Value Chain

Donald R. Lehmann Columbia University February, 2006

Company Actions

Competitor Actions

Channel Behavior

Customer Mind Set

Customer Behavior

Product Market Results

Financial Results

Stock Market Behavior/

Shareholder Value
2

The Brand Value Chain

Marketing Program Investment
Product Trade Employee Other

Customer Mindset
Awareness Associations Attitudes Attachment Activity Communications

Brand Performance
Price premiums Price elasticities Market share Expansion success Cost structure Profitability

Shareholder Value
Stock price P/E ratio Market cap

Program Quality Multipliers

Clarity Relevance Distinctiveness Consistency

Marketplace Conditions
Competitive reactions Channel support Customer size & profile

Investor Sentiment
Market dynamics Growth potential Risk profile Brand contributions
3

Source: Keller and Lehmann (2003), How Do Brands Create Value, Marketing Management, May-June, 27-31

Customer Mind-Set
Awareness
Associations Attitude Attachment Activity (Image) (Intention; Acceptability) (Loyalty; Addiction) (WOM)
4

Brand Equity Measurement within Category and Across Countries

Lehmann, Keller, Farley, Ma
Identify 27 constructs Study 1 US China Study 2

Coke, Pepsi, Dr. Pepper Coke, Pepsi, Sprite

(US and China) Coke, Pepsi McDonalds, KFC Colgate, Crest
5

Factors

Construct

Comprehension Product Advantage Social

History Attitude Activity

Presence, Awareness, Knowledge Relevance, Difference, Esteem, Performance, Advantage Caring, Prestige, Service
History, Nostalgia Bonding, Intention, Value for Money Persistence, Activity

Other

Loyalty, Trust, Innovation, Endorsement, Quality Ambiance, Extension Potential, Acceptability

6

Comprehension

.74

.63
Product Advantage Social

.68

History

.29
.62 Attitude .76 Activity

.06

DOLLAR-METRIC STRENGTH OF PREFERENCE

Question: How much more are you willing to pay for Brand X compared to a no-name clone?

Brand
IBM Compaq Apple DEC AST Dell Hewlett-Packard

1993
$364 301 264 198 176 161 145

1995
$339 318 182 10 17 230 260

Source: The Wall Street Journal, 1995 Dow Jones & Company, Inc.

Quaker Oats Brand Equity

Hot Cereal Market IRI Factbook (Grocery Stores), 1993
% of Vol/ Household Purch Buying Price/ Vol Volume Share Share of Category Requirements

Regular
CurtisBruns (3-min.) Quaker

49.9%
1.1%

39.7
1.5

1.7
1.4

1.17
1.23

68
36

36.6%

32.2

1.7

1.26

60

Private Label
Generic Instant Great Foods America Quaker Private

10.3%
1.2% 30.8% 0.2%

9.1
0.9 30.5 0.6

2.0
2.5 1.1 0.9

0.88
0.71 2.72 2.34

49
47 61 24

26.2% 3.8%

27.3 5.6

1.1 1.0

2.82 2.26

57 34
9

Volume / HH = 3.28

10

THE REVENUE PREMIUM MEASURE

Sales

SB SG

VCB

Brand Generic

!
PG

PB

Price

Ailawadi, Lehmann, and Neslin, Journal of Marketing, 2003

11

Financial Impact
Tobins q

Difference in P/E Ratio a) Basic Growth b) Option Value

Market Capitalization
12

Link to Customer Equity:

Customer 1 2 3 1
Brand 2 3

Cell 1, 1: Brand Equity + Normal (Generic) Profit to Customer 1

13

Issues
Heterogeneity and Aggregation

Channel, Category Equity Assessing Option Value

14