CHAPTER 2: CUSTOMER-BASED BRAND EQUITY

1. Learning Objectives:

After reading this chapter, you will be able to:

1. Define customer-based brand equity.

2. Outline the sources and outcomes of customer based brand equity.
3. Explain the steps of building a strong brand.
4. Understand the ways to create customer value

2. List of Contents: Chapter 2 Customer Base Brand Equity

1. Customer-Based Brand Equity

1.1 Defining Customer-Based Brand Equity
1.2 Brand Equity as a Bridge

2. Making a Brand Strong: Brand Knowledge

3. Sources of Brand Equity

3.1 Brand Awareness
3.2 Brand Image

4. Building a Strong Brand: The Four Steps of Brand Building

4.1 Customer Base Brand Equity Pyramid

4.1.1 Brand Salience

4.1.2 Brand Performance
4.1.3 Brand Imagery
4.1.4 Brand Judgments
4.1.5 Brand Feelings
4.1.6 Brand Resonance
4.1.7 Brand-Building Implications

5. Creating Customer Value

5.1 Customer Relationship Management
5.2 Customer Equity
5.3 Relationship of Customer Equity to Brand Equity

3. Description of Contents:

1.1 Customer-Based Brand Equity

Two questions often arise in brand management: What makes a brand strong? and How do you
build a strong brand? To help answer both, we introduce the customer-based brand equity

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(CBBE) concept and model. Although a number of useful perspectives concerning brand equity
have been put forth, the CBBE concept provides a unique point of view on what brand equity is
and how its should best be built, measured, and managed. The CBBE concept approaches brand
equity from the perspective of the consumer—whether the consumer is an individual or an
organization or an existing or prospective customer. Understanding the needs and wants of
consumers and organizations and devising products and programs to satisfy them are at the heart
of successful marketing. In particular, marketers face two fundamentally important questions:
What do different brands mean to consumers? and How does the brand knowledge of consumers
affect their response to marketing activity? The basic premise of the CBBE model is that the
power of a brand lies in what customers have learned, felt, seen and heard about the brand as a
result of their experiences over time. We formally define Customer-Based Brand Equity (CBBE)
as the differential effect that brand knowledge has on consumer response to the marketing of that
brand (Keller, 1993).

 The three key ingredients of this definition of Customer-Based Brand Equity

 Differential effect: Differences in consumer response

 Brand knowledge: A result of consumers’ knowledge about the brand

 Consumer response to marketing:

o Choice of a brand
o Recall of copy points from an ad
o Response to a sales promotion
o Evaluations of a proposed brand extension.

1.2 Brand Equity as a Bridge: Brand Equity provides marketers with a vital strategic “Bridge”
from their past to their future.

Customer Equity: Customer equity is the optimal balance between what is spent on customer
acquisition versus what is spent on customer retention.

2. Making a Brand Strong: Brand Knowledge

Brand knowledge is the key to creating brand equity. Brand knowledge consists of a brand node
in memory with a variety of associations linked to it. Brand knowledge has two components:
Brand Awareness and Brand Image.

2.1 Marketing advantages of strong brands:

Improved perceptions of product performance

Greater loyalty

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 Less vulnerability to competitive marketing actions
Less vulnerability to marketing crises
Larger margins
More inelastic consumer response to price increases
More elastic consumer response to price decreases
Greater trade cooperation and support
Increased marketing communication effectiveness
Possible licensing opportunities
Additional brand extension opportunities

3. Sources of Brand Equity

Customer-based brand equity occurs when the consumer has a high level of awareness and
familiarity with the brand and holds some strong, favorable, and unique brand associations in
memory.

3.1 Brand awareness

o Brand recognition: Consumers’ ability to confirm prior exposure to the brand when given the
brand as a cue.
o Brand recall: Consumers’ ability to retrieve the brand from memory when given the product
category.

3.2 Brand image:

Consumers’ perceptions about a brand as reflected by the brand associations held in consumer
memory.

o Brand Awareness Advantages

 Learning advantages: Register the brand in the minds of consumers

 Consideration advantages: Likelihood that the brand will be a member of the consideration set

 Choice advantages: Affect choices among brands in the consideration set

o Establishing Brand Awareness

 Increasing the familiarity of the brand through repeated exposure (for brand recognition)

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  Forging strong associations with the appropriate product category or other relevant
purchase or consumption cues (for brand recall)

4. Building a Strong Brand: The Four Steps of Brand Building

1. Ensure identification of the brand with customers and an association of the brand in customers’
minds

2. Establish the totality of brand meaning in the minds of consumers

3. Elicit the proper customer responses to the brand identification and brand meaning

4. Convert brand response to create an intense, active loyalty relationship between customers and
the brand

 Four Questions Customers ask of Brands

1. Who are you? (brand identity)

2. What are you? (brand meaning)

3. What about you? What do I think or feel about you? (brand responses)

4. What about you and me? What kind of association and how much of a connection would I like to
have with you? (brand relationships)

4.1 Customer-Based Brand Equity Pyramid

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4.1.1 Salience Dimensions
o Depth of brand awareness
 Ease of recognition and recall
 Strength and clarity of category membership
o Breadth of brand awareness
 Purchase consideration
 Consumption consideration

Depth and Breadth Importance

o The product category hierarchy shows us not only the depth of awareness matters but also
the breadth.
o The brand must not only be top-of-mind and have sufficient “mind share,” but it must
also do so at the right times and places.
o The product category hierarchy shows us not only the depth of awareness matters but also
the breadth.

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 Product Category Structure
o To fully understand brand recall, we need to appreciate product category structure, or
how product categories are organized in memory.

4.1.2 Performance Dimensions

o Primary characteristics and supplementary features
o Product reliability, durability, and serviceability
o Service effectiveness, efficiency, and empathy
o Style and design
o Price

4.1.3 Imagery Dimensions

 User profiles
o Demographic and psychographic characteristics
o Actual or aspirational
o Group perceptions—popularity
 Purchase and usage situations
o Type of channel, specific stores, ease of purchase
o Time (day, week, month, year, etc.), location, and context of usage
 Personality and values
o Sincerity, excitement, competence, sophistication, and ruggedness

 History, heritage, and experiences

o Nostalgia
o Memories

4.1.4 Judgment Dimensions

 Brand quality – Value, Satisfaction

 Brand credibility – Expertise, Trustworthiness, Likeability

 Brand consideration - Relevance

 Brand superiority - Differentiation

4.1.5 Feelings Dimensions

 Warmth - The brand evokes soothing types of feelings and makes consumers feel a
sense of calm or peacefulness. Consumers may feel sentimental, warmhearted, or
affectionate about the brand. Example: Hallmark Cards.

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  Fun - Upbeat types of feelings make consumers feel amused, lighthearted, joyous,
playful, cheerful, and so on. Example - Disney theme park

 Excitement - The brand makes consumers feel energized and that they are experiencing
something special. Example – MTV

 Security - The brand produces a feeling of safety, comfort, and self-assurance. As a

result of the brand, consumers do not experience worry or concerns that they might have
otherwise felt. Example – MetLife Alico Insurance

 Social Approval - The brand gives consumers a belief that others look favorably on their
appearance, behavior, and so on. Example – Mercedes

 Self-respect - The brand makes consumers feel better about themselves; consumers feel a
sense of pride, accomplishment, or fulfillment. Example - Tide laundry detergent

4.1.6 Resonance Dimensions

 Behavioral loyalty - Frequency and amount of repeat purchases

 Attitudinal attachment - Love brand, Proud of brand

 Sense of community – Kinship, Affiliation

 Active engagement - Seek information, Join club, Visit website, chat rooms

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Brand Building Implications

 Customers own brands.

 Don’t take shortcuts with brands.

 Brands should have a duality.

 Brands should have richness.

 Brand resonance provides important focus.

5. Creating Customer Value

Customer-brand relationships are the foundation of brand resonance and building a strong brand.
The customer-based brand equity model certainly puts that notion front and center.

5.1 Customer Relationship Management (CRM)

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  Uses a company’s data systems and applications to track consumer activity and manage
customer interactions with the company

 Uses a company’s data systems and applications to track consumer activity and manage
customer interactions with the company

 Blattberg and Deighton (1996) offer eight guidelines as a means of maximizing customer
equity:

 Invest in highest-value customers first

 Transform product management into customer management
 Consider how add-on sales and cross-selling can increase customer equity
 Look for ways to reduce acquisition costs
 Track customer equity gains and losses against marketing programs
 Relate branding to customer equity
 Monitor the intrinsic retainability of your customer
 Consider writing separate marketing plans—or even building two marketing
organizations—for acquisition and retention efforts

5.2 Customer Equity

 The sum of lifetime values of all customers. Customer lifetime value (CLV) is affected
by revenue and by the cost of customer acquisition, retention, and cross-selling. Consists
of three components:

1. Value equity, 2. Brand equity, 3. Relationship equity

5.3 Relationship of Customer Equity to Brand Equity

 Customers drive the success of brands but brands are the necessary touch point that firms
have to connect with their customers.

 Customer-based brand equity maintains that brands create value by eliciting differential
customer response to marketing activities.

 The higher price premiums and increased levels of loyalty engendered by brands generate
incremental cash flows.

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Case

Case 2.1: VOLKSWAGEN

After a remarkable revival in the 1990s when it enjoyed 50 percent growth for seven straight
years, Volkswagen AG did not fare well around the turn of the century. By 2005, the company
was experiencing stagnant sales and losing money in its critical U.S. market. The culprit?
According to VW CEO Bernd Pischetsrieder, “The biggest failure in Volkswagen is too little
customer focus.” In his view, the company was paying too much attention to technology and
features that he felt customers didn’t necessarily want to pay for. According to Pischetsrieder,
“The first question is, how does it helps the customer and will the customer pay for it? When we
have a test drive, the question is not whether I like it. It’s will the customer pay for it? Or will the
customer not even notice it?” As an example of its new reemphasis on the consumer, VW
changed the design of the 2011 Jetta it sold in the United States to better reflect U.S. preferences
(and bigger bodies). Greater leg and trunk room and larger cup holders were added and costs
savings were found to make it more affordable versus its Japanese import competitors.
Source: Joseph B. White and Stephen Power, “VW Chief Confronts Corporate Culture,” Wall
Street Journal, 19 September 2005, B2; Vanessa Fuhrmans, “Volkswagen Aims at Fast Lane in
U.S.,” Wall Street Journal,October 5, 2010; David Kiley, “Is VW Ready to Retake America?,”
AOL Autos, 12 August 2010.

Collected From: “Strategic Brand Management: Building, Measuring, and Managing Brand
Equity”, Kevin Lane Keller, 4th Edition, PEARSON.

Case 2.2: SHUTTERFLY

A brand that has explicitly considered how to build brand resonance is Shutterfly. Although
known in particular for its online photographic services, Shutterfly defines itself more broadly as
an “Internet-based social expression and personal publishing service” that “provides high-quality
products and world-class services that make it easy, convenient and fun for consumers to
preserve their digital photos in a creative and thoughtful manner.” In a highly competitive
marketplace, Shutterfly’s flagship product, Photo Book, allows customers to create custom photo
books in professionally bound coffee table form. The company’s brand objective is to be a
“Trusted Partner.” To further that goal and to help create a strong personal connection with its
users, brand marketing emphasizes social influence and being smart and fun. Shutterfly also

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offers social media services that allow users to share photos uploaded on their site with blogs and
social networks like Facebook and Twitter.

Source: “Shutterfly Learns How to Build a More Powerful Connection Between Its Online Brand
and Consumers,” KN Case Study, www.knowledgenetworks.com, Fall/Winter 2010; Mansi Dutta
and S. John Tilak, “Embracing Social Media, Photo Sites Stay in the Game,” Thomson Reuters,
3 September 2009; www.shutterfly. com; Andrew Murr, “Shutterfly: It’s Picture Perfect,”
Newsweek, 23 May 2008.

Collected From: “Strategic Brand Management: Building, Measuring, and Managing Brand
Equity”, Kevin Lane Keller, 4th Edition, PEARSON

Questions:

1. Pick a brand from Service Sector of Bangladesh. Attempt to identify its sources of brand
equity. Assess its level of brand awareness and the strength, favorability, and uniqueness
of its associations?
2. Which brands do you have the most resonance with? Why? Give an example from the
local company?
3. Give an example of a brand that has failed to achieve resonance with its customers?
What are the reasons behind that? How can they recover it?
4. Which companies do you think do a good job managing their customers? Why?

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