Branding Strategy Insider

Negative Brand Equity: A BP Death Sentence?

Buy shares in BP. That was the bizarre advice from Royal Bank of Scotland analysts last week after those bright sparks worked out that even the worst possible costs of the Deepwater Horizon will total less than the actual drop in BP’s market value.

RBS has, of course, got it wrong again. Long after the costs have been paid and the oil cleaned up, BP will continue to live in infamy as one of the world’s most shamed brands. The official terminology for this kind of perilous state is negative brand equity. And it spells disaster and probable death for the company that was once known for being “Beyond Petroleum”.

Negative brand equity occurs when a company’s brand actually has a negative impact on its business - meaning that the company would be better off with no name at all. It happened in the Seventies when Tesco’s brand was so poorly perceived that Imperial Tobacco decided not to acquire the retailer for fear of being associated with such a tarnished and unpopular organisation. It happened again in the Nineties when Skoda discovered to its horror that it could not get British consumers to buy its cars despite spending millions on advertising. Consumer research later confirmed that two-thirds of its target market would literally not consider anything at any price that carried the Skoda badge.

And now we have BP. Like every case of negative brand equity before it, the peculiarities of the situation mean that all the traditional advantages of branding are now inverted. BP would be better off whitewashing its forecourts and removing all evidence of its Helios brand identity. That said, the actual impact of the Deepwater disaster on BP’s petrol pump sales is likely to be localised and temporary. We know from past history that petrol consumers are a fickle bunch. When the Exxon Valdez oil tanker spilled its load into Prince William Sound in 1989 the enduring impact on Exxon’s gas sales, even in the state of Alaska, was virtually zero.

The Metrics of Branding

By 2020, branding will become the most significant value driver for boardrooms. Branding is already a very effective catalyst for better leadership; and branding helps the boardroom drive its shared vision. The primary objective of boardrooms is to build and sustain shareholder value and deliver competitive returns to shareholders. They must therefore manage by metrics, and balance short and long-term perspectives and performance. Brand equity is the combined measure of brand strength and consists of knowledge, preferences and financial considerations. Each of the measures under these three metrics is critical and the boardroom must ensure the brand portfolio scores highly in each to optimize its financial outcome.

Metrics Associated with Branding

Knowledge metrics: Measure a brand’s awareness and associations through the many stages of recognition, aided, unaided and top of mind recall. Similarly, the functional and emotional associations of a brand are important drivers of brand equity. Brands should score high on both awareness and association attributes.

Preference metrics: Measure a brand’s competitive position in the market and how it benchmarks to competing brands. Customers pass through various levels of preference toward the brand, ranging from mere awareness to strong loyalty and recurrent revenues from the customer base. A strong brand has the brand equity to build customer loyalty.

Financial metrics: Measure a brand’s monetary value through the various parameters of market share, price premium a brand commands, the revenue generation capabilities of a brand, the transaction value, the lifetime value of a brand and the rate at which brands sustains growth. These measures allow a company to estimate an accurate financial value of brand equity linked to marketing metrics. Some of them are examined in the following:

Perceived Quality: Critical Asset For Brands

Perceived quality is a brand association that is elevated to the status of a brand asset for several reasons:

* among all brand associations, only perceived quality has been shown to drive financial performance.

* perceived quality is often a major (if not the principal) strategic thrust of a business.

* perceived quality is linked to and often drives other aspects of how a brand is perceived.

Perceived Quality Drives Financial Performance

There is a pervasive thirst to show that investments in brand equity will pay off. Although linking financial performance to any intangible asset (whether it is people, information technology, or brand equity) is difficult, three studies have demonstrated that perceived quality does drive financial performance:

* Studies using the PIMS data base (annual data measuring more than one hundred variables for over 3,000 business units) have shown that perceived quality is the single most important contributor to a company''s return on investment (ROI), having more impact than market share, R&D, or marketing expenditures. Perceived quality contributes to profitability in part by enhancing prices and market share. The relationship holds for Kmart as well as Tiffany: Improve perceived quality, and ROI will improve.

The Metrics of Brand Equity

There are several stakeholders concerned with brand equity, such as the firm, the customer, the distribution channels, media and other stakeholders like the financial markets and analysts, depending on the type of company ownership. But ultimately it is the customer who is the most critical component in defining brand equity as it is his/her choices that determine the success or failure of the company and the brand.

Customer knowledge about the brand, the perceived differences and its effects on purchase behavior and decisions lies at the heart of brand equity. The knowledge and associations attached to the brand result in choices which have a direct impact on the brand's financial performance and shareholder value.

Brand equity is the combined measure of brand strength and consists of three sets of metrics: knowledge, preference and financial. Each of the measures under these three metrics is critical and the boardroom must ensure that the brand portfolio scores high in each of these parameters to optimize the financial outcome from strong brands.

Knowledge metrics measures a brand's awareness and associations through the many stages of recognition, aided, unaided and top of mind recall. Similarly the functional and emotional associations of a brand are important drivers of brand equity. It is crucial for brands to score high on both awareness and association attributes to establish and sustain their presence in the market place.

Brand Equity Risk: Linking with Big Retail

Eight years ago, Thorntons, the 98-year-old chocolate company, found itself in a very sticky situation. New chief executive Peter Burdon announced a three-year plan to turn the company around and, remarkably, through a major consolidation of stores, product portfolio and finances, he has done just that.

Burdon also recognised from the outset that his greatest asset was the Thorntons brand. With prompted recall levels of more than 90% in a large and very profitable category, this was perhaps not a remarkable discovery.

But Burdon also realised that, despite a high level of awareness, the brand associations of Thorntons were increasingly fuzzy and undercommunicated.

In 2002, all of Thorntons' 4000 employees participated in a specially devised brand-training programme in which they learned that Thornton's brand equity was based on 'the art of the Chocolatier'. Rather than simply embark on a new ad campaign or, God forbid, a rebrand, Thorntons built its brand from the inside out and back to the premium position it once occupied.

But Burdon's boldest move has been the widespread revision of Thorntons' retail strategy. With a core base of 400 Thorntons-owned stores, he also encouraged an expansion of Thornton franchisees, of which there are now 180. More radical still was his decision in 2001 to start selling in Sainsbury's and later through most of the major chain retailers and supermarkets.

Initially, at least, selling through Big Retail made a lot of sense.

Brand Equity Can Taint Perceptions

A couple of years ago I was invited to make a series for the BBC about brands. In one episode we went to a London pub to recruit brand-loyal drinkers in a London pub who claimed that they drank only one particular beer.

Invariably these drinkers cited the taste of their chosen beer brand as the reason for their loyalty, and when asked if they could identify their choice without the aid of the logo, each was certain they could.

We took these drinkers to the corner of the pub, where we had set up a blind-taste test. Three pints of beer marked A, B and C were set out on a table and the drinker was given one minute to identify their favoured brand from two imposters.

What the drinker did not know was that not only were all three beers identical, but they were all from a rival brand to the one they usually drank.

Exclusivity: Brand Equity Power

I have always been a working smoker. While I never touch the evil weed at home, I accept the occasional one when I am consulting, for a very simple strategic reason: you can learn more from a fellow smoker in five minutes outside headquarters than you could glean in three weeks with the chief executive.

I am currently in Shanghai, where my professional smoking routine is pushing me to the edge. Rarely does a break, meal, or drink pass here without a five-minute session of mass inhalation. True to form, my dirty habit has not been in vain. Over the past week I have learned a lot about an impressive luxury brand: Panda cigarettes.

Perhaps we have been too quick to assume that the flow of brands and branding expertise is all heading East. The Shanghai Tobacco Corporation, which produces Panda, could teach many marketers a thing or two about building brand equity.

For starters, Panda understands the importance of dynamic targeting. The real art to this is more like dominoes than archery: an initial small, influencing segment can often have more success in bringing others to a brand than a more obvious attempt to reach everyone immediately.

The Language of Branding: 'Brand Equity'

Brand Equity is the commercial value of all associations and expectations (positive and negative) that people have of an organization and its products and services due to all experiences of, communications with, and perceptions of the brand over time.  This value can be measured in several ways: as the economic value of the brand asset itself, the price premium (to the end consumer or the trade) that the brand commands, the long term consumer loyalty the brand evokes, or the market share gains it results in, among many others. From an economist’s perspective, brand equity is the power of the brand to shift the consumer demand curve of a product or service (to achieve a price premium or a market share gain).

To use a metaphor, brand equity is like a pond.  People may not know how long the pond has been around or when it first filled with water, but they know that it supports life, from fish and frogs to ducks and deer.  It also may be a source of recreation, irrigation and possibly even human drinking water.  Clearly it is a valuable resource.  But many people take the pond for granted.  It seems as if nothing can diminish its supply of water, but yet we sometimes notice that it rises with the spring rains or lowers after a long draught or excessive overuse for irrigation.  Brand equity is a reservoir of goodwill.  Brand building activities consistently pursued over time will ensure that the reservoir remains full while neglecting those activities or taking actions that might deplete those reserves will reduce the reservoir, imperceptibly at first, but soon all too noticeably until it is too late and all that is left is mud.

Brand Equity Measurement

Brand equity studies should measure the following for your brand and each of its competitors, with responses reported separately for different user segments:

• Awareness
• Convenience/accessibility
• Perceived value (including quality and price sensitivity)
• Rank in consideration set
• Preference
• Usage
• Relevance
• Differentiation
• Vitality
• Emotional connection
• Loyalty
• Multiple personality attributes
• Other brand associations

Sponsored By: Brand Aid

Case Study: Brand Equity in the Insurance Industry

The findings from our comprehensive brand equity study of the insurance industry has implications for many industries. Here is what we found:

•While there are over 100 insurance brands whose names people have heard of, few achieve widespread top-of-mind awareness (first recall).

•The insurance industry is highly fragmented with a low dominance of usage and preference by a few brands.

•Very few companies are aggressively claiming relevant differentiating benefits in consumer communication. The few that are, are rapidly gaining market share (witness GEICO which is claiming price/value leadership in auto insurance with substantial advertising support).

•Prices/rates are cited as one of the top differentiating benefits, suggesting that the category is commodity-like for many consumers.

•While behavioral loyalty is high, attitudinal loyalty is much lower, indicating a consumer's propensity to switch companies when the switching becomes easier (something the Internet might facilitate).

•Emotional connection to insurance brands is very low. Less than one in five consumers say that their insurance brand has never disappointed them. (The top brand on this measure disappointed two thirds of its customers at some time. All brands below the top eight on this measure disappointed over 90% of their customers.)

•Our analysis of the most powerful differentiating benefits indicate that many of them lie with the way in which insurance agents/representatives and the claims adjusters interact with customers.

•Our data would indicate that the industry is ripe for consolidation or strong niche marketing.

Three opportunity areas emerged for insurance companies:

1.Reinventing the process by which they interact with their consumers.
2.Claiming a highly relevant, unique point of difference (focusing on a product category, a consumer benefit or both).
3.Increasing emotional connection with their consumers.

The study provides the following lessons that are applicable to other industries: