Brand Value chain
Brand value chain is a structured approach to assessing the sources and outcomes of brand equity and the manner by which marketing activities create brand value.
It provides insights to support the various decision makers in the company and stresses that every member of the company contribute to this branding effort. It believes that the value of brand ultimately resides with customers.
The Brand Value Chain is a model constructed in 2003 by Keller and Lehmann. The Brand Value Chain helps marketers track brand value from the first stage of a marketing investment to the final stage of shareholder value.
1. Marketing Program Investment
The marketing programme element deals with those efforts in which brand-owning firms take to influence their brand. It can deal with products that are offered under the brand name as well as pricing, channel decisions (place), and promotion.Marketing Program Investment is any marketing program investment that potentially can impact brand value, intentionally or not. This link in the model includes product research and development as well as product design. Secondly, all investments in communications are included, such as advertising, promotion, sponsorships, publicity and public relations and thirdly, investments in trade or intermediary support. The fourth example of a marketing program investment that can affect brand value are all investments in employees, this includes selection, training, and support. A marketing program investment can be a commercial or a sponsorship.
2. Customer Mindset
Customer mindset is the second stage and includes everything that happens in the minds of the consumers in respect to the brand: thoughts, feelings, experiences, beliefs, and attitudes. As stated, importance of the brand to the customer is referred to by brand equity. The customer mindset includes associations linked to the brand in a customer’s memory, or “everything that exists in the minds of customers with respect to a brand (e.g. thoughts, feelings, experiences, images, perceptions, beliefs and attitudes. Because brand value ultimately relies with the customers, this stage will be the focus for this research, and will be the instrument used to compare Nike and adidas in this thesis. Customer mindset is the only stage in the value chain that fully focuses on the consumer, making it the stage where brand equity is best measured and created.Five elements, or dimensions, came forth from previous research as primary measures for the customer mindset:
There is an explanation why the five dimensions are ranked this way. Awareness supports associations, which drive attitudes that lead to attachment and activity.This means that a high level of awareness creates brand value in this stage.Customer mindset can be assessed by customer surveys.
- Brand Awareness
The first factor is brand awareness. How well can customers recognize the brand and the products made by the brand? What company do consumers view as the leader in a particular market? Recognizing the brands means identifying various brand elements, e.g brand name, logo, symbol, character, packaging, and slogan. Brand awareness features depth and breadth . The depth of brand awareness relates to what extend a brand is recognized or recalled. The breadth of brand awareness relates to the variety of situations a brand comes to mind when purchasing a product.
- Brand Associations
The second element is brand associations, which considers the strength, favourability, and uniqueness of perceived attributes and benefits for the brand. Associations are descriptive thoughts that a person holds about something. For example, consumer have brand associations for Apple such as “Mac and iPod,” “Cool and Awesome,” “Design and Innovative,” and “Expensive and Computer” . Brand associations are formed with advertisements, word of mouth publicity, quality of the product, celebrity associations, and point of purchase displays.
- Brand Attitudes
The third element is brand attitudes and overall evaluations of the brand in terms of quality and satisfaction it generates. Brand equity is not essentially affiliated only with high-quality products. Equity depends on the credibility of the quality claims . When a company ‘‘cheats’’ consumers by promising high quality but delivering low quality, they will lose return on their brand investments, their reputation for high quality, or both (Shaprio, 1983, 1985). Only high-quality companies may preserve a high price because signalling high quality but delivering low quality is not likely to be successful in the long run (Erdem, 2001). Some brands have higher brand equity because of their price value. Honda cars have brand equity because of their performance compared to price, whereas Lexus cars have their equity with the help of their high performance and social image.
- Brand Attachment
Fourth is brand attachment, which represents the loyalty of customers. How likely are consumers to continue to choose/repurchase the brand? How likely are consumers to recommend the brand to a friend/associate? Brand loyalty emerges as a consequence of brand equity rather than its predecessor . Attracting new customers is more costly than retaining customers. Greater customer retention indicates a more stable customer base that provides a somewhat predictable source of future revenue as customers return to buy again, and is less vulnerable to competition and environmental changes.
- Brand Activity
The fifth and last element is brand activity. This represents the extent to which customers purchase and use the brand, talk to others about it, search brand information, promotions, and events. Another example is how the brand activity is used on social platforms like Instagram. Instagram is an application to exchange pictures on mobile devices. Searching Instagram.com using #Samsung shows 3,1 million messages, while #apple reveals 5,6 million messages. This means more people are talking about Apple than Samsung.
3. Brand Performance
Market- or brand performance can be defined as how customers react or respond in the marketplace to the brand in a variety of ways, as in what customers actually have done in relation to a brand, which is manifested in market performance data, such as: market share, sales, sales growth, market penetration, (actual) price premium or share-of wallet. What these responses have in common is that they decide the cash flows that a brand contributes. While it should be self evident, it is important to highlight that a 100% link between mindset and performance is never present and a brand’s market performance is not solely influenced by its status in the customer’s mindset (contextual factors, such as competitive actions, distribution and relations to channel partners, moderate the relationship) How the market responds to customer mindset and marketplace multiplier depends on six aspects or dimensions of that response.
- The first is price premium. How much is the customer willing to pay more for the brand, compared to a similar competitive product?
- Second is price elasticity. How much does the customers demand increase or decrease when the price rises or declines?
- The third dimension is market share. This dimension measures the impact of the marketing program investment on product sales.
Together, these three dimensions determine the direct revenue stream for the brand over time. Brand value grows with higher market share and larger price premiums. Companies get larger price premiums partly from elastic response to a price decline and inelastic response to a price increase.
- The fourth dimension is expansion success. How well do new products sell that are launched in related categories? This dimension shows the potential that brand expansions have for the brand.
- The fifth dimension is cost structure. How well can companies reduce the cost of the marketing program investment for the brand because of beneficial customer mindset? When a company has an effective marketing program, it can lower the total costs of the marketing investment . For example, by doing less reruns of TV-commercials or other adds, because consumers remembered it effectively the first time they were exposed to the add or commercial.
These five dimensions combined lead to brand profitability, the sixth dimension.
Concluding, in this stage brand value appears with profitable sales.
4. Shareholder Value
Shareholders value is the value a company creates and is reflected in the stock price and dividend disbursed by the company. The fundamental assumption of shareholder value is that the true value of a company is the based on future cash flows, discounted by the cost of capital (Clarke, 2001). A company that fails to deliver value to customers is acting against long-term interest of shareholders. The conservation of customers positively affects shareholder value by reducing the volatility and risk associated with anticipated future cash flows (Anderson et al, 2004).
Three indicators that are important: stock prices, price/earnings ratio and market capitalization. Brand value reacts positively on high and stable stock prices, a high price/earnings ratio, and large market capitalization.