11 New Strategic Brand Management by Philip Kotler   4th Edition
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11 New Strategic Brand Management by Philip Kotler 4th Edition


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account the possibility of
geographical extension or globalisation?
Again, most of the time the answer is no.
We recommend four indicators of brand assets
(equity):
l Aided brand awareness. This measures
whether the brand has a minimal resonance.
l Spontaneous brand awareness. This is a
measure of saliency, of share of mind when
cued by the product.
l Evoked set, also called consideration set. Does
the brand belong to the shortlist of two or
three brands one would surely consider
buying?
l Has the brand been already consumed or
not?
Some companies add other items like most
preferred brand. Empirical research has
shown that this item is very much correlated
to spontaneous brand awareness, the latter
being much more than a mere cognitive
measure, but it also captures proximity to the
person. Other companies add the item
consumed most often. Of course this is
typical of fast moving consumer goods; the
item is irrelevant for durables. In addition, in
empirical research the item is also correlated
to evoked set. One should never forget that
tracking studies dwell on the customer\u2019s
memory. This memory is itself very much
inferential. Do people really know what
brand they bought last? They infer from their
preferences, that logically it should have been
brand X or Y.
Table 1.2 gives a typical result of a tracking
study for a brand.
There are two ways of looking at the brand
equity figures in the table. One can compare
the countries by line: although it has similar
aided awareness levels, this brand has very
different status in the two countries. The
second mode is vertical, and focuses on the
\u2018transformation ratios\u2019. It is noticeable that in
Japan, the evoked set is 50 per cent of unaided
brand awareness, whereas it is 87 per cent in
Mexico.
Although there is a regular pattern of
decreasing figures, from the top line to the
bottom line, this is not always the case. For
instance in Europe, Pepsi Cola is not a strong
brand: its market share is gained through
push marketing and trade offers. As a result,
Pepsi Cola certainly grows its business but
not its intrinsic desirability. In tracking
studies Pepsi Cola has a trial rate far higher
than the brand\u2019s preference rate (evoked set).
At the opposite end of the spectrum there are
brands that have an equity far superior to
their consumption rate. In Europe, Michelin
has a clear edge over rival tyre brands as far as
image is concerned. However, image does not
transform itself into market share if people
like the Michelin brand but deem that the use
they make of their cars does not justify
buying tyres of such a quality and at such a
price.
Tracking studies are not simply tools for
control. They are tools for diagnosis and
action. Transformation ratios tell us where to
act.
Table 1.2 Result of a brand tracking study 
Brand X
Japan Mexico
Aided awareness 99% 97%
Unaided awareness 48% 85%
Evoked set 24% 74%
Consumed 5% 40%
BRAND EQUITY IN QUEST ION 17
Goodwill: the convergence of
finance and marketing
The 1980s witnessed a Copernican revolution
in the understanding of the workings of
brands. Before this, ratios of seven or eight
were typical in mergers and acquisitions,
meaning that the price paid for a company
was seven to eight times its earnings. After
1980 these multiples increased considerably
to reach their peak. For example, Groupe
Danone paid $2.5 billion for Nabisco Europe,
which was equivalent to a price:earnings ratio
of 27. Nestlé bought Rowntree Macintosh for
three times its stock market value and 26
times its earnings. It was becoming the norm
to see multiples of 20 to 25. Even today when,
because of the recession, financial valuations
have become more prudent, the existence of
strong brands still gives a real added value to
companies. What happened between the
beginning and the end of the 1980s? What
explanations can be given for this sudden
change in the methods of financial analysts?
The prospect of a single European market
certainly played a significant role, as can be
seen by the fact that large companies were
looking for brands that were ready to be
European or, even better, global. This explains
why Nestlé bought Buitoni, Lever bought
Boursin, l\u2019Oréal bought Lanvin, Seagram
bought Martell, etc. The increase in the
multiples can also be explained in part by the
opposing bids of rival companies wishing to
take over the few brand leaders that existed in
their markets and which were for sale. Apart
from the European factor, there was a marked
change in the attitude towards the brands of
the principal players. Prior to 1980,
companies wished to buy a producer of
chocolate or pasta: after 1980, they wanted to
buy KitKat or Buitoni. This distinction is very
important; in the first case firms wish to buy
production capacity and in the second they
want to buy a place in the mind of the
consumer.
The vision has changed from one where
only tangible assets had value to one where
companies now believe that their most
important asset is their brands, which are
intangible (see Tables 1.3 and 18.2). These
intangible assets account for 61 per cent of the
value of Kellogg\u2019s, 57 per cent of Sara Lee and
52 per cent of General Mills. This explains the
paradox that even though a company is
making a loss it is bought for a very high price
because of its well-known brands. Before
1980, if the value of the brand had been
included in the company\u2019s earnings, it would
have been bought for a penny. Nowadays
brand value is determined independently of
the firm\u2019s net value and thus can sometimes
be hidden by the poor financial results of the
company. The net income of a company is the
sum of all the financial effects, be they
positive or negative, and thus includes the
effect of the brand. The reason why Apple lost
money in 1996 was not because its brand was
weak, but because its strategy was bad.
Therefore it is not simply because a company
is making a loss that its brand is not adding
value. Just as the managers of Ebel-Jellinek, an
American-Swiss group, said when they bought
the Look brand: the company is making a loss
but the brand hasn\u2019t lost its potential. Balance
sheets reflect bad management decisions in
the past, whereas the brand is a potential
source of future profits. This potential will
become actual profit only if it can meet a
viable economic equation.
It is important to realise that in accounting
and finance, goodwill is in fact the difference
between the price paid and the book value of
the company. This difference is brought about
by the psychological goodwill of consumers,
distributors and all the actors in the channels:
that is to say, favourable attitudes and predis-
position. Thus, a close relationship exists
between financial and marketing analyses of
brands. Accounting goodwill is the monetary
value of the psychological goodwill that the
brand has created over time through commu-
nication investment and consistent focus on
18 WHY IS BRANDING SO STRATEGIC?
product satsifaction, both of which help build
the reputation of the name.
What exactly are the effects of this
customer and distributor goodwill?:
l The favourable attitude of distributors
that list some products of the brand
because of their rotation system. In fact a
retailer may lose customers if it does not
stock products of a well-known brand that
by definition is present everywhere. That
is to say, certain customers will go else-
where to look for the brand. This goodwill
ensures the presence of the brand at the
point of sale.
l The support of wholesalers and resellers in
the market for slow-moving or industrial
goods. This is especially true when they are
seen as being an exclusive brand with
which they are able to associate themselves
in the eyes of their customers.
l The desire of consumers or end-users to buy
the product. It is their favourable