Most authorities agree that brand equity is the commercial value that “derives from consumer perception of the brand name of a particular product or service, rather than from the product or service itself.” But how do you measure brand equity? First, let’s get a hint from taking a little deeper look at “consumer perception” since that’s what brand equity really hinges upon.
Your consumers or customers are not just your end users. They include everyone between you and that end user. In the case of online sales, for instance, how does Amazon views your brand? Is it on page one in your category and why? Is it a result of sales volume, recent growth, or something else like advertising or co-promotional investment?
Offline sales should include the perceptions of your broker, distributer, or jobber because they are customers too, and more importantly, gate keepers who can radically affect your brand’s access to their market. Their perception of the brand is partially based on how well it sells in their market. You would benefit in this case for instance, if you had a representative in their territory who will sell it to their retail buyers for them. They also value good customer service and a clear line of communication with the producer.
What about their salespeople who also are gate keepers? Their perception of your brand is based on the size of their commission from their sales of your brand to their retailers.
The retailers may perceive your brand as either new and unproven, or as a “fast mover,” deserving more shelf space and greater inventory. The retailers’ perception may be based on your customer service, quick response to defective merchandise, or the speed of return on their investment.
The end users’ perceptions are based on your brand’s availability, price, and quality. Does it live up to their expectations?
Measuring your brand’s value is difficult given the multiple levels of distribution and variables that can affect the perception of your many interdependent “customers.” It’s not a level playing field and in some markets your brand will be worth more than others depending upon their experience with access, profitability and service.
But the day after your brand is acquired, there is no question about your brand’s commercial value. Your acquirer determines its value based upon various measurements that may not be so obvious. Sure, annual sales, growth rate, and market share play big roles. But also the multiple of annual earnings for the category that your brand is in can dominate and change from year to year. Will it bolt on to their existing range or provide a new market they wish to enter? Will it consolidate a category they already dominate or will it be deliberately limited to end competition with a brand they already have in the same category?
Also effecting your acquirer’s perception, which effects the commercial value of your brand’s equity, is their ability to improve and alter the outcome of your current distribution channel. So it’s not just your customers’ perceptions, it’s ultimately your acquirer’s perceptions.
That’s why we advise our brand building clients to talk to an investment broker who has sold or bought a brand in your category. Find out the metrics that were used to measure that brand’s equity: profit, sales, growth rate, customer base, strategic importance, market share, territory, distribution partners, retailers, and consumer perception. All this will give you a great head start in measuring your brand equity, establishing meaningful sales goals, and identifying the hurtles you must clear to get the most out of your brand equity. And so you will know what it’s worth!
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders