How to Measure Brand Equity

The notion of “brand equity” has long been of great interest to marketers, as evidenced by the number of books and articles on branding that have appeared both in the business press and on this very Web site.

The trickiest issue to date seems to be working through the nettlesome question of how brand equity should be measured. Estimating brand equity is important not only to marketing types but also to corporate and accounting types, since “the value of the brand” has been identified as one of the most powerful invisible assets that determine corporate value.

Valuing a brand is also becoming more important because FASB (the Financial Accounting Standards Board), the organization responsible for developing accounting standards in the US, has begun to consider public disclosures as well as capitalization of intangibles—including brands.

Criteria for a Good Measure

The solution to a good measure of brand equity should probably first describe the criteria that a good measure should meet. After combing through a lot of writing on the subject, we can identify multiple criteria.

In this article, the second of a four-part series on branding, we'll show you a brand equity measure that meets a number of these important criteria:

• Different people computing it can arrive at the same value.
  
  
• It is quantifiable and based on readily available data so that it can be monitored on a regular basis for multiple brands in multiple PCs.
  
  
• It meets the definition of an element of a financial statement.
  
  
• It is relevant to not only marketing valuation but also financial valuation as it pertains to a company's purchase price.
  
  
• It is in the form of a single number, to enable easy tracking and communication.
  
  
• It is intuitive and credible to senior management.
  
  
• It is relevant to the commonly understood definition of brand equity as worth (revenue minus costs).
  
  
• It is relevant to various levels of analysis (brand level; corporate level).
  
  
• Comparability—it is calibrated to include market and competitive effects.
  
  
• Allows for comparisons across industries.
  
  
• It is diagnostic, or able to flag downturns or improvements in the brand's value and provide insight into reasons for the change; it is relevant in terms of feedback value or information predictive value.
  
  
• It provides tactical guidance regarding the management of brand equity.
  
  
• It is able to capture future potential in terms of future revenue stream and brand extendibility.
  
  
• It provides strategic guidance regarding the management of brand equity.

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Debbie MacInnis is a professor of marketing, the president of the Association of Consumer Research, and the associate editor of MarketingProfs.com. She can be reached at djm@MarketingProfs.com.