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(07-110) (07-106) (07-111) (07-108) fective and Easy-to-Implement (07-107) an de Gucht, Jan-Benedict E.M. Steenkamp, Model and Simulator for Estimating, Tracking, and Model and Simulator for Estimating, Tracking, A : (07-109) EQT * aluing Brand Assets: A Cost-Ef Managing Multicategory Brand Equity Venkatesh Shankar, Pablo Azar, and Matthew Fuller Pablo Azar, Shankar, Venkatesh The Effects of Attrition on the Growth and Equity of Competitive Services and Renana Peres Barak Libai, Eitan Muller, Managing the Future: CEO Attention and Innovation Outcomes Jaideep C. Prabhu, and Rajesh K. Chandy Manjit S. Yadav, Generations Growth Acceleration across Technology Stefan Stremersch and Eitan Muller Dancing with a Giant: The Effect of Wal-Mart’s Entry into the Dancing with a Giant: The Effect of Wal-Mart’s United Kingdom on the Stock Prices of European Retailers Katrijn Gielens, Linda M. V and Marnik G. Dekimpe V Marc Fischer BRAN Measurement Approach MARKETING SCIENCE INSTITUTE Reports APER 2007 WORKING P SERIES ISSUE TWO 07-002 NO. Reports 2007 I WORKING PAPER SERIES I ISSUE TWO I N O. 07-002 MARKETING SCIENCE INSTITUTE 1000 Massachusetts Avenue Cambridge, MA 02138 USA 617.491.2060 www.msi.org Reports MARKETING SCIENCE INSTITUTE Reports Executive Director The Marketing Science Working Paper Series Classroom use Dominique Hanssens Institute supports academic The articles that appear in Upon written request, MSI research for the develop- MSI Reports have not under- working papers may be Research Director ment—and practical transla- gone a formal academic copied for one-time classroom Ross Rizley tion—of leading-edge market- review. They are released as use free of charge. Please ing knowledge on issues of part of the MSI Working contact MSI to obtain Editorial Director importance to business per- Paper Series, and are distrib- permission. formance. 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W orking Paper BRAN*EQT: A Model and Simulator for Estimating, Tracking, and Managing Multicategory Brand Equity Venkatesh Shankar, Pablo Azar, and Matthew Fuller This innovative, rigorous application of economic and econometric models to a large publicly listed company changed the way senior management looks at the value of their flagship brand. Report Summary leading insurance company and its foremost There is a growing recognition that brands are competitor with the same brand name in mul- valuable intangible assets for improving share- tiple product categories. They use a combina- holder value. Many models have been pro- tion of hard financial data and survey data. posed for estimating brand equity. These models are developed either for firms with a The model provides reliable estimates of brand single brand in a single product category or for equity for the focal brand and the leading Venkatesh Shankar is firms with the same brand in multiple cate- competitor brand. The results show that Professor of Marketing gories. The models assume that the equity of advertising has a strong, long-term positive and Coleman Chair in the brand is the same in each category. influence on brand equity and that brand Marketing, Mays Because most firms have the same brand in equity is positively related to shareholder value Business School, Texas multiple categories and the same brand per- for the focal company. Key executives in the A&M University. Pablo forms differently in different categories, these company in the study use the model, the Azar is Assistant Vice models may provide incorrect estimates. brand equity estimates, and the decision sup- President, Marketing port simulator across functional areas such as Strategy and Consumer Here, authors Shankar, Azar, and Fuller marketing, strategy, accounting, and finance. Insights, Allstate develop a model for estimating, tracking, and The brand equity model and simulator have Corporation. Matthew managing brand equity for multicategory enabled the company to reallocate its advertis- Fuller is Director, Allstate brands based on a combination of customer ing resources to improve brand equity and Corporation. surveys and financial measures for each prod- shareholder value, and offer better guidance to uct category. They apply this model to esti- managers, analysts, and investors. I mate the equity of the flagship brand of a WORKING PAPER SERIES 51 Introduction brand equity as a revenue premium over a generic product’s revenues. Kamakura and “Brand Coca-Cola is at the core of our business Russell (1993) calculate brand equity as a vol- and brand-building is our expertise.” ume premium based on a choice model esti- mated on scanner panel or survey data. —Douglas Daft, former CEO, Coca-Cola, Inc. (Miller 2005). Hjorth-Anderson (1984) and Holbrook (1992) treat brand equity as a price premium. Daft’s statement sums up the growing recogni- Park and Srinivasan (1994); Srinivasan tion that brands are valuable intangible assets. (1979); Srinivasan, Park, and Chang (2005); Brand equity has recently been the focus of and Swait et al. (1993) compute brand equity academic research and managerial practice by estimating price and volume premiums (e.g., Aaker 1996; Ailawadi, Lehmann, and from consumer survey data. Simon and Neslin 2003; Farquhar, Han, and Ijiri 1992; Sullivan (1993) estimate brand equity as a Keller 1993, 2003; Srinivasan, Park, and Chang residual effect on market capitalization after 2005). Brand equity can be defined as the net controlling for some known effects. Roberts et present value of the incremental cash flows attrib- al. (2004) estimate brand equity as a ratio of utable to a brand name and to the firm that outcome for the focal brand over the sum of owns that brand name, relative to an identical outcomes for all the brands in the category. In product with no brand name or brand-building their model, outcome (measured by variables efforts (Shocker and Weitz 1988). such as behavioral intentions) is regressed on sources of brand equity such as awareness, Brand equity is an important construct to consideration, and association to understand study because it is associated with key benefits the drivers of brand equity. CoreBrand for both consumers1 and firms. From a con- Analysis (2004) estimates brand equity as a sumer viewpoint, it signals credibility, improv- contribution to market capitalization based on ing customer perceptions about the brand and executives’ opinions of brand familiarity and increasing confidence in brand claims, leading favorability. Fischer (2004) computes brand to lower information costs, lower perceived equity as the portion of cash flow attributable risk, lower costs of thinking, and greater utility to brand relative to other marketing mix vari- for the brand (Erdem and Swait 1998; Erdem, ables. Interbrand (2006) estimates brand Swait, and Valenzuela 2006; Shugan 1980). equity as the brand-related share of future From a firm perspective, brand equity allows a cash flows as predicted by analysts and judges. firm to leverage its brand reputation in one Damodaran (2006) suggests accounting market to alleviate an information asymmetry approaches such as historical, discounted cash problem in other markets (Balachander and flow, and excess returns approaches to meas- Ghose 2003; Choi 1998) and permits high- ure brand value. Young and Rubicam’s brand quality brands to extend to other markets asset valuator computes brand equity from (Cabral 2000). For a detailed review of the two survey-based dimensions—brand stature conceptual foundations of brand equity, see and brand strength or energy (Young and Swait et al. (1993). Rubicam 2006). Many approaches have been proposed for Existing brand equity models are developed estimating brand equity.