Loyalty Pyramid

The strength of the relationship consumers have with a brand may be gauged via their engagement at each level on the loyalty pyramid.

Brand loyalty represents the highest level of engagement with a brand. Loyal consumers have high level of affinity with the brand; they consider it as their favourite, and are willing to recommend it to others.

Brand loyalty is a state of mind, not a behavioural outcome. A consumer is brand loyal if she has a positive, preferential attitude towards the product or service. Attitudinal loyalty, emotional loyalty and brand loyalty are all interchangeable terms that allude to this state of mind.

Behavioural loyalty, unlike emotional loyalty, is specifically a behavioural outcome. Defined as brand share amongst brand buyers, it is the quantity of brand purchases by the individual or household as a percentage of total category purchases. For instance, if a consumer drinks 40 cups of Nescafe and 10 cups of other brands of coffee, her behavioural loyalty to Nescafe is 80% over that period of time.

Computing the Brand Equity Index

Most brand equity models tend to use a series of three or four statements that reflect the outcomes of brand equity — brand loyalty, willingness to pay a price premium, and the willingness to endure some inconvenience (e.g. travel a distance) to secure the brand.

There are a variety of approaches that may be used to craft an index; for instance, as depicted in the following Exhibit, the equity index may be based on the size of the intersection of the composite measures. In this example, the intersection — i.e. the percent of respondents who rate the brand within top 2 boxes for all the three statements — is 28%. This intersection value is a reflection of the brand’s equity, and on a 10-point scale, the brand’s equity index (2.8) is computed by dividing this value by 10.

This examples also employs the Likert scale (i.e. the sum of responses to the statements) to segment consumers based on their affinity to the brand.

Drivers of Brand Equity

While it yields additional insights, knowledge of how much equity your brand commands does not reveal the factors contributing to the improvement or the decline in equity. Only if you know the factors that drive equity, can you recommend a course of action to enhance your brand’s equity.

Brand equity, by definition, is derived from the thoughts and feelings that the brand evokes. Ultimately it is brand awareness, perceptions, imagery and attitudes that drive equity. To determine what people think about a brand, we need to track consumers’ perception of brands using a multitude of statements that describe different aspects or attributes relating to perceived benefits, imagery, symbols and attitudes.

Once we have measured what people think about a brand on different attributes, the importance of these attributes in driving brand equity is computed via statistical models. The following Exhibit provides an illustration.