The Information-Economics Perspective on Brand Equity
By Tülin Erdem, New York University, USA, terdem@stern.nyu.edu | Joffre Swait, University of South Australia, Australia, Joffre.Swait@unisa.edu.au
Abstract
The focus of this monograph is the information-economics theoretic framework of brand equity. Adopting this view, Erdem and Swait [1998] argue that consumer-based brand equity is the value of a brand as a credible signal of a product's positioning. In their framework, the content, clarity, and credibility of the brand signal creates intangible benefits, enhances perceived quality, and decreases consumer-perceived risk and information costs, and hence increases consumer utility, which underlies the added value associated with a brand. The central (and motivating) construct in this view is the "credibility" of brands as signals.
The Information-Economics Perspective on Brand Equity
The Information-Economics Perspective on Brand Equity focuses on the information-economics theoretic framework of brand equity. The authors posit that consumer-based brand equity is the value of a brand as a credible signal of a product's positioning. In their framework, the content, clarity, and credibility of the brand signal creates intangible benefits, enhances perceived quality, and decreases consumer-perceived risk and information costs, and hence increases consumer utility, which underlies the added value associated with a brand. The central (and motivating) construct in this view is the "credibility" of brands as signals.
Following a short introduction, section 2 discusses the underpinnings of this framework of brand equity and outlines the analytical models of signaling under quality uncertainty, brand premia, and reputation. Section 3 outlines this information-economics theoretic framework of brand equity in greater detail and discusses the empirical validation of the framework. Section 4 reviews the theoretical and empirical implications of the information-economic theoretic framework for various aspects of consumer decision-making, such as choice, consideration-set formation, choice dynamics, customer relationship management (CRM), formation of brand loyalty, and consumer price sensitivities and willingness to pay. Finally, the authors also discuss the implications for brand management, such as managing brand extensions, alliances, co-branding, and brand crisis. Section 5 examines the validation of the basic framework across product categories and countries and over time. Section 6 provides a conclusion with directions for future research.
