Brand equity: a myth or reality

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by Dr R.K. Srivastava

A brand is not just a product on a shelf, but is distinguished from similar products or services. Coca-Cola, Pepsi, Ivory soap are all world known brands. Thus Brand = Product + Packaging + Added values
The added values may be:
• Quality
• Image
• Price
• Function

Good Knight which was purchased by Godrej from Transelektra has the ISI mark, a symbol of quality. The good image of Godrej, availability at an affordable price, and lasting effect makes it a good brand among the mosquito mats. Thus, Good Knight continues to improve its market share.

Brand equity became a hot topic in 1980’s because companies were being bought and sold for the value of their brand names. The Pharma industry was no exception. Crocin was taken over by SKB from Duphar, Complan was taken over by Heinz from Glaxo, and Dr Reddy’s Lab took over Reflux from Sol Pharma. Thus, today in India, brand selling has come to the fore and concept of brand equity is gaining popularity.

Brand equity is shorthand for what a brand is worth. It is the asset which the marketer is building. In fact, brand equity is the asset itself, in the same way that a house is. In theory, a brand’s value is the capital worth of the premium it achieves over the equivalent generic product – the same thing without the brand name.

The premium arises from four factors:
• Higher price paid by customers
• Greater volume sales
• Market share
• Greater marketing expenditure thus required.

Therefore, Becosules, the No.1 brand in pharma industry, Dexorange No.1 in heamatinic, and Complan command a better price due to the above four determinant factors.

Brand equity can he affected by the following factors:
• Volume Business: The higher the sales, the greater can be the brand equity. Higher sales signify brand acceptance and thus image. The value goes up if the market size, too, is big. Thus, larger volume sales in a larger market can have higher brand equity than larger volume in a smaller market.

• Leadership i.e. ranks in the market: Brand equity will be higher if the product is the leader. Glynase being No 2 will have higher brand equity. However, it will be less than Daonil, which is No 1 anti-diabetic ranked drug. Similarly, Dexorange Plus with high volume sales and No1 position should command a better brand equity than Glynase if we consider only the first two criteria.

• Market size: The higher the market size, the greater will be the brand equity. Taking an example from above, Becosule, Cifran, Dexorange Plus can command high brand equity because of bigger market size compared to Glynase.

• Relative price: It is a ratio of perceived price divided by actual price. This reflects the consumer’s belief in the brand, especially the quality of the brand. Higher ratio indicates that perceived value is high. Thus, company has scope to increase the price, and also has scope to increase the loyal customer base. This also denotes perceived quality. It is an important factor, which can affect brand equity.

• Marketing expenses to total sales: The higher the marketing expense percentage to sales, the less will be the brand equity. It affects the profitability of the brand. In fact, if brand sales are related to higher inputs it can lead to lower brand equity, even though the sales may be high.
Similarly, high cost of goods with high marketing expense can lead to erosion in brand equity. Becosule and Dexorange Plus are classic examples. Becosule, because of high cost and higher marketing expense, will command lower brand equity compared to Dexorange Plus, even though the sales and market share of Becosule is higher.

• Actual quality satisfaction score: Today’s environment requires higher image of the brand among the actual users. Customer satisfaction score can be the indicator for evaluating and affecting the brand equity. Lucas has a better brand equity compared to Merrelli in the auto industry, because of product satisfaction score. Therefore, brand equity of Lucas is higher. Similarly, Becosule can command a higher satisfaction score among vitamins preparation.

Perceived quality, and image of the company can influence title satisfaction score. However, higher satisfaction score does not mean that brand may be No 1 in sales. But a potential does exist to improve the sales.
Phillips, even though rated as No 1 company in customer friendliness, is not No 1 in the hi-fi or TV or refrigerator market. It can become No1, provided marketing activities becomes more effective. Thus it can enhance its brand equity in India. High quality does not mean high brand equity, but can be one of the factors to improve the brand equity.

• Status of the product on product life cycle: Brand equity will be higher if product is on the late state of growing phase or in early saturation stage. Marketing expenses will be less and profit will be high. Therefore, brand equity will be higher. Similarly, brand equity in a star or cash cow category as per Boston Matrix can be improved.

• Price elasticity: Brand equity generates high-perceived value. However, due to competition and government policy, the market becomes more sensitive. In fact, you can not increase the price. Toothpaste, soap, Paracetamol in the Pharma segment are a few examples. In these markets even though the brand equity may be high, a dramatic increase in price can affect the demand and lower the brand equity. Therefore, this factor can pIay an important role.

• Profitability: The higher the profitability, the greater will be the brand equity. High profit with high volume of sales can definitely improve the equity value. In fact, this becomes very important in calculating the value of the brand. For example, Becosule’s brand equity can be lower due to low net profitability compared to Dexorange in pharma industry, provided net profitability is the only criteria.

• Scope for line extension: A product which can be used as a ladder to generate more sales through line extension will definitely in the long term be viewed as a product with higher brand equity. Recently, Crocin was sold to SKB. Crocin can be combined with Ibu or Diclofenac to give yet another line extension in a different therapeutic segment. Complan can be extended into the biscuit segment, giving another opportunity to expand, Thums Up in a can and 1000 ml. bottles has given additional sales and profit to Coca-Cola.

How to measure Brand Equity
• Multiple Earning Method: It is normally calculated on the basis of recent net profit. Net profit is multiplied 10 to 20 times. This gives the value of brand equity. For an example, if the net profit is 2mn the brand equity value will be 2 x 10 = 20mn. Multiples are decided on factors like volume sales, market size, market share, etc, which can improve the brand equity.

• Brand Equity RKS Index: Under this technique the first step is to find out the index value by
• Determining the factors which can affect the brand equity
• Giving weightage
• Arriving at an index score in terms of percentage

The second step will be to find out the net sales, then imultiply by the percentage of the index score. For example, if Dexorange percentage index score is 40% and sales value is 380mn, then the brand equity will be 380mn x 40% = 152mn.

Thus, brand equity is the storehouse of future profit. A growing brand has more equity than a declining brand. Many companies in India and abroad have started listing them as assets in their balance sheet. This improves the bargaining power of the company.

The next five years will see this emerging trend turn into a reality. In fact, an annual brand equity assessment should challenge the prevailing system and status of the brand. Consumer values shift, and a brand has to keep pace with it. More scientific marketers will do more analysis of positioning of brand and create activities, which will continue to improve the brand equity.

IndiaInfoline

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