Tuesday, November 27, 2007

Negative Brand Equity

In my last post I picked an easy fight with WalMart and their crappy PR. A lot of others joined in the fun, from Mother Jones to The LA Times.

I argued that this is a moral failing, not a PR blunder. And so it may be, but that doesn’t mean it can’t be quantified as a costly business mistake, and measured in terms a stock holder would understand outside of any wishy-washy ethical dimension.

Brand equity, so we’re told, is the net gain a branded entity brings to an organization, compared with an unbranded counterpart. In other words, what is a punter prepared to pay for a branded product, above and beyond the price of a competitive product/service of roughly equivalent function? An iPod costs a lot more than an equivalent generic mp3 player, and the difference is seen to be accrued brand value or equity.

In theory, brand equity cannot be negative, or so says Wikipedia. Some disagree, including me. The problem is brand equity is a fuzzy concept that’s very hard to really quantify.

In contrast, good and bad publicity is getting easier to measure, because most media is now available online, and search technologies exist that can give a reasonable indication of subjective content. Such a media barometer could be a strong tool to ascertain true PR equity, especially if we link this to other tangible measures of business health – say a company’s stock price. A clear correlation between the two would be a strong weapon for PR professionals.

Academics have worked on this already. At an extreme, Rao and Hamilton have shown a clear correlation between unethical (read quasi-illegal) behavior and stock indicators, but you’d expect this because the behavior is very likely to have direct financial consequences – lawsuits, and so on. The Phelps Group, an integrated marketing agency, looked at the wider literature and found studies that showed less than 10% of a stock value was accounted for by brand equity. A boatload of methodological issues go along with all this research, but they’re a start. There’s probably more studies I’ve missed, let me know if you’ve seen some.


shadab said...

Hi, Could you please shed some more light on negative brand equity? I cant find any academic paper on it :(. Any insight could be of great value to me.

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