Brand Equity

Andreas Strebinger Gunter Schweiger Thomas Otter July 1998 Andreas Strebinger is research assistant in the Department of Advertising and Marketing Research at the Vienna University of Economics and Business Administration (Wirtschaftsuniversitat Wien), Austria. Gunter Schweiger is Professor of Advertising and Marketing Research at the Vienna University of Economics and Business Administration. Thomas Otter is research assistant in the Department of Advertising and Marketing Research at the Vienna University of Economics and Business Administration.

The authors gratefully acknowledge the support of the Austrian Scientific Research Fund (Fonds zur Forderung der wissenschaftlichen Forschung) and the valuable comments of John C. Crawford and Gerald Haubl. Correspondence should be addressed to: Ordinariat fur Werbewissenschaft und Marktforschung Institut fur Absatzwirtschaft Wirtschaftsuniversitat Wien Augasse 2-6 A-1090 Vienna Austria phone: +43 1 313 52 238 fax: +43 1 313 52 239 2 BRAND EQUITY AND CONSUMER INFORMATION PROCESSING: A PROPOSED MODEL ABSTRACT

In the last decade, a lot of research has been dedicated to conceptualizing and measuring customer-based brand equity. However, apart from putting forth various influencing factors, no integrative framework has so far been developed to account for the complex psychological processes underlying the formation of customer-based brand equity. This paper attempts to propose such a framework by drawing on the theory of consumer information processing.

Starting with ten input variables, the paper identifies four paths which lead to the output variable of intangible monetary customer-based brand equity: an informational path, an affective path, a social path, and a path via perceptual changes. Each of these paths involves several interacting variables. Extensions toward deriving company-based brand equity are discussed. 3 4 1 Introduction The overwhelming significance of brands for the consumers’ decision making is uncontested both in everyday practice and scientific research.

In the field of international academic and non-academic research, a wide variety of models to conceptualize and measure “brand equity” have been developed over the past few years. To explain how brand equity is generated in the consumer’s mind, some detailed investigations of individual influencing factors as well as several synoptic approaches examining the influence of different variables on brand equity are available (cf. D. Aaker 1992a, 1992b; Biel 1995; Kapferer 1996; Keller 1993).

We see a strong need for an integrative model which will • provide as comprehensive an overview as possible of the various influencing factors and • put them in relation to the psychological process taking place in the mind of the consumer. The present paper proposes such a model based on a conceptualization of brand and brand equity. 2 Conceptualization of brand and brand equity 2. 1 Brand as a notion in the mind of the consumer In the large gamut of definitions, two general perspectives can be discerned: • One perspective sees a brand as something visible, tangible, and maybe even audible.

One typical definition is that of a brand as a “distinguishing name and/or symbol (such as a logo, trade-mark, or package design) intended to identify the goods or services of a seller or group of sellers, and to differentiate their goods or services from those of the competitors” (D. Aaker 1992a, p. 7). It thus puts the focus on the material side of the brand, regarding the consumers’ notion of the brand as a secondary criterion. • The other perspective – in the words of David Ogilvy – defines a brand as the “consumer? s idea of a product”. When seen from this viewpoint, a brand is a schema or semantic 5

network which the consumer has acquired through a process of learning (e. g. , BekmeierFeuerhahn 1996, p. 161ff; Keller 1993). Names and symbols are thus only seen as triggers of what the brand actually stands for. We feel the latter view to be more appropriate, especially when it comes to providing an explanatory model for the generation of brand equity through a psychological process. As a notion in the consumer’s mind we define the concept of ‘brand’ as the sum of associations that are evoked by names or symbols. Its scope, however, should not be limited to associations with the product.

By the same token, associations with the firm behind a TV set brand, information on the dealer of a specific brand of car, or the consumer’s ability to memorize the telephone number of a pizza delivery service, are also part of the brand and may consequently also function as important sources of brand equity. 2. 2 Three questions on the conceptualization of brand equity In conceptualizing “brand equity”, the following three questions need to be addressed: 1. Which sources of brand equity should be considered? First, we need to differentiate between customer-based and company-based brand equity.

Customer-based brand equity is admittedly the most important, but not the only source of the value a brand has for the company (Fig. 1). Apart from the sales market, a brand may also yield substantial benefits on other markets. Firms whose names are identified with a wellknown and popular brand have a great advantage on the labor market. Other advantages may be achieved • on the capital markets, • on other factor markets (e. g. , when a firm is granted special purchasing conditions as a “reference customer” on account of its well-known brand name) or • in dealings with political decision makers.

6 Figure 1: Sources of company-based brand equity The present paper focuses on • Customer-based brand equity. For the purpose of our paper, we identify brand equity as the value the brand adds to a good or service for the final consumer. Without doubt, the trade plays an important role in the building of brand equity (e. g. , Keller 1998; Riedel 1996; Srivastava and Shocker 1991). In some cases, it may even become the only source of brand equity, if the final consumers do not have any brand preferences. However, brand equity derived from the trade will not be discussed in this paper.

• The brand value that is generated by the products presently on the market (current brand equity). We will not consider the potential value of a brand when the latter is extended to new products (e. g. , D. Aaker 1992a; Keller 1993, 1998; Keller and Aaker 1992; Mayerhofer 1995; Mazanec and Schweiger 1981; Park and Srinivasan 1994; Smith and Park 1992). The proposed model may however also be used to predict this form of “latent brand equity”. We shall further limit our discussion to explaining such brand equity as 7 • results from the purchase decision itself (in-purchase brand equity).

Without any doubt, advantages for strong brands may also exist in a pre- and post-purchase setting. One wellknown example for this phenomenon is the post-purchase reduction of cognitive dissonance which may be supported by a strong brand. 2. What units should be used to measure brand equity? The concepts for measuring customer-based brand equity currently available differ from each other in that they • evaluate it primarily in non-monetary terms using such criteria as brand recall and recognition, sympathy for a brand or quality assessment, and subsequently establish an index value from which they derive a financial value for the company (e.

g. , D. Aaker 1992a, p. 43ff; Andresen 1991; Bekmeier-Feuerhahn 1996; Kapferer 1996) or • quantify it in monetary terms from a customer? s perspective (e. g. , Bello and Holbrook 1995; Brosch 1995; Crimmins 1992; Herp 1982; Kaas 1977; Kamakura and Russel 1993; Park and Srinivasan 1994; Sander 1994; Swait et al. 1993). As a rule, this approach is based on the consumer’s willingness to pay a price premium or on the higher price actually achieved by a given brand. In our view, two arguments speak in favor of a monetary quantification of customer-based brand equity: • Generally, the goal of business activity is to make a profit.

Brand awareness, sympathy or quality assessment are merely control parameters whose contribution to profit generation becomes manifest only if the consumer is ready to pay a higher price. • The monetary quantification of customer-based brand equity forms the bridge via which the monetary value the brand has for the company can be assessed. This company-based value of a brand opens up new fields of application for the concept of brand equity. These include the possibility of asset valuation for the balance sheet or of determining license fees and sales value of the brand (cf. Barwise et al.

1989; Schweiger and Friederes 1995). Alternative approaches, such as deriving company-based equity from weighted indexes, 8 share prices, “production costs” or from the market price of a brand, are in our view either questionable from a methodical point of view or cannot be universally applied (cf. Kapferer 1996, p. 475ff). 3. Tangible or intangible brand equity? A widely discussed issue is whether brand equity also includes the objectively measurable advantages of a product (“tangible brand equity”) or only the added value generated by the brand as such (“intangible brand equity”; cf.

Berndt und Sander 1994; Blackston 1992; Farquhar and Ijiri 1993, p. 87; Kamakura and Russell 1993; Roeb 1994; Sander 1995). When regarding brand equity from a tangible perspective, for example, one might also rate as brand equity the value of an additional airbag offered by a specific automobile brand. The intangible view does not regard such a product advantage as part of brand equity. There is no general answer as to which of the two positions is the “right” one. Instead, it depends on the aim of brand evaluation whether objective product advantages should also be included in the concept of brand equity.

To judge the performance of an advertising agency which has no influence on product design, for instance, an intangible definition of brand equity will be the method of choice. However, if we wish to determine the price for the sale of a brand complete with all production facilities and patents, a tangible view of brand equity may be the more appropriate approach. The present model aims to explain intangible brand equity. It may however also be extended to a tangible brand equity concept. 3 The building of brand equity: A proposed model involving four paths between input and output To explain the building of intangible monetary

customer-based brand equity, we propose a model which can be divided into six sub-sectors. From the input variable sector, four paths lead to the output variable of brand equity (Fig. 2): • the informational path: the brand creates an informational value for the consumer by facilitating the purchase decision and reducing uncertainty; 9 • the affective path: the brand gives the product an affective value via a variety of mechanisms; • the social path, on which the brand may become an instrument of social self-presentation; • the path via a change in the perception of product attributes.

Product Knowledge Perceived Risk Ratio of Search, Experience, and Credence Qualities Brand-related Heuristic Rules Involvement Costs of Search and Thinking Risk Aversion Cost-Benefit Ratio of Information Search and Processing Informational Value of the Brand Imagery and Acoustic Associations Intangible Monetary Customer-Based Brand Equity Price-Utility Function Personal Experiences with the Brand Congruence with the Ideal Own Self Affective Value of the Brand Symbolic Experiences with the Brand Brand Familiarity Social Value of the Brand Congruence with the Ideal Social Self Conspicuousness of Consumption Perceptual Changes.

Proposed model explaining intangible monetary customer-based brand equity Note. – An arrow leading from variable A to variable B stands for a main effect of variable A on variable B. If this arrow is hit by another arrow starting from a variable C, this means that the effect of variable A on variable B is moderated by variable C. By way of analogy, this also applies to higher-order interactions. To understand the model it is important to note 10 • that it is a framework model. The different variables are not intended as directly applicable and unidimensional criteria.

They need to be specified individually for each product group in actual practice. The only parameter that is uniform and comparable across product categories on account of its monetary quantification is “intangible monetary customerbased brand equity”. • that it conceptionally addresses the generation of brand equity for a specific consumer in a specific purchasing situation. In an empirical setting, it will be necessary to aggregate the observations of different consumers – possibly subdivided into different consumer segments. • that those variables which relate to product attributes represent the conglomerate of a multi-attribute model.

The variable of “perceptual changes”, for instance, is to be understood as the sum of brand-based perceptual changes across product attributes weighted according to the importance of the various attributes (Park and Srinivasan 1994). If we wish to simulate the model for a given product range, we first need to identify the relevant product attributes for the consumers or for specific groups of consumers. The same is true for the field of social and affective dimensions. Likewise, the variable of “congruence with the ideal own self” is also to be seen as the sum of dimensions emanating from the brand personality in question (e.

g. , successful, youthful, serious-minded, etc. ). • that the model serves as an explanation of the relative value of the brand. The different variables are, for the sake of comprehension, defined in absolute terms (e. g. , “informational value of the brand”), although in their practical application, they are always meant to be seen in comparison to some other brand (i. e. as a lower or higher informational value of brand A as compared to brand B). Interesting practical yardsticks for a firm’s own brand may be its most important competitor, a store brand or a completely unknown brand.