Brand Equity

By Knapp, Duane E. | Risk Management, September 1999 | Go to article overview

Brand Equity

Knapp, Duane E., Risk Management

Enterprise risk management is based on the premise that a broader understanding of all the risks facing a corporation will enable a more comprehensive and cost-effective mitigation strategy.

While the assessment of traditional exposures is directed by objective criteria such as historic losses in workers' compensation, the assessment of brand equity risks is often a subjective exercise. Unfortunately, many companies believe that their brand is secure simply because their name is well-known. Therein lies the rub. Widespread public knowledge of a brand name is not the only measure of true brand equity.

Companies often ignore the risk of diluting a profoundly powerful brand or misdirecting its message. Mistakes in this area are legion in the annals of brand management, from Chevrolet's misinformed decision to sell its Nova model in Spain (where no va means won't go) to Phillip Moms' misguided attempt to market a Marlboro menthol cigarette. Plentiful marketing dollars were poured into these doomed efforts, which adversely affected earnings and share value. And if there is one thing Wall Street likes to punish, it's a failed earnings estimate.

Given that a poor or declining brand image is a significant risk to corporate earnings, it is incumbent upon risk managers to become the guardians of brand equity. The goal is to develop clear brand risk management principles that optimize the value of the company. Apart from the CEO, few individuals in the corporate hierarchy are better suited for the task.

To wield the branding iron knowledgeably and successfully, risk managers must identify the drivers of brand value, define consumer perceptions of the company and its products, and scrutinize corporate decisions for their impact on brand power.

Creating Real Value

At its simplest level, corporate branding is the mark of a company, a declaration of what it is and what it believes. In a sense, it is the promise of the company's quality, trust and value. This essence is communicated across a wide range of audiences, from the media and consumers to Wall Street. Brands are consequently both assets and risks whose effect on the company's performance can be managed.

Many once-formidable brands have lost their clout and distinction through poor management. They no longer provide unique emotional and functional benefits for the consumer. The products and services are now commodities, distinguished only by price. The brand name survives, but its value erodes. Profit margins, market share and loyalty decline. Ultimately, the power of the brand dissolves, presenting a huge corporate loss.

The present day overseers of corporate brand equity are often sales and marketing executives. Such individuals, while well positioned to move the business further ahead in the short term, may not appreciate the long-term risk of misdirecting brand assets. Focused on quarterly revenues, they may unknowingly sacrifice the integrity of the brand for quick gain or short-term profits, using low price as a motivator. However, marketing a position of "lowest price" to increase revenues may not be the best method of managing brand equity.

A Case Study

Take the case of Ernst, a well-known and respected hardware and nursery retailer for over a century in the Pacific Northwest. Twenty years ago, Ernst held a premier position in the market. As other stores entered that market and competition heated up, however, Ernst decided that the best way to compete was to simply lower prices. "Always the right price. Always!" became the tagline of the day. Eagle hardware, their upstart rival, on the other hand, communicated a different message to its customers: "More of everything."

Eagle, apparently, was a very good student of the brand strategy of another successful upstart, Target. Target delivers on its promise of "Expect more. Pay less," by providing "all the personal help you need to buy more of everything. …

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