Brand equity was needed, defined in several different ways, the most famous of which are probably the definitions of Aaker and Keller. As definitions became more consistent, brand equity was approached from three different perspectives:
2. Business outcome, i.e., what is the effect of brand equity on sales, profitability, and market share change, or price premium.
3. Business outturn, i.e., how brand equity is quantified as an asset.
But a single example is always just a single example, and one should, of course, never rely too much on it. Fortunately, there is no need because the impact of brand equity can be looked at through scientific studies, of which one monitored 444 brands for ten years. A time-series analysis was performed using a three-factor model and brand equity results were related to the total return on equity (ROA), market capitalization, sales, and operating profit. Its main result was positive, i.e., brand equity affects the above variables: for example, when brand equity increases/decreases by one variance on average, the return on capital increases/decreases by 6.8% (statistical certainty >99%) and earnings per share increase/decrease by 7.6% (>99%).
A similar conclusion was reached by another study analyzing the relationship between the brand equity of 155 companies and financial resources and the credit margin over eight years. According to the study, the direct elasticity of brand equity on the financial resources available to a company is .29 (>99%) in the short term, but already .48 (>99%) in the longer term (Figure 19). And when indirect mechanisms of action are added to the equation, a very significant elasticity value of .61 (>95%) is already reached. Similarly, based on databases of Bloomberg and Standard and Poor’s, brand equity diminishes corporate financial risk in the form of lower credit margins (-.2 and -.33; >95%, and -.35; >99%). The study examined the company’s sales, sales growth, asset size, asset growth, R&D investments, non-debt tax shield, industry concentration, beta, pretax interest coverage, and EBITDA.