Correlation Between Sales And Brand Value Marketing Essay

For assignment help please contact

at help@hndassignmenthelp.co.uk or hndassignmenthelp@gmail.com
In the marketing concept, brand differentiates a product and services from its
competitors. Brand affects consumers not only because of the knowledge systems
that consumers know about the brands but it is also part of psycho-social-cultural
context (Esch et al., 2006). Hence, it is very important to build a strong brand as it
act as one of the contributing factor in sustaining company's performance of which
the value of a company relies on its current earnings that potentially will develop its
future financial performance. For instance, the powerful global companies take
advantage on its brand as a contribution factor to their continuing success (Davis,
2002).
Brand is classified as an important asset to the company as it helps in the generation
of cash. Moreover, it has an impact to the company as the business is worth more due
to its position of the brand in the market. The value of the brand is a reflection of the
brand worth in regards to current and future income, reputation and market value. It
is vital to understand the meaning of the brand value as it serves as a tool in
determining the marketing strategy in each segment or target market. According to
Gabay et al. (2009), brand value is related on how a brand is influence in the
marketing mix as well as the impact of the brand name to the other features in the
marketing concept. When a brand is managed well consistently, the brand value will
appreciate over time that allows company to charge a premium over competitive
offering leadings to a higher profit margin (Davis, 2002).

A company's brand is directly related to the consumers as they are the one who
decides on the purchase of a product. Brands that manage to segment its products
appropriately in the competitive market will enable the company to attract
consumers as well as maintaining the brand value that stands as a key point to
compete in the future market. Each company would want to have a stable growth in
its profitability and the key point to determine the success of the company will rely
on its sales figures. As companies noticed the importance of a brand in its financial
performance, huge investment has been made to ensure that its brand has a high
brand value. For example, Coca-Cola is consistently investing in its brand to develop
an emotional connection with the consumers.

Consumer's perceptions on a brand do play an important factor in the selection of

the best brand for a particular product. It is important to build and have a brand
value as it involve consumers' understanding on what they are getting compared to
what they are giving. There is a linkage between consumer loyalty and brand value.
For example, if a particular brand maintains a significantly higher perception of
value to a consumer than any other brand in the category, that consumer will
consistently purchase that brand and consistently recommend that brand to others.
As a result, consumers are confident in the product and directly will have an impact
to the company's sales performance.
According to the top 100 grocery brands in the United Kingdom (UK) report, it was
noted that the sales pattern is related to consumer's perception on the brands.
Brands that have a high brand value have performed well in terms of its sales.
Therefore, it seems that there is a relationship between sales and brand value.
However, there is still uncertainty on the strength between the two variables. In view
of this, it is viable to do a statistical analysis for further analysis on the said matter.
1.2 Previous work that has been done
Brand is seen as a very important concept in the marketing perspective especially
brand value which have a relationship between quality and price. High brand value is
the most valuable asset for a company as it brings higher margins both short and
long term (Esch et al., 2006) and host of other benefits (Oslon, 2008). By identifying
the factors driving the brand values, it allows company to increase its brand's
performance which will result to an increase in revenue, larger market share and
higher profits. Wood (2000) indicates that by using brand value as a performance
measure, it creates a long term focus of the company.
Research findings indicate that consumer buying behaviour is based on perception
on a brand name (Gabay et al., 2009). Therefore, brand is seen as a contract with the
consumers that reduce uncertainty which allows consumers to purchase uncertainty
reduction or trust that leads to the increase of value (www.sdrnet.com,2010).
Meanwhile according to Oslon (2008), brand creates value by generating demand
and reducing risk through securing future earnings for the business which will result
to creation of value for companies to its brands.
Penrose and Moorhouse (1989) suggest that one important factor determining the
value of the brand is its profitability. By knowing the brand value, it allows the
company on how is the brand performing in the market. It is related to the element

of acceptability and the strength of the brand as it is link to the consumer's decision
in buying a product. Blackett (1991) comment that there is a relationship between a
brand's strength and its ability to command future income. Therefore, the stronger
the brand, company would be able to predict its future income conversely the weaker
the brand, the less certain is its future. This indicates that the brand value will
provide a company a clear idea of profitability from its various brands. A research
was done against the most expensive leading global products and the findings
indicate that each brand invest time and energy to manage its brand accordingly
(Gabay et al., 2009). This shows an indication on how companies foresee the
importance of brand value.
With a good brand, consumers will be prepared to pay a premium for the products
and leads to a brand loyalty which will have value if the brand was ever sold.
Research conducted earlier has found a relationship between sales and brand value
(Gabay et al., 2009). Moreover, one of the factors determining the brand value is the
strong brand acceptance in the market which is dependent on consumers. Research
indicates that brand has the power to attract consumers and provide a guarantee of
sales through premium price that provide a higher margin from the sale of the
products (Blackett, 1991).

Another research has found that there is strong correlation between strong brand
value and its benefits of pricing, customer loyalty, market leadership and overall
financial performance (Leiser, 2004). Moreover, Leiser (2004) and Davis (2002)
also point out that there is relationship between customer loyalty with brand value
and profitability as findings from a research indicate that 5% increase in customer
loyalty could elevate profits by as much as 100%. Meanwhile, based on a study
conducted in the hotel industry, it suggest a positive correlation between brand value
and a firm's performance in terms of profits and long-term cashflows (Kim, Kim and
An, 2003).
Based on the above, it can be summarise that there is relationship between brand
and financial performance.
1.3 What would expect to discover
For a product to be successful, it must have a good brand name. Once this has been
establish in the market, it creates a powerful and lasting connection between
consumers that leads to a positive effect of the product and simultaneously has an

effect to the company's sales performance. Sales figure meanwhile definitely have
several attributes to the company such as gaining market share and acceptability in
the market. As a result of a positive trend in the sales figures, it helps the company to
build its brand value in the market. Brands with high values are related to strong
market share as it allows the company to bargain more effectively in terms of pricing
and quality. Moreover, with the high market share, the brands have an advantage in
economy of scales that leads to high sales figures.
However in the year 2008, a number of discounted retailers entered the UK grocery
market with their home brand at a low cost price. With the effect from the economic
crisis, consumer's buying trend has slightly shifted from high value brands to home
brands which have low brand values. Although the current economy condition does
have an impact across the sector, especially in the growth of own-label products,
premium brands have still continue to perform well. From this report, it would like
to see the relationship between sales and brand values as it is interrelated wherein
with high brand value; the product has a control in the market and will lead to better
sales in the future.

2.0 Description of data

For the purpose of this report, the dependent and independent variables are sales
and brand value respectively. Details of the data are attached in Appendix 1. The data
is based on the top 100 grocery brands in the United Kingdom (UK) for the year
2008. However, for the purpose of this report, only top 78 grocery brands are used as
the sample size due to lack of information of certain brands. The histograms for each
variable are given in figure 1 and 2 respectively. The histogram for sales and brand
value indicate that the most recorded value is £168.7 million and
£174.07 million respectively. Meanwhile, the mean values are £162
million and £152.04 million for sales and brand value respectively. Based on
the median for sale of £162 million, the 95% confidence interval is between
£135 million to £188 million while brand value is between £121
million and £184 million. It was noted that the distribution for both variables
are positively skewed of which the long tail in on the right.
Figure 1: Histogram for sales
Figure 2: Histogram for brand value
Figure 3: Normal distribution for sales

The inference about the population mean is based on the following computation:
95% confidence interval = 162 (1.96 x 127)
= (-86.92 to 410.92)
Therefore, it believes that the population mean lies between -£86.92 million
and 410.92 million. There is a 95% chance that this is true.

2.1 Source of data

The brand value data was extracted from the report titled 'The UK's most valuable
grocery brand 2008' prepared by www.intangible bussines.com. Meanwhile, the data
for the sales value was obtained from the market research company, The Nielsen
Company (2008) of which the data was recorded via checkout scanners at all major
grocery chains totalling about 74,000 in the UK.
The calculation of the brand value is computed based on its forecast sales, royalty
and discount rate.

Brand value
Components:
Sum of future royalty income
Testing and benchmarking

Discounted
Components:
Risk analysis
Tax deduction

Royalty rate
Components

Brand strength
Royalty rate range

Future sales
Components:
Historical sales
Adjusted Compound Annual Growth Rate (CAGR)

X,=
Source: The top 100 grocery brands in the UK
The future sale is based on the adjusted Compound Annual Growth Rate (CAGR) to
reflect the brand's long term ability for growth. The royalty rate is based on scoring of
measurements i.e. preference, relevancy, heritage, perception and awareness that
resulted to the brand strength for each brand. Meanwhile, discounted rate is
computed by multiplying the royalty rate and reduced at the relevant tax rate. The
discount rate reflects the time value and risk assessment based on 9% with the basis
of the brands existence in a stable economic environment. Finally, results are tested
and verified by to ensure the correct figures are used for the ranking purposes to
avoid biasness.

3.0 Analysis
3.1 Scattergram and Correlation
Before proceeding with the correlation between the two variables i.e. sales and brand
value, a scattergram was applied to explore the relationship between the said
variables. Scattergram is used as a preliminary step in investigating the existence of a
relationship between two variables. In figure 4, the variables indicate a linear
positive relationship which is suitable for the correlation analysis. Based on the said
scattergram, it was observed that there are two values which are higher than the
other values. After checking the values, it was discovered that the said variables have
a very high value in sales compared to other brands. The main reason is because the
two brands have a strong brand identity in the global market and is one of most
respected brands in the market. Moreover, the small sample size might contribute to

the finding of a number of outlying residuals. In considering the outliers, it was

decided to maintain the variables as it does not have much impact to the r value if the
same are removed.
r= 0.948
Figure 4: Scattergrams and value of r
In order to provide a precise measurement of the degree of correlation, the
correlation coefficient is used to produce a mathematical measurement (Cohen and
Holliday, 1996:80). The correlation analysis is applied to check the quantifiable
relationship between two variables in terms of both the strength and direction. Based
on figure 4 above, there is a large correlation i.e.0.95 between the two variables
(above 0.5) which indicate a quite strong relationship between sales and brand value.
Therefore, this result is interpreted in the manner that the amount of sale directly
affects the brand value wherein the more sales take place, the higher the brand value.
In order to decide the amount of association between the two variables justifies the
sales to brand value, hypothesis testing is conducted.
Null hypothesis Ho: p= 0, there is no association between sales and brand value.
Alternative hypothesis H1=p0. There is an association between sales and brand
value.
Critical value: 5% (87-2) = 0.183
Test statistics = 0.948
The test statistics exceeds the critical value and therefore to reject the null hypothesis
and conclude that there is significant association between sales and brand value.
Inference about the population value of the correlation coefficient based on the
sample is calculated using the FISHER function in EXCEL which is as follows:
w= FISHER (0.95) = 1.83 (the mean for the normal distribution)
the standard deviation is 1/ = 0.11
The 95% confidence interval for w is 1.83 (1.96 x 0.11) = 1.62 to 2.05

By using the FISHERINV formula in Excel, the 95% confidence interval for the
population correlation is from 0.92 to 0.97. The narrow confidence interval indicates
that adequate sample size is used for the correlation and the variables have a
reasonable control in detecting the estimate of the effect.
3.2 Regression analysis
Regression analysis is a technique used in analysing variables which focus on the
relationship between dependent variable and independent variables. It will assist in
understanding how a change in the value of the dependant variable has a direct effect
to the independent variables. Clearly, the said analysis could be used to infer causal
relationship between independent and dependant variables.
Regression Statistics
Multiple R
0.948091
R Square
0.898876
Adjusted R Square
0.897687
Standard Error
40.49166
Observations
87
Figure 5: Regression model and statistics
A simple linear regression was performed on the 87 sample size to determine if there
is a significant relationship between sales and brand value. Based on the regression
statistic in figure 5, the Multiple R value is 0.95 and the R square is 0.89 or 89%
which both indicate a liner model wherein the two predictors fits the data well and

the confidence interval for the slope is wholly positive. R2 tells that 89% of the
variation in the sales in associated with variations in the brand value.
ANOVA

df
SS
MS
F
Significance F
Regression
1
1238788
1238788
755.5547
4.62162E-44
Residual
85
139363.8
1639.575
Total
86
1378152

Coefficients
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
Intercept
38.81685
6.231001
6.229634
1.72E-08
26.42795
51.20575
Brand value
0.806217
0.02933
27.48735

4.62E-44
0.747901
0.864534
Figure 6:Regression statistic summary output
With reference to figure 6 above, the intercept is given as 38.816 and the coefficient
of brand value is 0.806. From this figures, the regression equation is constructed as
y=38.817 + 0.806x. A significance relationship indicates that an increase in sales will
have an effect to the brand value to increase between 0.75 to 0.86.
The significance of the coefficients is indicated by the p-values. In figure 6, the pvalue for brand value is 4.62E-44 (very small value), indicating that this variable in
the population is very unlikely to be zero as the smaller the p-value, the greater
significance it has. Based on the ANOVA results, the figure headed Significance F
could also be used to assess the overall strength of the linear regression equation.
From the regression statistic output, the value for the Significance F is 4.62162E-44
(very small value), so it can be concluded that there is a highly significant linear
relationship between sales and brand value.
Overall, it appears that there is a strong relationship between sales and brand value
and the equation could reasonably be used to obtain predictions for sales in other
brands given information about brand value. Based on the analysis above, it was
noted that there is significance positive correlation between sales and brand value.
It is recognised that there are four different reasons for the relationship to exist:
sales indeed cause brand value. If sales increase certainly the reason is because
consumers purchase more on the brand which leads to a good brand name and
image. Thus, it increases the brand value.
however, the results might be just a chance as it is based on sampling. If more
observations and sample of the population are correctly and repeatedly done, there is
tendency for the correlation becomes very unlikely (the more the test is conducted,
the less likely that the results occur by chance).

there may be some other factor which was not taken into consideration which
produces the variation between sales and brand value and which might be the real
cause of the correlation.
there might be a causal connection that represents the effect of the correlation but
might have put it in the other way round. It can be concluded from the high
correlation between sales and brand value based on consumer's purchasing power
which causes the increase in sales. However, it might be the case that sales are
caused by something else such as current economic condition and lifestyle.

4.0 Conclusion
Prior to discussing the findings in detail and highlighting its contribution to the
current literature and marketing practices, it is essential to provide an overview of
this report and summing-up the findings. In summary the aim of the report is to test
the relationship between sales and brand value. Based on the analysis conducted
above in section 3.0, it is noted that sales have a positive effect on brand value. There
is a strong relationship between sales and brand value. This is supported from the
finding of Kim, Kim and An (2003) which indicate a positive correlation between
brand value and a firm's performance in terms of profits and long-term cashflows.
Both variables complement each other to ensure the profitability of the company.
Brand has always been an important identification in differentiating its products
with its customers. Indeed brands with high brand value have established its
existence in the market by anchoring a large sum of market share. Moreover,
companies have identified the importance of the brand value and several steps have
been taken up to ensure that the company will continue to perform better in its
financial performance.
Customer's perception on a brand is related to the brand value computation as it
contributes in terms of loyalty. If consumers are happy and satisfied with the
product, eventually it built loyalty by consumer to the product itself. Clear example is
the Coca-Cola brand, which is a global brand that is accepted by most of the
consumers and this has lead to the contribution to the high brand value. It was
reported that the sales of Coca-Cola has increased tremendously as it has manage to
build a good brand image among its target market as well as a good positioning in the
usage in sports and family gathering (www.businessihub.com). This is consistent
with Leiser (2004) and Davis (2002) findings which indicate that 5% increase in
customer loyalty will elevate profits of the company to the extent of 100%.

According to Blackett (1991), there is a relationship between a brand's strength and

its ability to command future income. Based on the analysis conducted, the strong
relationship between sales and brand value indicates the contribution in the aspect of
company's financial performance. Therefore, companies is required to provide a
wealth of information in regards to its brand value which as a result will enhance and
improve both in terms of brand's name and business performance. Based on the
findings, companies should stimulate sales by means of promotion and
advertisement. Current business environment is characterized by stiff competition
and in order to survive a company has to have a well planned strategy to compete in
the market.
However based on the result obtained, it is not sufficient to focus only on these two
variables to determine the company's performance especially when brands are
supposed to last forever (Esch et al., 2006). For the long term prospect of the brand
value, other variables such as brand trust and satisfaction do act as factors driving to
consumer buying behavior. Therefore, continuous analyzing different indicators that
have an impact to the business in some way can assist companies to interpret the
result and make corresponding decision.
Despite the above observation, it is hoped that the findings of the analysis could
create greater interest in the subject and hopefully engender further in dept analysis
which could contribute further understanding to the readers.

5.0 Reflection
The analysis done through correlation and regression is able to assist company to
engage into forecasting. For instance, a company introduces a new brand in the
market and within the next few months its sales has increase tremendously as well as
the income. By undertaking further research on how to sustain its sales, the
correlation and regression analysis will assists in building up a model that can help
the company to forecast its future income. Indeed, correlation is an important tool of
statistics which can be used in the business decision making.
It is vital to gasp the point of the correlation as even though there is strong
correlation, it does not provide an immediate conclusion on the causation as it could
indicate a relationship that is based on cause and effect (Taylor, 2007). For this
particular example, a high correlation was seen between sales and brand value and
some prediction could be made based on the factors such market share but it should
be aware that the correlation itself has no proof of these assertions. As a result,

correlation could not be solely used as a proof of causation. Some other statistical
test should be used to support the result of the correlation. For example, if sales
caused brand value, then it seen that there is correlation between the two variables as
any changes in sales will cause changes in brand value. The reverse, it is not
necessarily true because if sales and brand value is correlated, it could not
automatically assume that sales is the cause of brand value.
Linear regression using one independent variable i.e. brand value might not reflect
the accurate result of the prediction for dependent variable i.e. sales. Therefore,
multiple linear regressions with the use of additional independent variables could
help better in explaining or predicting the dependent variables. In addition to this,
the sample size used in this study only represents part of the entire population that
could lead to bias and generalisbility (Saunders et al., 2007). Therefore the outcome
obtained from the study may not reflect the whole population as whole and further
analysis of the general population would be of value. Analysis of the population of
other brands from different industry can be done to confirm, compare and expand on
the results obtained earlier.