An Actionable Way of Measuring Brand Equity and its Effect on Financial Performance
- June 12, 2012
Previously we discussed not abandoning the brand funnel as it is useful for evaluating the strength of a brand’s franchise at a given point in time and to identify where the leverage is for increasing brand strength. However, brand funnel metrics only explain 4-12% of changes in sales and profitability. There are ways to improve how brand equity is measured, diagnosed, and acted upon.
After studying data from over 10,000 respondents across different industries, we developed an approach that links a brand’s equity and funnel metrics with financial performance. We call it Relevant Clarity®, and it identifies and measures what a brand uniquely stands out on that is important to consumers within that category. It is not just another way to measure performance and importance, as it measures what a brand is really identified with that is important to consumers. Like Fred Crawford and Ryan Matthews mention in their book, The Myth of Excellence, “Businesses that buy into the myth of excellence – the false and destructive theory that a company ought to be great at everything it does… – ends up world-class at nothing; not well-differentiated and therefore not thought of by consumers at the moment of need.”
The key to Relevant Clarity® is finding out what functional benefits a brand provides and what emotions a brand invokes that are important to consumers. To add an extra layer to the emotional aspects of brand engagement you may even use non-conscious ways of measuring brand connections, including facial coding and other implicit attitudinal measures. The brand will benefit by focusing on what it stands out on that fit consumers’ needs while not devoting significant resources to attributes that are identified with its competitors. Which big box retailer is known for low prices? Which auto manufacturer is known for ultimate driving performance? Which computer brand is young and hip? Most consumers will identify Wal-mart, BMW, and Apple as the respective answers to those questions, and for that reason it will be a long and expensive battle to try to fight those brands on those attributes.
Additionally, you will want to associate your brand with something important to consumers that another brand is not strongly identified with. This analysis will identify “white space”, which are functional and emotional benefits important to consumers in the market that no brand is strongly associated with. Altering strategy to associate a brand with these “white space” attributes reaches consumers whose needs are not currently being met.
Using Relevant Clarity® scores we can build a market simulator so you can measure changes in the market relevant to a brand by playing “what if” games to optimize a brand’s financial performance. There are other useful ways to measure a brand’s equity; in the next few weeks we will discuss even more sophisticated modeling techniques, specifically agent-based simulation modeling, that can help further optimize a brand’s performance in the market.
How are you measuring your brand’s health? What positioning is your brand identified with that your competitor’s brand is not? How do you know when actions to improve your brand’s health or positioning has the desired financial effect? Let us know in the comments.