Previous research has identified four sources of brand equity: (1) biased perceptions; (2) image associations; (3) incremental value, a component that that is not related to product attributes or benefits; and (4) inertia value. This article develops a utility model that captures all these sources of brand equity; in particular, the model provides estimates of consumer-level brand equity at different levels of aggregation and also estimates firm-level brand equity.
The proposed reduced-form conjoint methodology approach (1) allows for different information-processing strategies by consumers, (2) provides objective dollar-metric values for brand equity without the need to collect perceptual or brand association data, (3) captures the nonrecursive effects of awareness and availability in the marketplace as sources of brand equity, (4) accounts for competitive reaction, (5) allows the mix of branded and unbranded firms to affect industry size, and (6) uses consideration set theory to project market share estimates from the conjoint experiment to the marketplace.
There are two critical design features of the methodology: (1) The experiment must include unbranded products for determining the values for products with no brand equity, and (2) to obtain unambiguous dollar-metric estimates of brand equity, all choice sets in the conjoint experiment must include the no-purchase option. At the firm level, the two key features of the model are that (1) it must explicitly allow brand equity to depend on objective measures of awareness and availability and (2) the marketing policies (e.g., market prices and advertising levels) of all products in the industry are endogenously determined. Thus, the model provides objective estimates for brand equity after simultaneously allowing for competitive reaction, demand and supply adjustments, and consumer heterogeneity.
Consumer-level brand equity is defined as the difference in the consumer's willingness to pay for a branded product with a given set of features and an identical unbranded product. Firm-level brand equity is defined as the incremental profitability that the firm would earn operating with the brand name compared with operating without it. Because the proposed method provides dollar-metric values for firm-level brand equity and for consumer-level brand equity at different levels of aggregation, managers can use this approach to develop customized strategies for targeting customers, monitoring brand "health," allocating resources, revising a brand's marketing policies over time, and determining the values of brands that they seek to buy or sell in a merger or acquisition.
The authors test the proposed methodology, and the results compare with those from extant methods. At the consumer level, the empirical results suggest that the proposed metric for measuring brand equity has convergent validity; in addition, the magnitudes and strengths of brand equity vary considerably across consumers and brands. At the firm level, the results show that previous methods (e.g., those based on revenue premiums, information from industry experts, or Dubin's methodology) are likely to overstate brand equity, especially for products with low market shares. Finally, external validation tests show that the proposed reduced-form conjoint methodology for measuring brand equity is robust.
Reprinted with permission from the Journal of Marketing Research, published by the American Marketing Association, Madiha Ferjani, Kamel Jedidi, and Sharan Jagpal, 46, no. 6 (Winter 2009): 846-862.