“ Brand Equity – The term has been argued in both selling and accounting Literatures ; both giving a different position to the same construct. Feldwick ( 1996 ) simplified the quandary by supplying a set of definitions for the term. The definitions are as followed –
The entire value of the trade name is treated as a separate plus when it is included in the balance sheet.
A step of strength of consumer ‘s fond regard to the trade name.
A description of the perceptual experiences and association that a client has about the trade name. ”
Amalgamations and Acquisitions ( M & A ; A ) – This term refers to corporate finance, scheme and direction of purchasing, selling and uniting different companies with an purpose to finance or assist a turning company in a given industry grow quickly without holding to make another concern entity.
The chief issue that follows any type of Amalgamations and Acquisitions is the Brand job, get downing with the naming of the new entity to the positioning it in the market place after the dealing. Here the Brand Equity plays a critical function. Brand equity is an merger of trade name value, trade name strength and trade name trueness. The buyer or the amalgamation companies should measure analytical that which trade name has the perfect balance of all these three elements. The right trade name name pick leads to better premium besides the hereafter of a peculiar M & A ; A depends on a wise trade name pick. Keeping in head all the factors a company can cover with the appellative issue in the undermentioned ways –
Keeping the name of one trade name and dropping the other. The strongest trade name with better trade name equity survives. The best illustration for this is the amalgamation of Vodafone ( 67 % ) and Essar ( 33 % ) , though the company is called Vodafone Essar its merchandises are merely branded as Vodafone.
Keep the name of the stronger and bump the other name to other merchandise or divisional trade name. It works best when there is small convergence in the merchandise lines. When Mars bought Wrigley ‘s Jr. Company it did n’t fiddle with Wrigley ‘s name. Wrigley ‘s still continues to be the masticating gum giant whereas Mars remains as the cocoa bars.
In some amalgamations and acquisitions the companies try to delight everyone by protecting the individuality of both the trade names this leads to the names where both the trade names live. The best illustration to this is Kotak Mahindra bank.
The last option is flinging both the names and following a wholly new one. Companies do this to make a new image in the consumer ‘s head. In 1995 Birla – Tata and AT & A ; T started a telecom house called Batata. Subsequently in 2004 this company was rechristened as Idea Cellular.
Hence we can see that how Brand equity plays a major function in the determination of Amalgamations and Acquisition. Without analysing trade name equity it is impossible to mane the new entities therefore formed after M & A ; A.
Elementss of Brand Equity
For any company to understand its ‘ place in the market topographic point and to do determinations for M & A ; A, cognizing the perfect balance of the elements of trade name equity is of extreme importance. On a whole trade name equity is made up of three interconnected elements as can be seen below –
Though in the figure it is shown that the result of trade name strength is Brand Value but in the practical scenario there can be more than one end product of trade name strength. Another major result is market power.
The Brand Description means the trade name image i.e. the manner the trade name is presented to the consumer in order to make an image of the Brand in consumers ‘ head. The trade name description is tailored maintaining in head the selling mix- merchandise, monetary value, topographic point and publicity. The main factor that influences the trade name description is the wants and the demands of the mark market. It is non necessary to hold a individual trade name image ; there can be several but merely one or two are prevailing. The trade name image should be strong and powerful plenty to go forth an impact on consumers ‘ head so that they can easy remember the trade name. A consumer does n’t merely purchase a trade name but besides the quality, edification, wealth and power associated with it. It is apparent from assorted researches conducted that feelings and images associated with the trade names are powerful purchase influencer. A good trade name image gives the company an border over its rivals. Brand image is reinforced by the different facets of trade name experience like advertisement, packaging, client attention etc. Hence trade name description or trade name image is like the base on which the Brand Equity is built. If the company has a bad trade name image so it can ne’er hold a good Brand Equity. The success of the trade name image or the otherwise leads to the grade of the trade name strength.
A equivalent word for trade name trueness, it constitutes of a client ‘s warrant to go on with or buy backing of the same trade name. Besides it can be determined as the positive behaviour such as word of mouth promotion of the merchandise. Merely buying does n’t take to trade name trueness as a client may purchase a trade name due to some restraints such as deficiency of options or stock out, such state of affairs leads to “ specious trueness ” . The existent trueness is defined when the client holds a really positive image about the trade name and does n’t choose for any other options ; at the same clip influences others to purchase the trade name therefore increasing the client base. Brand trueness is an plus to the house as geting a new client is 4 times every bit dearly-won as retaining an old loyal client as a loyal client non merely is willing to pay a higher monetary value for the trade name but besides brings in new clients.
Use rate is considered most of import in specifying Brand Loyalty, where Pareto ‘s 80-20 regulation applies. 20 % of users account for 80 % of use and hence net income to the house. Apart from that client satisfaction, trade name trust and client ‘s perceived value are the cardinal factors which reinforce the trade name trueness.
Brand Strength determines the hereafter hard currency flow therefore taking to the trade name value.
Apple iPhone is a authoritative illustration of trade name trueness as even with no trueness plans and relatively high monetary values it has been ranked No. 1 in Customer Loyalty leaders by Brand key 2010.
Brand Equity can be seen from both selling and accounting position. Brand Value represents majorly the accounting portion of it. Like Brand Strength, Brand Value is besides client based. It can be defined as the sum that a trade name is worth of in footings of repute, market value, income, prestigiousness and possible income. The Brands with high value are treated as priced ownership of a company, when such a trade name is merged or acquired so its trade name value is worth more than any other concern. A simple equation that defines the trade name value can be given as
Brand value = what you get/ what you pay= Quality/ Price
As can be seen in the above equation trade name value tells us the quality we get when we pay a peculiar monetary value. It once more depends on the client in the sense that different clients have different outlooks from different merchandises against the monetary value they are paying. Loyalty is the driving force of Brand value, for illustration Starbucks can bear down $ 1.60 for medium sized java whereas a common cafe can bear down 99 cents for the same java. It is the trueness of the clients towards Starbucks which increases its Brand Value. More the trade name value in the market better is the market portion of a company. It is the high Brand value of Cadbury PLC which has preserved its name even after it has been acquired by Kraft nutrients.
The Brand Equity Pyramid
What about you?
What are you?
Who are you?
What about you and me? Keller gave a client based trade name equity pyramid as can be seen below –
The above pyramid gives a stigmatization ladder harmonizing to which a client builds a relationship with the trade name. There are four degrees of inquiries which a client by and large asks, each of these inquiries are dependent on the accomplishing the old 1. The inquiries constitute six edifice blocks shown in the pyramid. The pyramid starts when the client starts cognizing the trade name and the tip represents the point at which client has built up a trade name association. Thus it represents the procedure by which a trade name image leads to the trade name trueness. The description of each measure is as followed –
Measure 1- In this measure the client has merely started acquiring familiar with the trade name hence asks the inquiry who you are? The reply gives the right designation of the trade name. The edifice block for this degree is salience i.e. a distinguished characteristic.
Measure 2 – Once the initial designation is done the client tends to cognize more about the merchandise and hence asks what are you? The reply aims in organizing a ‘brand intending ‘ in clients mind. The image that the client holds about the trade name and the public presentation shown by the trade name forms the edifice block of this degree.
Measure 3 – Now the client responses against the trade name significance so formed in his head. And asks the inquiry What about you? At this measure client ‘s feelings come into image and he starts doing judgement about the trade name and its characteristic.
Measure 4- In the client based trade name equity this is the ultimate measure where the client builds a relationship with the trade name and therefore starts tie ining himself with the trade name. Resonance is the edifice block of this degree i.e. a relation of trust between the trade name and the client. Thus this measure achieves the concluding end – Brand Loyalty.
Measuring Brand Equity
Many surveies and researches have been conducted in this country. There is no unequivocal theoretical account or methodological analysis to mensurate the Brand Equity. Some houses may develop their ain methods where as some may utilize the theoretical accounts given by bookmans and research workers. The measuring can be quantitative every bit good as qualitative depending upon the parametric quantities. Generally measuring of Brand Description is qualitative and that of Brand Strength and Value is quantitative.
If we generalize so Brand equity can be measured in three different degrees. All these measurement give the best approximative value. These degrees are as followed –
Firm Level – The steadfast degree measuring is based on the accounting attack. Here the trade name is considered as a fiscal plus i.e. the worth of the trade name when it is considered as an intangible plus. Trade names ca n’t be seen, touched or physically measured but are created with more attempts than any touchable plus. The Brand Equity of a house backs up the touchable assets owned by that house. For illustration if we define the value of the house depending upon the market capitalisation and so deduct the touchable and mensurable touchable assets from it we are left with Brand Equity which is a non- mensurable touchable plus. Suppose we take the market capitalisation of Coca – Cola and deduct all the touchable and mensurable intangible assets so we are left with the Brand Name Coca- Cola which entirely has a high trade name value, trade name strength and trade name association. One advanced attack is by affecting confer withing house Interbrand. Interbrand uses a mathematical theoretical account where in the forecasted net incomes are discounted to a present value. The price reduction rate is defined by Wall Street and Interbrand equity specializers which takes into consideration the planetary range, hazard profile and market leading of the trade name.
Product Level – It is similar to benchmarking where the monetary value of a lesser known trade name is compared to that of a known celebrated equivalent Branded merchandise. It is assumed that the difference in monetary value is merely due to the Brand name. For illustration Sony is considered as a benchmarking company in electronic merchandises if now similar merchandises from the trade names like Videocon, Aiwa, Panasonic etc. are compared with Sony so that will take to a merchandise degree measuring.
Consumer Level – At this degree Brand association maps are used where in the head of the clients are mapped harmonizing to the assorted factors of association like trust, trade name image consciousness etc. The trade names hiting high on the above factors have high Brand equity. Many research houses like AC Nielsen provides Brand Association maps.
Merely after mensurating the trade name equity of the trade names the determinations sing Amalgamations and Acquisitions are taken. Hence Brand equity plays a critical function in Mergers and Acquisitions.
Role of Brand Equity in Mergers and Associations ( M & A ; A )
In todays ‘ universe amalgamations and acquisitions take topographic point on a regular basis with an purpose to turn in the given market place.
Brand is non merely a name or tagline, as explained earlier it is an intangible plus which have a set of associations and outlooks related to the company in the head of the clients. The EquiTrend ‘s survey of the impact of the trade name equity on the Return on investing ( ROI ) shows that the companies holding high Brand Equity saw their ROI norm of 30 % . The 1 with diminishing trade name equity saw negative 10 % norm on their ROI.
An illustration of how trade name equity plays a major function can be seen in the undermentioned example-
In 1999 the acquisition of Orange a taking telecom trade name in UK by Mannesmann was completed in twice the value per client as paid by Deutsche Telekom for geting One 2 One cellular concern. Both Orange and One 2 one had similar characteristics in footings of growing rate, client base and engineering, so why did Mannesmann paid such a high value. The reply to this is the unmeasurable intangible plus Brand Equity. One to one had used Porters first game program i.e. overall cost leading and used to supply inexpensive services to its clients. Whereas Orange placed its schemes on the 2nd game program i.e. distinction based on quality, it focused on high quality web and client service. It created high client trueness therefore increasing the trade name value of the Brand Orange. This reflected in the addition borders and market portion of Orange. Besides their post-acquisition schemes were better. Deutsche Telekom understood the job and to get the better of the state of affairs rapidly rebranded One 2 one to T- Mobile. Subsequently in 2000 Vodafone acquired Mannesmann and France Telecom took over Orange Mobile. Orange had such high Brand Equity that even after the 2nd acquisition its name was preserved and was used by France Telecom for its domestic Mobile services and planetary concerns.