Brand equity

This answers the question: 'Who likes you?'

Brand equity is a term that has been much used and confused and has attracted endless questions and debates. In simple terms, it is the sum of all distinctive qualities of a brand that result in the continuous demand and commitment to the brand. It is a set of attributes, elements and liabilities linked to a brand that add to or subtract from the value placed on the brand by consumers or companies. Brand equity is a means to an end, the end being the creation of brand value. It is what gives consumers a reason to prefer certain brands and their products to the alternatives offered by other brands of which they are aware. Brand Equity refers to the inherent worth that is attached to a well-recognized brand through the consumer's perception of the brand's superiority. This is the significant difference between brand equity and brand loyalty.

Brand equity is therefore the accountability and justification given for the existence and preference for a brand and is measured through the value placed on the brand. This value is expressed in two forms, which are directly related. The first form is based on the total positive or negative associations that consumers hold regarding a brand. If these associations are favourable, it leads to high consumer-based brand equity while low consumer-based brand equity is a result of negative brand associations.

The second form is approached from the point of view of the company. It is when the total sum of the consumer-based brand equity is translated into an intangible asset represented on a company's balance sheet. This is then called the corporate-based brand equity or what is commonly known in corporate circles as the brand value. It forms a part of a company's corporate assets and is often shown as the incremental cash flows that accrue to a company due to its investments in its brand. It is the sum of all the power that a brand has and exhibits. However, brand equity and brand value are different in the sense that brand equity is measured from the consumer viewpoint while brand value is financial-based.

Consumers are crucial to the development of brand equity in the same manner as they are to the other elements of branding. The power of a brand lies within the experiences that consumers have had with the brand and their attachment to the brand. This influences the consumer perception of the brand, made up of the feelings, thoughts, images, opinions, beliefs, emotions and associations. The implication is that brands generate positive consumer-based brand equity when they're favourably viewed by consumers and vice versa.

As previously mentioned, luxury brands utilize the branding concept as their core competence and major corporate strategy tool. This means that without branding, luxury brands would not be as appealing and might not exist. However, the question of brand equity is something that remains vague and often unanswered within the offices of several luxury brands. There are several reasons for this. The first reason is that in luxury fashion management circles the concept of brand equity is not completely understood and applied. Luxury brands place much emphasis on creating high brand awareness and the appropriate brand image with the objective of attaining a high level of brand loyalty and subsequently a steady income stream. What several luxury brands have exhibited is a lack of appreciation of the corporate asset that the branding elements lead to, especially brand equity.

Several luxury brands have the notion that brand equity and brand value come into play when a company needs to be valued for a merger, an acquisition or financial reporting. This is, however, only a surface-level approach to brand equity. Brand equity is a profound concept that should be sustained and grown in order to result in increased value for luxury brands. It is something that involves relentless long-term management and if left static, often takes a downward slope. Attaining a high level of brand equity requires nurturing all the previously discussed brand elements. In other words, what consumers see, hear, feel and know about a brand that results in their overall experience with the brand, over time should be sustained. Since these elements reside in the mind of consumers, the brand equity sustainability takes place through the enhancement of the brand associations in the consumers' minds.

In the luxury fashion sector, brand-equity measurement is done on two levels, depending on the corporate ownership structure of the brand. For luxury brands that are under the ownership of a conglomerate, their equity affects that of the individual brand and the equity of the holding company. For example, Louis Vuitton has a high brand equity but is owned by LVMH, a group with a portfolio of more than 50 brands, including Fendi, Emilio Pucci, and Thomas Pink. The high equity of Louis Vuitton is, however, transferred to the holding company, LVMH, since all the earnings of Vuitton are reflected on the balance sheet of LVMH. Each of the other brands owned by LVMH also has distinctive personalities, associations and positioning and therefore different levels of brand equity, which they contribute to LVMH. Although the brands are individual luxury brands and are independent of one another, they are ultimately linked because collectively, their equity affects the value of LVMH, its status as a corporate brand and its worth on the stock market, since it is a publicly traded company. The direct implication is that the higher the brand equity, the more intangible assets the company will acquire and the higher its stock market value. However, the challenge for conglomerates like LVMH is that each of the brands in its portfolio needs to be meticulously nurtured to ensure continuous growth.

The second approach to brand-equity measurement for a luxury brand is the simpler single-brand approach. This is where a particular brand is monitored and developed to generate a high value for its owner. It often occurs among brands that are privately owned such as Chanel, Hermès and Armani.

Table 5.2 shows the ownership portfolios of four of the largest luxury goods conglomerates.

An understanding of the brand equity measurement indicators is essential in assessing the financial value of brands, which we shall discuss in the following section. These indicators include image attributes, level of awareness and familiarity, loyalty, satisfaction and recommendation, among others. These are factors that measure consumer's perceptions of brands and how they influence brand choices and buying behaviour.

Table 5.2 The major luxury fashion conglomerates

LVMH*

RICHEMONT

GUCCI GROUP

PRADA

France

Switzerland

Italy

Italy

Louis Vuitton

Cartier

Gucci

Prada

Loewe

Van Cleef & Arpels

Yves Saint

Miu Miu

Celine

Piaget

Laurent\YSL

Azzedine Alaia

Berluti

Baume & Mercier

Beauté

Car Shoe

Kenzo

IWC

Sergio Rossi

Givenchy

Jaeger - Le

Boucheron

Marc Jacobs

Couture

Bédat & Co.

Fendi

A. Lange & Söhne

Bottega Veneta

Stefano Bi

Vacheron

Alexander

Emilio Pucci

Constantin

McQueen

Thomas Pink

Dunhill

Stella McCartney

Donna Karan

Lancel

Balenciaga

eLuxury

Montblanc

Parfums Christian

Montegrappa

Dior

Purdey

Guerlain

Chloë

Parfums Givenchy

Shanghai Tang

Kenzo Parfums

Laflachère

Benefit Cosmetics

Fresh

Make-up Forever

Acqua di Parma

Parfums Loewe

Tag Heuer

Zenith

Dior Watches

FRED

Chaumet

OMAS

DFS

Sephora

Sephora.com

Le Bon Marché

Samaritaine

Notes: Some brands might have been omitted due to unavailability of data at the time of writing. * LVMH brands shown are those in the luxury fashion goods division. Wines and spirits brands and brands in other activities have been excluded from this list.

Notes: Some brands might have been omitted due to unavailability of data at the time of writing. * LVMH brands shown are those in the luxury fashion goods division. Wines and spirits brands and brands in other activities have been excluded from this list.

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