Practice Prize Paper—BRAN*EQT: A Multicategory Brand Equity Model and Its Application at Allstate

Abstract

W e develop a robust model for estimating, tracking, and managing brand equity for multicategory brands based on customer survey and financial measures. This model has two components: (1) offering value (computed from discounted cash flow analysis) and (2) relative brand importance (computed from brand choice models such as multinomial logit, heteroscedastic extreme value, and mixed logit). We apply this model to estimate the brand equity of Allstate-a leading insurance company-and its leading competitor, which compete in multiple categories. The model captures the brand's spillover effects from one category to another. In addition, we identify the dimensions that drive a brand's image, examine the relationships among advertising, brand equity, and shareholder value, and build a decision support simulator for the focal brand. Our model provides reliable estimates of brand equity, and our results show that advertising has a strong long-term positive influence on brand equity, which is significantly positively related to shareholder value. The model, the brand equity estimates, and the decision support simulator are used by key executives across multiple functional areas and have enabled the company to substantially gain by reallocating its advertising resources to improve brand equity and shareholder value, and by offering better guidance to analysts and investors.

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