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An Integrated Model for Dynamic Brand Equity

36 Pages Posted: 25 May 2016  

Tung D. Phan

University of Pennsylvania - Statistics Department

Eric Bradlow

University of Pennsylvania - Marketing Department

Elea McDonnell Feit

Drexel University - Department of Marketing

Date Written: May 23, 2016

Abstract

This paper presents a unified statistical model designed to measure brand equity as it changes over time; and gauge the impact of increased brand equity on consumer's product choices. Our model extends traditional models of brand equity which posit that strong brands are simply "more preferred" after controlling for the marketing mix (i.e. an intercept) to a more general model that allows for (1) brand equity to evolve (modeled as a Bayesian DLM model); (2) perceived product attributes to vary with brand strength ― an "X-perception effect"; and (3) perceived coefficients for product attributes to be a function of equity ― a "beta effect". This extended model provides firms and researchers with a more comprehensive view of brand equity and how it manifests itself in consumers' product choices.

We apply the proposed model to a panel dataset on purchases in the pretzel category, demonstrating that brand equity had a measurable effect on price sensitivity and product attribute perceptions. Using the model we optimize the timing of marketing and derive optimal weekly prices. Comparing those results to simpler benchmark models of brand equity, we find that managers can potentially lose profit by using the reduced-form model due to mispricing.

Keywords: Brand Equity, Brand Management, Dynamic Multivariate Probit Model, Bayesian Computation

Suggested Citation

Phan, Tung D. and Bradlow, Eric and Feit, Elea McDonnell, An Integrated Model for Dynamic Brand Equity (May 23, 2016). Available at SSRN: https://ssrn.com/abstract=2783557

Tung D. Phan

University of Pennsylvania - Statistics Department ( email )

Wharton School
Philadelphia, PA 19104
United States

Eric Bradlow

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-8255 (Phone)

Elea McDonnell Feit (Contact Author)

Drexel University - Department of Marketing ( email )

United States

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