Differences Between Brand Value and Brand Equity

First, it is important to state that brand value and brand equity commonly refer to how much a brand is worth. Both terms are often used interchangeably as there is no agreement on when each of these terms should be used.

According to Feldwick (1996, p. 2), the following three constructs are considered to be brand equity:

1. “The total value of a brand as a separable asset when it is sold or included on a balance sheet” (brand valuation or brand value)

2. “A measure of the strength of consumers’ attachment to a brand” (brand loyalty or brand strength)

3. “A description of the associations and beliefs the consumer has about the brand” (brand image or brand description)

Thus, according to Felwick, brand equity is a comprehensive construct

encompassing not only the actual monetary valuation of a brand, but some of its attributes such as brand loyalty, strength and brand image.

Wood (2000) elaborates further on this topic by stating that the term brand equity first appeared in the marketing literature as an attempt to explain the relationship between consumers and brands. In this case, a financial term (equity) is used to support the belief that brands can have financial value (Knowles, 2008). Then, by explaining a relationship between brands and

consumer, it is also been implied that brand equity is made up of two main components, a consumer component and a company/financial component.

To help understand the difference between the consumer and the

company/financial components of brand equity, Knowles (2008, p. 24) compares these approaches to potential energy (marketing approach) and kinetic energy (financial approach) and refers to the case of Gucci. In the late 1990’s, cash flow levels (kinetic energy) at Gucci were reducing rapidly, mainly because the brand had widespread licensing agreements which resulted in quality problems in the licensed products. While from a financial perspective the brand was

“being written off”, its marketing value (potential energy) was still high. Given that the problems at the brand were mainly management-related, the brand was able to recover once they addressed their licensing policy, poor quality, updated their product range and addressed their distribution issues (ibid, 2008). Thus, in this example, Knowles implies that marketing actions which are aimed at the consumer have the ability to affect the financials of a brand. Similarly, it suggests that company-based actions can have a financial effect on the brand.

However, the way consumers influence brand value is not clearly discussed.

For Jones (2005), brand value and brand equity are two different constructs;

brand value is related to the study of how value is created, while brand equity is related to measuring it. Nevertheless, Jones’ distinction seems to be

unnecessary, as it is possible to use the term ‘brand value measurement’ instead of ‘brand equity’ to refer to how brand value is quantified and avoid confusion.

Raggio and Leone (2007, p. 380) agree with Jones in terms of the view that brand value and brand equity are two separate constructs. Still, they propose a definition to describe them: “Brand equity moderates the impact of marketing activities on consumer’s actions… and represents one of the many factors that contribute to brand value.” Brand value is defined as “the sale or replacement value of a brand, and which implies a company-based perspective”. Thus, according to Raggio and Leone, brand equity is what a brand means to the consumer and brand value is what a brand means to a firm. However, an aspect to consider is that in this definition, the sale and replacement value of a brand

may vary considerably, which results in ambiguity. Using the Gucci example discussed above, the sale value of Gucci at the time when the brand was experiencing a significant crisis could be much lower than the cost of building the Gucci brand from scratch. This means that its brand value would fluctuate considerably, depending on how it is calculated (sale cost or replacement cost).

Furthermore, Raggio and Leone’s definition attributes the sale value to a company-based action, which is not always the case. During an acquisition, third parties (e.g. the acquirer) are the ones setting up the price of the companies they acquire. Then it is up to the target company (company to be acquired) to accept or reject that price.

This characterization is similar to Blois (2004, p. 24) who suggests that a brand has two facets: “The value from the customer’s perspective; and the value to the owner”. Under this approach, while both perspectives are related to each other, it does not necessary mean that the customer and the owner perspective are aligned. Mulberry may believe that their brand has high brand value, and then attempt to sell a bag for $4,500.00 dollars. At that price point, customers can get bags at brands with higher brand value such as Louis Vuitton or Dior.

Thus, if consumers believe that the brand does not have a high enough brand value, they would refuse to purchase at that price. This has to do with the fact that the higher brand value a brand has, the higher price consumers may be willing to pay for an item from that brand versus a comparative brand with a lower brand value. As a result, due to lower sales, Mulberry will realize that it is necessary to lower the price of their bags to an amount that will be reflective of the value that the brand has in consumers’ minds.

The difference between brand value and brand equity is illustrated by Raggio and Leone (2007) with a case from non-luxury. In 1994, Snapple was bought by Quaker Oats for $1.7 billion dollars. At the time of purchase, about 50 percent of Snapple’s sales were generated at small convenience stores and gas stations, while most sales of Quaker Oats were made at large supermarkets and drug stores. Given Quaker’s inability to grow Snapple’s sales at supermarkets and drug stores, Snapple was sold for only $300 million after just 3 years. According to Raggio and Leone (2007), during this time the brand value of Snapple

decreased, while its brand equity was likely to stay at the same level or even increase, due to the offering of the product in supermarkets and drug stores. In this example, brand value is related to the valuation of the brand, while brand equity is related to the value that the brand has for consumers. In brief, as these examples show, the distinction between brand value and brand equity is not clear in the literature as it can relate to the valuation of a firm, or to how much it is worth it to the owner, but also to what a brand is worth for

consumers.