Marketing Analytics

7.1 Brand Equity

a. Select two competing brands you are familiar with. Change the relative importance of factors to any level you deem relevant and then, estimate and compare the brand equity for each brand. Explain how each brand would differ in terms of profitability.

Companies can create brand equity for their products by making them memorable, easily recognizable and superior in quality and reliability. If consumers are willing to pay more for a generic product than for a branded one, however, the brand is said to have negative brand equity. The additional money that consumers are willing to spend to buy Nike sports shoes rather than the store brand of sports shoes is an example of brand equity.

Concomitantly, through a mathematical approach, brand equity can be defined as the difference between overall brand assets and overall brand liabilities. Brand assets represent the positive value perceived by customers in regards to a certain brand, within an importance scale expressed in percentages from 0 to 100%, and related to variables such as "brand awareness", "emotional correctedness", "brand loyalty", "brand/line extension", or "price premium". Brand liabilities represent the negative value perceived by customers in regards to the brand, within an importance scale expressed in percentages from 0 to 100%, and related to variables such as "customer dissatisfaction", "product/service failures", "adverse business practices", "social/environmental problems", or "negative associations".

If the brand's equity is positive, the company can increase the likelihood that customers will buy its new product by associating the new product with an existing, successful brand. When evaluating a product in his or her consideration set, the consumer takes into account the directly observable attributes of the product (e.g., features, style, color, etc.) and the value of the brand, among other factors. Because of its role in reducing the effort required to evaluate products, a brand may be of direct value to consumers, and therefore may affect the perceived utility of a branded product.

To illustrate the theory more in depth, the two brands chosen for the purpose of this exercise were Adidas and Nike. Below are the individual analysis and the comparative outlook on brand equity and profitability.