Customer Based Brand
Equity
Sub-dimensions of Brand Building Blocks
Building Customer Based Brand
Equity
Determining Brand Value:
Prices vs. Sales
SNAPPLE: BRAND ACQUISITION HISTORY
1994 - Quaker Oats Acquired Snapple Beverage Co.
Price:
$1.7 Billion
Snapple Sales:
$670 Million
1997 – Quaker Oats Sells Snapple to Triarc Cos.
Price:
$300 Million
Snapple Sales:
$500 Million
2000 - Triarc Cos. Sells Snapple to Cadbury Schweppes
PLC
Price:
$1.03 Billion (includes
additional assets + debt)
Snapple Sales:
$775 Million
SOME BRAND ACQUISITIONS:
PRICES AND SALES MULTIPLE
Brand(s)
Acquired
Sales Multiple
Seller
Buyer
Price
Iams CO.
P&G
$2.3 Billion 2.9x
Hawaiian
P&G
Punch (juice)
Cadbury
Schweppes
$203
Million
1.5x
Ray-Ban
Bausch &
(sunglasses) Lomb, Inc.
Luxottica
Group, SpA
$640
Million
1.4x (128x
earnings
multiple
Pringles
(snack
chips)
Kellogg
$2.7 Billion 1.8 x (11.7 x
earnings)
Iams and
Eukanuba
(dog food)
P&G