Editor’s note: Robert Passikoff is president of Brand Keys, Inc., a New York brand equity and customer loyalty consultancy. This article is adapted from a speech given to the American Marketing Association on February 24, 1999.

What is the definition of brand equity? Most of the definitions you’ll hear are abstract and elusive: things like image, personality, essence, affinity, identity and position. Sometimes you’ll even hear that a brand’s equity is synonymous with its name.

What do these vague definitions have in common? They all come from the world of advertising, and they’re all in the aid of communication development rather than strategic brand management. A brief trip in the Way-Back Machine can explain that.

Any real research having to do with marketing - outside of product formulation - began in the ad agencies in the late 1950s. And most of that stemmed from the desire to avoid being sued for communicating false and misleading information provided by their clients. When the world got more and more complex (sound familiar?), the agencies looked to differentiate products and services with added layers of discriminators, coining terms like "brand image" and "brand personality." Forty-plus years of having that injected into the mix makes it sound pretty familiar and comfortable, and tends to take on a meaning which is ethereal, and not something you can sink you teeth into.

And let’s be honest. Talking about "brand equity" in those terms is easy.

But if we define the central goal of strategic brand management and planning as the creation of an expanding pool of loyal customers, then, clearly, talk is cheap. If every conception of brand management (and their related advertising campaigns) yielded loyal customers, there would be a lot more loyal customers in the world.

And, if we revisit the ways in which most companies identify brand equity and the part it plays in the strategic brand management planning process, we would suggest that most of the definitions and examples offered up would, once again, refer back to image and positioning, which are the advertising agencies’ best attempts at creating manifestations of a brand’s equity.

Listen carefully to an advertising person describe brand equity! You’ll hear phrases like "When we came into the picture the market/competitive situation was . . ." or, "We conducted focus groups and came up with the following imagery." You almost never hear "We took the brand’s equity and. . ."

These are, admittedly, part of the marketing process, and when all too infrequently circumstances come together just right, what you end up with is a pretty good creative expression of a brand’s equity.

More often than not, however, you end up with a too-hollow creative shell -- entertaining, perhaps, but not making much more of a contribution in moving a brand closer to strategic goals, outside of increasing awareness, and don’t get me started on that! (Everyone in the world has heard of Tang, but no one knows anyone who had it for breakfast today!)

I’m here to say that until now there really hasn’t been a good definition of brand equity, or at least a definition that actually means something, a definition you can actually use to improve your company’s bottom line.

A definition is required which is:

  • better established within the context of the actual product/service category;
  • better captures and imparts the direction and velocity of customer values in that category; and
  • far better correlates with the market activities and loyalties of the customer. And I’m going to give you a definition of the term that actually can become a tool in the hands of a strategic brand manager. Here it is:

"Brand equity is the set of points where a brand exceeds customer expectations."

What do I mean by this? Correctly measured, customer expectations identify how the customer and category values come together to form the dimensions of purchase and loyalty. Correctly measured, customer expectations identify precisely "how high up" is to the customer. And correctly measured, customer expectations provide a yardstick against which your brand can be measured. All this is pretty complex, but then again, so is the world marketers will have to work in over the next decade.

Let’s roll up our sleeves and see what we need to do. To accomplish this of, course, one needs to possess statistically reliable customer perceptions of customer expectations and we have come to recognize that different companies will attempt to take these measures in different ways.

This would normally bring us to a fundamental discussion of the benefits and deficiencies of various research systems but that is not my topic today. Suffice to say, however, that most research systems have certainly not kept pace with the changing dynamics of customer values and are oftentimes inadequate to the task at hand.

Let’s examine the three key required measures and their import in the identification and planning process:

1. Category purchase drivers. We hear talk of changing marketplaces and the need to meet and adapt to customers’ needs and values before the competition, yet most of the traditional research methods are not leading indicators of customer purchase, let alone accurate portrayals of how the customer views the category, makes brand comparisons in that category, and - ultimately - makes purchases in that category.

2. Real levels of customer expectations about these drivers. That is to say, expectations unconstrained by reality and a reflection of what people really think (as opposed to what they say they think).

3. A precise measure of a product’s or service’s brand equities.

This is not, of course, meant to suggest that one should ignore traditional, reliable and valid marketing and research techniques. They are generally quite helpful in identifying an opportunity for a company.

And that is the difference between marketing research and brand research.

Most of the traditional research applications - reliable and statistically valid - are not brand-equity based and will not reveal what the customer is willing to believe about your brand except in the broadest of inquiry circumstances. They may show you what a customer thinks is missing in a particular category, but it doesn’t indicate if they think you are the brand who can deliver what they most desire!

Examining the brand from this perspective requires the creation of a new planning foundation or infrastructure from which to actually brand plan. And a really good initial step would be to first acknowledge that a brand’s equity acts as the engine that drives customer loyalty, sales and profits.

Even better would be to recognize that every brand has its own Brand Equity InfrastructureSM which is based upon the configuration of category purchase drivers, real levels of customer expectations about these drivers, and a brand’s true equity.

Examined from this perspective it provides a consumer/customer-acknowledged, organic, interior support system for the brand which acts as a leading indicator of what kind of marketing opportunity can actually be sustained by the brand, and what/which marketing option will best support the brand within that opportunity.

Isn’t this just a given? All of the traditional elements can be in place (acceptable product, adequate distribution, financial wherewithal, best hopes and desires of the marketing professionals, etc.) yet we know that some brands can’t fulfill the marketing proposition.

Here are two failures: Failure No. 1: McDonald’s introduction of the Arch Deluxe. Failure No. 2: AT&T’s leap into the computer marketplace with the acquisition of NCR.

One can reasonably assume these companies did research before they threw their money away. One can also assume that they did the wrong kind of research - traditional research which indicated, respectively, market opportunities for getting more bodies into the outlets, and for entering into the computer marketplace.

The lesson to be learned is that a market opportunity is not a brand opportunity. If customers are not willing to believe that McDonald’s is qualified (by product formulation or venue) to make an adult hamburger, or that the AT&T logo belongs on a personal computer, then no amount of image advertising and market positioning is going to change their minds.

If McDonald’s Arch Deluxe and the AT&T acquisition teach us anything it should be that there really is a need to understand the difference between what appears to be a really good marketing opportunity and, what is, in fact, an inferior brand strategy, and the fact that few of the so-called brand planning or testing systems manage to do so.

A really good foundation is provided by measuring a brand’s Equity Infrastructure which shows which customer values are of greater or lesser importance to customers and where the brand’s equity lies. It should indicate a brand’s strengths and weaknesses relative to the competition and strategically point to what are the best opportunities for the brand.

A Brand Equity Infrastructure is a map of what customers are willing to believe about your brand. As with any map, it helps your brand keep going in the right direction - and prevents you from wandering down a dead-end street.

And because the Brand Equity Infrastructure does, in fact, identify what people are willing to believe about the brand and which of the most important values (think traditional attributes and benefits) will best translate into the myriad tactical delivery programs currently available, it can be powerful in evaluating the brand and attendant equity.

More importantly, highly evolved customer-listening systems provide the wherewithal to effectively track the velocity and direction of customer value - the key element in being able to actually measure a brand’s equity.

By doing so, it will allow a brand’s planners to determine its trajectory as it enters into the world of tomorrow, which might, strangely enough, include more powerful and sustaining creative opportunities in the promotion or sponsorship arenas.

By basing planning upon what customers are willing to believe (as opposed to what a company would like them to believe) you end up with a more successful, profit-based strategic planning system, and still provide your advertising agency with fodder for the creative mills. In fact, it may even provide horizons - rather than the traditional boundaries - for creative development which will result in even more strategic creative executions.

In summary, the three key required measures in the identification and planning process are:

  • leading-indicator category purchase drivers;
  • real levels of customer expectations about these drivers -- that is to say expectations unconstrained by reality and a reflection of what people really think (as opposed to what they say they think);
  • a precise measure of a product’s or service’s brand equities.

The secret to success: A highly evolved customer-listening system which provides accurate measures of:

  • the relationship between the customer and brand equity by identifying the difference between what people think and what they say they think,
  • how your brand "fits" within those expectations -- an identification of the Brand Equity Infrastructure; and
  • what customers and prospects are willing to listen to about the brand, believe about the brand and, ultimately, purchase from the brand.

Bear in mind the customer loyalty/profitability mantras:

  • It takes seven to 10 times the cost and effort to gain a new customer than it does to keep one.
  • In some sectors, an increase in the customer base by just one percent is otherwise equivalent to a 10 percent cost reduction program.
  • Depending upon the category, a 5 percent increase in customer loyalty will lift the lifetime profits per customer by up to 95 percent.

It is, therefore, incumbent upon strategic planners to capitalize upon the power of their brand’s equity in its definition and in its application.