One approach to introducing a strategic orientation is to change the primary focus from managing short-term financials to the development and maintenance of assets and skills. What a business does usually is easily imitated. It is more difficult to respond to what a business is, since that involves acquiring or neutralizing specialized assets or skills. The rightassets and skills can provide the barriers to competitor thrusts that allow the competitive advantage to persist over time and thus lead to long-term profits. The most important assets of a firm are intangible in that they are not capitalized and thus do not appear on the balance sheet.
Managing the brand name
One such intangible asset is the equity represented by a brand name. A focus onshort-run problems facing the brand can result in an operation that performs well, sometimes over a long-time period. However, the danger is that this performance is achieved by exploiting the brand and allowing it to deteriorate. The brand should be thought of as an asset. It is not enough to avoid damaging a brand-it needs to be nurtured and maintained. The value of brand-building activities onfuture performance is not easy to demonstrate. The challenge is to understand better the links between brand assets and future performance, so that brand-building activities can be justified. The first step in identifying the value of brand equity is to understand what it is-what really contributes to the value of a brand.
What is brand equity?
Brand equity is a set of brand assets andliabilities linked to a brand, its name and symbol, that add or subtract from the value provided by a product or service to a firm and/or to that firm’s customers.
They can be useful grouped into five categories:
1. Brand loyalty
2. Name awareness
3. Perceived quality
4. Brand associations in addition to perceived quality
5. Other proprietary brand assets-patents,trademarks, channel relationships, etc.
Brand equity creates value for both the customer and the firm.
Providing value to the customer
Brand-equity assets generally add or subtract value for customers. Both perceived quality and brand associations can enhance customers’ satisfaction with the use experience. Knowing that a piece of jewelry came from Tiffany can affect the experience of wearingit: The user can actually feel different.
Providing value for the firm
Brand equity has the potential to add value for the firm by generating marginal cash flow in at least half a dozen ways. It can enhance programs to attract new customers or recapture old ones. The last four brand equity dimensions can enhance brand loyalty. Perceived quality could be influenced by awareness, byassociations, and by loyalty.
Brand equity will usually allow higher margins by permitting both premium pricing and reduced reliance upon promotions. Brand equity can provide a platform of growth via brand extensions. Brand equity can provide leverage in the distribution channel. Brand equity assets provide a competitive advantage that often presents a real barrier to the competitors. A strong perceivedquality position is a competitive advantage not easily overcome.
For any business it is expensive to gain new customers and relatively inexpensive to keep existing ones. The loyalty of the customer base reduces the vulnerability to competitive action.
Awareness of the brand name and symbols
People will often buy a familiar brand because they are comfortable with the familiar. A recognizedbrand will thus often be selected over an unknown brand. An unknown brand usually has little chance.
A brand will have associated with it a perception of overall quality not necessarily based on a knowledge of detailed specifications. It will always be a measurable, important characteristic.
A set of associations
The underlying value of a brand name often is based...