Research Spotlight

Measuring and Tracking Intangible Brand Equity

Professor Sudhir Voleti’s paper co-authored with Professor Pulak Ghosh, “A Robust Model to Measure Latent, Time-Varying Equity in Hierarchical Branding Structures” was recently accepted for publication in the Quantitative Marketing and Economics Journal. Professor Voleti writes a summary of his paper.

As brands become increasingly important to firms, managers and academics alike have shown a keen interest in measuring the value of a brand. Today, brands are one of the most valuable assets of a firm and the term that encompasses this notion of valuing such brand assets is brand equity. The equity due to a brand can broadly be thought of as the unique effect of brand name on outcomes (such as sales or profits) of a product. Brand equity thus provides a way to estimate the contribution of brand name to overall product value. The Marketing literature suggests that brand equity can be split into two parts - an attribute-based equity that is tangible and a non-attribute based one that captures consumer preferences beyond the utility offered by individual attributes. The latter we term ‘Intangible brand equity.’

Intangible equity is of managerial interest because (i) it is more likely to be transferable in line and brand extensions than brand equity identified with product attributes, (ii) it can be used to assess returns on past brand investments that can now be leveraged in the future, and (iii) it can be used as a health diagnostic to flag any potential problems in the branding structure. Thus, firms may want to know the level of and change over time in non-attribute based equity at different layers in the brand hierarchy so as to better allocate resources to manage these different layers.

However, econometric challenges arise when attempting to measure and track intangible equity. We develop and operationalise a robust and flexible model to first separate the attribute-based equity from intangible equity, to jointly estimate this multi-level intangible equity and to allow it to exhibit state-dependence using a random-walk prior. The model is empirically illustrated on syndicated US national beer sales data.

We find four main sets of results: One, that intangible brand equity exists at different layers of the branding structure (brand, sub-brand and SKU); Two, that its value varies across brands and SKUs (i.e. it is heterogeneous); Three, that in the majority of cases, we find that brand equity is a stable quantity that doesn't show significant change over the sample period. However, we find in a minority of the cases brand equity displaying a time trend - either rising or falling consistently over the sample period. This has implications for marketers in terms of resource allocation, promotion planning, SKU rationalization etc.