Brand Equity

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European Management Journal Vol. 21, No. 4, pp. 521–527, 2003
© 2003 Elsevier Ltd. All rights reserved.
Pergamon
Printed in Great Britain
0263-2373 $30.00 + 0.00 doi:10.1016/S0263-2373(03)00076-8
Brand Equity and
Shareholder Value
CHARLES PAHUD DE MORTANGES, Maastricht University
ALLARD VAN RIEL, Maastricht University
It is often assumed that brands represent an asset,
as well as a source of current and future earnings
and cash flows for a firm. As such, the value of the
brand, or brand equity, should manifest itself in the
market value of the firm and thus have an impact
on shareholder value. Yet, almost no research exists
that has empirically investigated this relationship
between brand value and shareholder value. In the
present study, brand equity is measured for 43
Dutch corporate brands using the Brand Asset
Valuator® for the years 1993 and 1997. Directional
changes within the BAV Power Grid, measuring
Brand Strength and Brand Stature, are statistically
compared with directional changes in shareholder
value between 1993 and 1997. Three different meas-
ures for determining shareholder value are used:
Total Shareholder Return, Earnings per Share, and
the Market-to-Book ratio. Various indications are
found that confirm the expected relationships, but a
clear need is observed to develop reliable and valid
indicators for shareholder value. Some managerial
implications, limitations of the study and directions
for future research are discussed.
© 2003 Elsevier Ltd. All rights reserved.
Keywords: Brand equity, Shareholder value, Brand
asset valuator
Introduction
Typically, brands are considered intangible corporate
assets. It is often suggested that they possess econ-
omic value and create wealth for the company’s
shareholders (Aaker, 1996; Doyle, 2001; Kerin and
Sethuraman, 1998). However, publications providing
empirical evidence for the relationship between
brand equity and shareholder value are exceedingly
scarce. Still, according to Kerin and Sethuraman
(1998), the conceptual arguments for the existence of
such a relationship are compelling enough to suggest
that this linkage justifies further attention. However,
they conclude that: ‘a conclusive linkage between
European Management Journal Vol. 21, No. 4, pp. 521–527, August 2003 521
brand value and shareholder value has yet to be
established’ (Kerin and Sethuraman, 1998, p. 271).
In this paper, we attempt to provide some new evi-
dence for the link between brand equity, measured
using the Brand Asset Valuator® (BAV®) model
(Young and Rubicam, 2000), and shareholder value,
that was measured using Total Shareholder Return,
Earnings Per Share, and the Market-to-Book ratio. To
our knowledge, this is the first time that the BAV®
is used to study the relationship between brand equ-
ity and shareholder value, while using three different
indicators for shareholder value.
Background
Intuitively, one would expect brand equity to influ-
ence the market value of a firm (Doyle, 2001). How-
ever, little is known about whether investors actually
value the effects of brand equity as reflected in the
stock price. Finance and marketing are usually
viewed as two separate entities within organizations
and little attention has been paid to the effect of mar-
keting decisions on the value of a company (Kerin
and Sethuraman, 1998). Although this often resulted
in separate academic research agendas, a few studies
have been carried out on stock market reactions to
brand extension announcements, customer service
changes and product errors (Lane and Jacobson,
1995; Nayyar, 1995; Pahud de Mortanges and Tour-
ani Rad, 1998). Kerin and Sethuraman (1998)
conducted a first empirical study investigating the
relationship between brand equity and shareholder
value for US-based consumer goods companies. In
their study the (mostly finance-based) Interbrand
method was employed, using secondary sources
(data were extracted from the Financial World). The
market-to-book value of the company was used as
a single indicator for shareholder value. Using this
approach, a positive (albeit weak) relationship
between brand equity and shareholder value was
found.
BRAND EQUITY AND SHAREHOLDER VALUE
The Brand Asset Valuator (BAV®)
Model
Several methods for measuring what a brand may be
worth have emerged over the years (Kriegbaum,
1998). Many of these methods are finance-, or
accounting-based. There is no clear evidence that
marketing-based consumer evaluation models for
determining brand equity are superior in comparison
to financial models, but the latter appear to be a
rather static approach and the managerial impli-
cations derived from research based on financial indi-
cators are limited. Also, a narrow focus on financial
data is probably more useful for accounting pur-
poses, or when a brand is put up for sale (Murphy,
1989). We believe one of the more versatile and
usable consumer-based methods, is the Brand Asset
Valuator® (BAV®) model (cf. Young & Rubicam,
2000). This is an intuitively appealing, dynamic, mar-
keting-based consumer evaluation technique
developed by Young & Rubicam Inc. for measuring
brand equity (Agres and Dubitsky, 1996). The model
dynamically conceptualizes brand equity as driven
by two components: customer perceived brand Stat-
ure and customer perceived brand Strength. Ante-
cedents of these two components are: the level of Dif-
ferentiation of the brand, Relevance of this
differentiation to the consumer, the resulting Esteem,
residing in the mind of the consumer as Knowledge
(See Figure 1).
The factor Differentiation, or the ‘perceived distinc-
tiveness of the brand to the customer’ (Agres and
Dubitsky, 1996, p. 23) precedes all other features. It
is often argued that consumer choice and potential
margins are driven by Differentiation (e.g. Aaker,
1996; Kapferer, 1994; Keller, 1999). Once a brand is
introduced, its Differentiation will define the brand
Figure 1 Brand Equity Measurement with the Brand
Asset Valuator® (BAV®)
European Management Journal Vol. 21, No. 4, pp. 521–527, August 2003 522
and distinguish it from others. As brands mature and
competing brands are introduced, we see that Differ-
entiation often declines. However, even after reaching
the maturity phase in the life cycle, a brand can per-
petuate its level of Differentiation as a result of good
brand management.
Creating and maintaining Relevance of the distinct
brand to the customer will be the next step. Relevance
measures the appreciation of a brand to a customer
in terms of the marketing mix. Is it priced right? Is
it distributed where consumers can find it? Does it
come in the right form? Is it packaged well? Relevance
and Differentiation together result in Brand Strength,
according to Young & Rubicam a strong indicator for
future brand performance and brand health (see Fig-
ure 1). It is the aim, and challenge, of every brand in
the world to create relevant differentiation for the
customer.
Esteem is considered a third driver of brand equity.
Esteem is defined as the extent to which consumers
hold a brand, which is relevant to them, in high
regard. Does it live up to consumers’ expectations?
How well does it do what it is intended to do?
According to Agres and Dubitsky (1996) Esteem is the
result of consumer perceptions of quality and popu-
larity.
If a brand has established a relevant Differentiation
and consumers come to hold it in high Esteem, brand
Knowledge is the outcome. Knowledge in the context of
this model implies that consumers are both explicitly
aware of the brand and understand what the brand
stands for. Thus, Knowledge is not simply equal to
brand awareness, and is not a consequence of adver-
tising and/or publicity alone.
Brand Stature results from Esteem and Knowledge (see
Figure 1). Brand Stature indicates brand status and
scope — and determines the consumer’s responses to
a brand. Brand Strength plotted against Brand Stature
produces a grid, which provides managers with diag-
nostic insight. In the BAV® model, this is called a
Power Grid (see Figure 2).
The Power Grid defines a cycle for brand develop-
ment and provides a foundation for strategic
marketing decisions. By exposing the strengths, or
the weaknesses of a brand, it shows which strategic
route will lead to a stronger brand position. Further-
more, it helps to identify the roles and potential con-
tributions of each of the elements of the marketing
mix. Therefore, the Power Grid is a good summary
tool for the information captured in the BAV®. The
scores on the different items are plotted as percentile
ranks among all other brands measured. Especially
for corporate brands, a strong relationship should be
expected between the position on the grid and the
financial health of the company.
Thus, the BAV® model, where evaluation is based
BRAND EQUITY AND SHAREHOLDER VALUE
Figure 2 The BAV® Power Grid (Source Young & Rub-
icam, 2000)
on the perceptions and opinions of actual (or
potential) users of the brand, is more dynamic (one
can trace movements within the grid over time) and
offers clear managerial implications for marketing
strategy. For those reasons, data generated by the
BAV® model have been used for this study. More
specifically, we have tried to link brand movements
within the grid with changes in shareholder value on
the basis of two different points in time: 1993 and
1997.
Shareholder Value
One purpose of marketing is to create and manage
market-based assets to deliver shareholder value
(Srivastava et al., 1999). Brand equity influences sales
growth and operating profit margins and is one of
the factors that drive value (Rappaport, 1998). One
method of determining shareholder value is by meas-
uring the market-to-book ratio (Day and Fahey,
1988). A firm creates shareholder wealth by ensuring
that the warranted market value of the equity capital
invested in a firm by its shareholders exceeds the
book value of equity (Varaiya et al., 1987). According
to these authors a firm creates value when the
market-to-book ratio is greater than 1.0, destroys
value when market-to-book ratio is less than 1.0, and
sustains value if the market-to-book ratio is 1.0.
Another method of measuring shareholder value is
Total Shareholder Return (TSR). Investors often
regard TSR as the single most important measure of
corporate performance. Total Shareholder Return =
Dividends + Share Price Appreciation. What drives
dividends and share price appreciation is surplus
cash. A company’s ability to drive up share prices
depends on its ability to consistently generate sur-
plus cash well into the future (Rappaport, 1998). A
European Management Journal Vol. 21, No. 4, pp. 521–527, August 2003 523
third measure that can be used as an indicator for
shareholder value is Earnings per Share (EPS). EPS
is a company’s profit divided by the number of its
outstanding shares. If a company earned $2 million
in one year, while having 2 million shares of stock
outstanding, its EPS would be $1 per share. Well-
known, successful brands are often sold at premium
prices with corresponding high profit margins.
Higher profit margins could result in higher EPS.
Research Design
The original dataset contained evaluations of
approximately 1100 brands obtained through ques-
tionnaires from 1500 Dutch consumers in 1993 and
in 1997 respectively. From these initial 1100 brands
only 43 corporate brands (see Figure 3 for the differ-
ent industry sectors) were included in the analysis.
This was the result of the strict criteria set for useful-
ness for this study, namely:
❖ Owner of the brand had to be a Dutch public com-
pany listed on the Amsterdam Stock Exchange in
the year 1993 as well as in 1997.
❖ Owner of the brand had to be the same in 1993 as
in 1997.
❖ The brand had to generate at least 10 per cent of
total company revenue
1
.
Data from the BAV® model for 1993 and for 1997
were used to obtain information about developments
over time with respect to brand equity. Information
about the developments in the three chosen indi-
cators of shareholder value were obtained from Data-
Stream. Financial and Brand Equity indices were then
cross-tabulated, to determine whether an increase or
decrease in a firm’s brand equity corresponded with
a change in financial indicators. Brand Strength and
Brand Stature, as well as the resultant Brand Value
were used as indicators of brand equity.
TSR, EPS and Market-to-Book Value (MTBV) are
measures by which shareholders can determine
whether the value of their holdings in a company has
increased, remained unchanged, or have decreased.
TSR, EPS and MTBV were obtained from DataStream.
The DataStream Return Index provided the indicator
for TSR, as it incorporates stock price appreciation
and dividends
Findings
In Fig. 4, the directional changes for 43 Dutch brands
have been plotted, using the BAV® model. The dots
represent the relative positions on the Grid for 1993
and the squares the positions for 1997. By connecting
them an overview of the movements is obtained, over
a four-year time period, of the brands within the
BRAND EQUITY AND SHAREHOLDER VALUE
Figure 3 The Different Industrial Sectors of the Sample
Figure 4 Directional Changes for 43 Dutch Brands: 1993 and 1997
Brand Strength – Brand Stature grid. This shows that
the BAV® can be a useful tool to monitor the effects
of managerial decisions relating to brand manage-
ment in terms of movements within the Power Grid
over time.
These movements were then associated with changes
in shareholder value, in order to relate them to the
creation of value for the companies. To investigate
the relationship between the development of brand
equity over time and the development of shareholder
European Management Journal Vol. 21, No. 4, pp. 521–527, August 2003 524
value, chi-square contingency tables were used. This
method is suited for investigating the (in-) depen-
dence of variables in cross-classifications. First, the
differences between 1993 and 1997 in the three BAV®
indicators and the shareholder value indicators were
calculated for each company. Second, companies
were clustered into the four cells of the contingency
tables: showing a simultaneous increase/increase,
increase/decrease, decrease/decrease and
decrease/increase in the BAV® indicators and share-
holder value respectively. The relative numbers of
BRAND EQUITY AND SHAREHOLDER VALUE
Table 1 Contingency Table Stock Return Index/BAV® Measures
Brand Strength Brand Stature Brand Equity
TSR Down Up Total Down Up Total Down Up Total
Down Count 2 1 3 3 0 3 2 1 3
% within R 66.7 33.3 100 100 0 100 66.7 33.3 100
% within B 10 4.4 7.0 13.0 0 7.0 9.1 4.8 7.0
% of Total 4.7 2.3 7.0 7.0 0 7.0 4.7 2.3 7.0
Up Count 18 22 40 20 20 40 20 20 40
% within R 45 55 100 50 50 100 50 50 100
% within B 90 95.7 93.0 87.0 100 93.0 90.9 95.2 93.0
% of Total 41.9 51.2 93.0 46.5 46.5 93.0 46.5 46.5 93.0
Total Count 20 23 43 23 20 43 22 21 43
% within R 46.5 53.5 100 53.5 46.5 100 51.2 48.8 100
% within B 100 100 100 100 100 100 100 100 100
% of Total 46.5 53.5 100 53.5 46.5 100 51.2 48.8 100
χ
2
0.5 2.80 0.31
p 0.47 0.09∗ 0.58
cases in each of the cells provided insight into the
strength of the relationship, expressed in the chi-
square values. The findings are represented in Tables
1–3.
Table 1 presents Chi-square contingencies, relating
directional changes in the TSR Index and the BAV®
indicators. For example, in 51.2 per cent of the cases
we see an increase in Brand Strength matched by an
increase in the TSR. The probability that an increase
in Brand Strength coincides with an increase in the
TSR Index is 5.7 per cent higher than that a decrease
in Brand Strength will result in an increase in the
Return Index. The direction of the relationship is thus
confirmed, though not significant. For Brand Stature,
this probability is 13.0 per cent higher. The corre-
sponding chi-square value is significant (α = 0.10).
This confirms the expected dependency between
Brand Stature and TSR. Indications for the existence
of the expected relationships between Brand Equity
and TSR values are absent in our data.
Table 2 Contingency Table Earnings per Share/BAV® Measures
Brand Strength Brand Stature Brand Equity
EPS Down Up Total Down Up Total Down Up Total
Down Count 4 3 7 5 2 7 4 3 7
% within R 57.1 42.9 100 71.4 28.6 100 57.1 42.9 100
% within B 20 13.0 16.3 21,7 10 16.3 18.2 14.3 16.3
% of Total 9.3 7.0 16.3 11.6 4.7 16.3 9.3 7.0 16.3
Up Count 16 20 36 18 18 36 18 18 36
% within R 44.4 55.6 100 50 50 100 50 50 100
% within B 80 87.0 83.7 78.3 90 83.7 81.8 85.7 83.7
% of Total 37.2 46.5 83.7 41.9 41.9 83.7 41.9 41.9 83.7
Total Count 20 23 43 23 20 43 22 21 43
% within R 46.5 53.5 100 53.5 46.5 100 51.2 48.8 100
% within B 100 100 100 100 100 100 100 100 100
% of Total 46.5 53.5 100 54.5 46.5 100 51.2 48.8 100
χ
2
0.38 1.08 0.12
P 0.54 0.30 0.73
European Management Journal Vol. 21, No. 4, pp. 521–527, August 2003 525
In Table 2 the chi-square contingency table relating
directional changes in EPS and the BAV® indicators
is presented. The table shows that no significant
relationship between changes in brand value and EPS
could be found.
In Table 3 the chi-square contingency table relating
directional changes in MTBV and the BAV® indi-
cators is presented. From this table it becomes clear
that the relationship between brand equity and share-
holder value is most pronounced when using the
MTBV as an indicator of shareholder return. Two sig-
nificant relationships are found in our data: between
Brand Strength and MTBV, and between Brand Equity
and MTBV.
Conclusion
The above shows that it is indeed possible to obtain
indications of changes in brand equity and demon-
BRAND EQUITY AND SHAREHOLDER VALUE
Table 3 Contingency Table Market to Book Value/BAV® Measures
Brand Strength Brand Stature Brand Equity
MTBV Down Up Total Down Up Total Down Up Total
Down Count 0 3 3 1 2 3 0 3 3
% within R 0 100 100 33.3 66.7 100 0 100 100
% within B 0 13.0 7.0 4.4 10 7.0 0 14.3 7.0
% of Total 0 7.0 7.0 2.3 4.7 7.0 0 7.0 7.0
Up Count 20 20 40 22 18 40 22 18 40
% within R 50 50 100 55 45 100 55 45 100
% within B 100 87.0 93.0 95.7 90 93.0 100 85.7 93.0
% of Total 46.5 46.5 93.0 51.2 41.9 93.0 51.2 41.9 93.0
Total Count 20 23 43 23 20 43 22 21 43
% within R 46.5 53.5 100 53.5 46.5 100 51.2 48.8 100
% within B 100 100 100 100 100 100 100 100 100
% of Total 46.5 53.5 100 53.5 46.5 100 51.2 48.8 100
χ
2
2.80 0.53 3.38
P 0.09∗ 0.47 0.07∗
strate that the performance (in terms of ‘Strength’
and ‘Stature’) of a brand may have significant impact
on the value of a firm. These findings are consistent
with the premise that the purpose of marketing is not
only to create value for the company’s customers, but
that this has to result in creating value for its owners
(i.e. the shareholders) as well. A reliable instrument
should make it possible to hold marketers in general,
and brand managers in particular, accountable for
the financial implications of their strategies,
especially in terms of shareholder value. Focusing
more closely on monitoring brand equity and share-
holder value in a frequent and consistent manner will
forge a much-desired closer cooperation between
marketing and finance professionals within a firm.
A number of limitations are associated with this
study. First, the relationships we found do not
appear to occur consistently and seem to depend
strongly on the measures employed to determine
shareholder value. This points at the need to develop
a valid and reliable measurement instrument for the
various dimensions of the shareholder value con-
struct. Second, the relationships we found are rela-
tively weak and asymmetrical. This is in the first
place due to limitations with respect to the size and
heterogeneity our sample. The criteria used to select
the participating companies resulted in a rather
unbalanced sample, including a relatively large share
of companies that had increased their value in the
1993–1997 period. This is partially due to the fact that
changes in value were not corrected for changes in
overall stock exchange performance, or industry spe-
cific performance indices. More research will there-
fore be needed to investigate the hypothesized
relationships in various industry sectors. This study
was also limited to investigating a relationship
between the direction of the change in brand equity
and the corresponding directional change in share-
holder value, and not the magnitude of those
changes. In order to determine the effects of invest-
European Management Journal Vol. 21, No. 4, pp. 521–527, August 2003 526
ments in marketing strategies more precisely, further
research efforts should be devoted to the investi-
gation of correlations between the changes.
Acknowledgements
The authors gratefully acknowledge the support from
Young & Rubicam Inc. who kindly provided us with data
from the BAV®, and the contribution of Rene´ van der Velden,
who undertook analyses for this study as part of his post-
graduate thesis.
Note
1. Insufficient contribution of a brand to total firm revenue
excluded many brands. For example, Unilever brands (160
at the time) had to be excluded from our sample for this
reason. This explains our focus on corporate brands, or on
product brands that are similar to the company name (e.g.
Philips, Heineken).
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CHARLES PAHUD DE ALLARD C.R. VAN
MORTANGES, Faculty of RIEL, Faculty of Economics
Economics and Business and Business Adminis-
Administration, Maastricht tration, Maastricht Univer-
University, P.O. Box 616, sity, P.O. Box 616, 6200
6200 MD Maastricht, The MD Maastricht, The
Netherlands. E-mail: Netherlands. E-mail:
[email protected] [email protected]
Charles Pahud de Mort- Allard C.R. van Riel is
anges is Associate Professor Assistant Professor of Logis-
of Marketing at Maastricht tics and Marketing in the
University. His research interests are in brand manage- Department of Marketing at Maastricht University.
ment and valuation, and global marketing strategies. His research focuses on decision-making in high-tech
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