Brand Equity Measurement of

Airtel

A report

Submitted to

Prof. S. Govindrajan

In partial fulfilment of the requirements of the course

Brand Management

On

27.08.08

By

Ankita Ghosh (b07006)

Pratik Gupta (b07027)

Raj Kumar Pari (b07030)

Yatharth Bhuwalka (b07050)1 | P a g e

CONTENT

Executive Summary

Brand Equity

Methods of valuing Brand Equity

o Share Tier Model

o Net-Promoter Model

Analysis

Emotional Connect

Recommendations

Conclusion

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EXECUTIVE SUMMARY

Brand Equity refers to the marketing effects or outcomes that accrue to a

product with its brand name compared with those that would accrue if the same

product did not have the brand name and, at the root of these marketing effects

is consumers' knowledge. It is the premium that can be charged from the

consumers when a brand name is added on to a product

There are many ways to measure a brand. Some measurements approaches are

at the firm level, some at the product level and others are at the consumer level.

The group is trying to measure Brand Equity of Airtel at the product level.

The group has selected two models to measure brand equity by using two

models.

1. Share Tier Model

2. Net Promoter Model

Share Tier Model:

This model takes into account two parameters: Price and Quality. It tests the

belief and checks whether the beliefs are getting translated into Behaviour, i.e.

actual purchase. It also helps to find out the price level of price sensitivity that a

particular brand has.

This model was selected since it measures the beliefs of the consumers and their

conversion into actual purchase, i.e. Behaviour. This model also helps in gauging

the resilience and leveragability of the brand. This is on the basis of the loyalty

that a brand enjoys. Resilience is the ability of the brand to protect itself and

generate volume and revenue year after year and leveragability will be the

ability of the brand to get into other need and want satisfiers which may be

related or unrelated to the brands current products or services.The findings of

the research conducted showed that in the Belief Grid, Airtel has the highest

presence in the category where Quality is Good and Price is a Minor Barrier. The

purchase pattern for the brand is diversified. People who perceive the brand to

be superior as well as price is not a barrier have 100% purchase behaviour. It

also has a high presence in the category where Quality is good and Price is a

Minor Barrier. The same was conducted for the other competitors also i.e.

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Vodafone, BSNL, Reliance. It became very clear from the grid analysis that Airtel

is the leader and right now the strongest among the rest.

The main aim of finding the brand equity of a brand is to find the marketing ROI.

Airtel enjoys high brand loyalty and has a high score could be that most users

identify with Airtel. However Vodafone is very close to Airtel in almost all the

aspects.

Net Promoter Model – This model tests the brand loyalty factor on the basis of

whether or not present users recommend the brand to prospective users. It is a

tool that measures the level of customer satisfaction and in turn customer

loyalty. This model has two basic elements i.e. Promoters and Detractors.

Promoters are loyal enthusiastic customers, who are very satisfied with the

brand and recommend it to prospective users, and Detractors are customers who

feel so badly treated that they cut back on purchases, switch to the competition,

and warn others to stay away from the company.

On a user base of 30 (30 out of 50 respondents were Airtel Users), Airtel has

86.66% users who were satisfied with the brand and would recommend it to new

users (Promoters). It has 13.33% users who were not satisfied with the brand and

hence would not recommend it to other users (Detractors). Hence the Net

Promoter Score for Airtel was 73.33% Questions were asked to respondents to

check the level of their emotional connect to the brand, Airtel. This helped the

group to dig deep into the reasons of the high loyalty score and the high Net

Promoter Score that Airtel has. The group found that Airtel in most cases is the

brand which has the highest emotional connect to its users as well as non users.

On the basis of the findings of the above used models, Airtel is clearly the brand

with the highest loyalty. The group recommends Airtel to build on the perceived

differentiation that Airtel enjoys in the minds of the consumers. Vodafone is close

on Airtel’s heels on most of the parameters. Also, the market is increasing and

newer players are entering regularly. Hence, there is no room for complacence

for Airtel .This is an industry where competitors can easily copy what a particular

player does. Thus, there is very little scope of developing a unique core

competence in this industry. Hence, most of the differentiation is perceived in

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the minds of the consumers. Airtel scores high in this respect. Thus, Airtel should

keep building on the perceived differentiation that it enjoys, to stay ahead in this

very competitive industry.

.

Brand Equity

Brand equity is a set of perceptions, knowledge and behaviors on the part of

customers that creates demand and/or a price premium for a branded product—

in other words, what the brand is worth to a customer. Brand equity may also be

defined as a set of elements such as brand associations, market fundamentals

and marketing assets that help distinguish one brand from another. While

measuring brand value has its usefulness, the act of measurement by itself will

not make a brand more valuable or less risky. Quantifying and managing brand

equity, however, using a customized measurement model, is critical to

transferring value to the corporation’s shareholders.

It refers to the marketing effects or outcomes that accrue to a product with its

brand name compared with those that would accrue if the same product did not

have the brand name and, at the root of these marketing effects is consumers'

knowledge. In other words, consumers' knowledge about a brand makes

consumers respond differently to the marketing of the brand. The study of brand

equity is increasingly popular as some marketing researchers have concluded

that brands are one of the most valuable assets that a company has.

There are many ways to measure a brand. Some measurements approaches are

at the firm level, some at the product level and still others are at the consumer

level.

Firm Level: Firm level approaches measure the brand as a financial asset. In

short, a calculation is made regarding how much the brand is worth as an

intangible asset. For example, if you were to take the value of the firm, as

derived by its market capitalization - and then subtract tangible assets and

"measurable" intangible assets- the residual would be the brand equity. One high

profile firm level approach is by the consulting firm Interbrand. To do its

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calculation, Interbrand estimates brand value on the basis of projected profits

discounted to a present value. The discount rate is a subjective rate determined

by Interbrand and Wall Street equity specialists and reflects the risk profile,

market leadership, stability and global reach of the brand.

Product Level: The classic product level brand measurement example is to

compare the price of a no-name or private label product to an "equivalent"

branded product. The difference in price, assuming all things equal, is due to the

brand. More recently a revenue premium approach has been advocated.

Consumer Level: This approach seeks to map the mind of the consumer to find

out what associations with the brand that the consumer has. This approach

seeks to measure the awareness (recall and recognition) and brand image (the

overall associations that the brand has). Free association tests and projective

techniques are commonly used to uncover the tangible and intangible attributes,

attitudes, and intentions about a brand. Brands with high levels of awareness

and strong, favorable and unique associations are high equity brands.

Any of these calculations are at best approximations. A more complete

understanding of the brand can occur if multiple measures are used.

Relevance of Brand Equity

Brand equity consists of elements such as the brand associations, market

fundamentals and marketing assets that distinguish one brand from another and

that influence a customer’s perceptions of or knowledge about a brand. When

brand elements are favourable in a customer’s mind, brand equity is considered

to be positive. When they are not favourable, the brand equity is negative.

Positive associations of a brand in a customer’s mind are generally stronger and

more sustainable than those of a product, assuming that sufficient investments

are being made in appropriate brand management. Brands with positive equity

will consistently generate, maximize and grow cash flows. They achieve this by

commanding a price premium, allowing for brand extensions and licensing,

creating barriers of entry, attracting and retaining more valuable customers, and

reducing the costs of customer acquisition.

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Positive brand equity drives customer value, which in turn drives shareholder

value. To leverage positive brand equity, marketers must take a measured

approach to identifying, developing and managing brand elements relevant to

the corporation and its products.

Thus, measuring brand equity becomes so important for the organization.

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The Share Tier Method

Brand Equity

We are going to judge the brand equity of Airtel, by the Share Tier Method. Brand

equity has become very important of late as it is a measure by which the ROI of

marketing spend can be valued which helps marketers as well as the finance

division.

Rationale

Brand equity can be divided in resilience as well as leveragability. Resilience is

the ability of the brand to protect itself and generate volume and revenue year

after year. Whereas leveragability will be the ability of the brand to get into other

need and want satisfiers which may be related or unrelated to the brands current

products or services. The share tier method helps us to find these attributes of

the brand.

To find the equity for Airtel we have taken a comparison of three other mobile

service provider brands for the analysis. The brands are follows.

Airtel

BSNL

Reliance

Vodafone

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We have taken price and quality to be the two parameters on the share tier grid.

The rationale behind taking price as one of the parameters is to find what the

respondent perceives about the price of the brand. He has a perception of price

and we try to find out if price is a barrier or not a barrier for the respondent to

buy the brand. The following are choice for the price part of the grid.

Price is not a barrier

Price is a minor barrier

Price is a major barrier

Price is an absolute barrier

The second parameter is quality; we have taken this parameter to find out what

the respondent perceives about the quality of the brand. We find out the

positioning of the brand in form of quality. The respondent was given four

choices for quality. The following are the choice for the quality part of the grid.

Superior quality

Good quality

Acceptable quality

Poor quality

Sample & Questions

Our sample size of respondents is 30. We have asked respondents to match the

price perception with quality perception for each brand. This is their belief grid

where they perceive a brand to for example have superior quality and for the

respondent price is not a barrier for purchase.

Then we have asked respondent to pick a brand which they would like to

purchase. This states their behaviour grid. There are times when a respondent

perceives to brand to be of superior quality and has no price barrier but still does

not buy the brand.

After this we have asked the respondent to state the amount he or she will spend

on an average on the brand per month i.e. the spending on mobile per month.

From this we have derived the market share for the brands and we can take step

forward and develop the equity share of the brand.

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The respondents might purchase the brand because of various reasons, but may

not stick with the brand. To find the brand loyalty we have asked respondents if

they will continue with the brand. From this we have found the brand loyalty of a

customer towards a particular brand.

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Findings:

Airtel

Belief

Grid

Quality

Price1 2 3

4

1 3 3 2 0

2 7 12 0 0

3 1 1 1 0

4 0 0 0 0

Belief

Grid% out of 30

Quality

Price1 2 3 4

1 10% 10% 7% 0%

2 23% 40% 0% 0%

3 3% 3% 3% 0%

4 0% 0% 0% 0%

Belief Grid

% of purchaser

QualityPrice

1 2 3 4

1 100% 67% 0% 0%2 86% 58% 0% 0%3 100% 100% 100% 0%4 0% 0% 0% 0%

9175QualityPrice

1 2 3 4

1 2150 1075 0 02 2800 2700 0 03 200 250 0 0

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Behaviour Grid

Quality

Price1 2 3 4

1 3 2 0 0

2 6 7 0 0

3 1 1 1 0

4 0 0 0 0

Brand Airtel has the highest presence in the category where the brand is perceived as of good quality and price is not a barrier of 12 respondents out of 30.

In the behaviour grid we find that 20 out the 30 respondents chose to purchase brand Airtel which is 67% of respondents. We see that the purchase pattern is diversified.

The people who perceive the brand to be superior as well as price is not a barrier have 100% purchase behaviour. The brand looses out in the good quality and price not a barrier where only 58% purchase.

Moving forward we have found the average monthly spend of each of the 20 respondents who have decided to purchase Airtel. The total of the monthly average spend is Rs9175.

After this we find the people who will continue to stick with Airtel. We find that 14 out of 20 people who would buy will stick around with Airtel giving it a brand loyalty. of 70%.

4 0 0 0 0

Purchaser who will continue  QualityPrice

1 2 3 4

1 3 2 0 02 5 4 0 03 0 0 0 04 0 0 0 0

BSNL

Belief Grid

Quality

Price1 2 3 4

1 1 0 0 0

2 0 7 8 3

3 1 4 3 1

4 0 0 0 0

Belief Grid% out

of 30

Quality

Price1 2 3 4

1 3% 0% 0% 0%

2 0% 23% 27% 10%

3 3% 13% 10% 3%

4 0% 0% 0% 0%

Behaviour Grid

Quality

Price1 2 3 4

1 1 0 0 0

2 0 0 0 0

3 0 0 0 0

4 0 0 0 0

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Brand BSNL has the highest presence of 27% in the category of Acceptable Quality and Price a Minor Barrier. It is followed by a presence of 23% in the category of Good Quality and Price a Minor Barrier.

In the behaviour grid, however, we find that none of the respondents who perceived BSNL to be of Good Quality and Price not a Barrier chose to purchase brand BSNL. Also the respondents, who perceived Airtel to be of Acceptable Quality and Price a Minor Barrier, did not purchase BSNL. Only 3% (1 out of 3 respondents) who perceived BSNL to be of Superior Quality and Price not a Barrier actually purchased it. This shows that although brand BSNL has managed to create a good perception about itself, it has not managed to translate those perceptions into actual purchase.

The people who perceive the brand to be superior as well as price is not a barrier have 100% purchase behaviour. The brand looses out in the good quality and price not a barrier where only 58% purchase.

Avg Monthly spend by purchasers

500

QualityPrice

1 2 3 4

1 500 0 0 02 0 0 0 03 0 0 0 04 0 0 0 0

Purchaser who will continue

500

QualityPrice

1 2 3 4

1 1 0 0 02 0 0 0 03 0 0 0 04 0 0 0 0

Reliance

Belief Grid

Quality

Price1 2 3 4

1 0 2 0 0

2 1 9 8 0

3 1 3 5 0

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Behaviour Grid

% of

purchas

er

Quality

Price1 2 3 4

1 100% 0% 0% 0%

2 0% 0% 0% 0%

3 0% 0% 0% 0%

4 0% 0% 0% 0%

Moving forward we have found the average monthly spend of each of the respondents, who have decided to purchase BSNL. The total of the monthly average spend is Rs 500, which is much less when compared to Airtel.

After this we find the people who will continue to stick with BSNL. We find BSNL enjoys 100% brand loyalty. This is because there is only 1 BSNL user.

4 0 0 1 0

Behaviour Grid

Quality

Price1 2 3

4

1 0 0 0 0

2 0 0 1 0

3 0 0 0 0

4 0 0 0 0

Belief Grid% out of

30

Quality

Price1 2 3 4

1 0% 7% 0% 0%

2 3% 30% 27% 0%

3 3% 10% 17% 0%

4 0% 0% 3% 0%

Belief Grid

% of

purchas

er

Quality

Price1 2 3 4

1 0% 0% 0% 0%

2 0% 0% 13% 0%

3 0% 0% 0% 0%

4 0% 0% 0% 0%

Avg Monthly spend by purchasers600

Quality

Price1 2 3 4

1 0 0 0 0

2 0 0 600 0

3 0 0 0 0

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Brand Reliance has the highest presence of 30% in the category of Good Quality and Price a Minor Barrier. It is followed by a presence of 27% in the category of Acceptable Quality and Price a Minor Barrier.

In the behaviour grid, however, we find that none of the respondents who perceived Reliance to be of Good Quality and Price a minor Barrier chose to purchase brand Reliance. Also the respondents, who perceived Reliance to be of Acceptable Quality and Price a Minor Barrier as well as Good Quality and Price a Major Barrier, did not purchase Reliance. Only 1.25% (1 out of 8 respondents) who perceived Reliance to be of Acceptable Quality and Price a Minor Barrier actually purchased it. This shows that although brand Reliance has managed to create a good perception about itself, it has not managed to translate those perceptions into actual purchase. There is only 1 person who purchased Reliance and that respondent considered Reliance to be of Acceptable Quality with Price

We have found the average monthly spend of each of the respondents, who have decided to purchase Reliance. The total of the monthly average spend is Rs 600, which is much less when compared to Airtel.

After this we find the people who will continue to stick with Reliance. Here, much like BSNL, Reliance enjoys a 100% brand

4 0 0 0 0

Purchaser who will

continue 600

Quality

Price1 2 3 4

1 0 0 0 0

2 0 0 1 0

3 0 0 0 0

4 0 0 0 0

Vodafone

Belief Grid

Quality

Price1 2 3 4

1 0 3 0 0

2 4 17 1 0

3 0 2 3 0

4 0 0 0 0

Behaviour Grid

Quality

Price1 2 3 4

1 0 1 0 0

2 2 3 0 0

3 0 0 2 0

4 0 0 0 0

Belief Grid

% out of 30

QualityPrice

1 2 3 4

1 0% 10% 0% 0%

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Brand Vodafone has the highest presence in the category where the brand is perceived as of Good Quality and Price is not a Barrier of 17 respondents out of 30. Among all the players, Vodafone has the highest presence in this category with a 56% presence.

In the behaviour grid we find that only out the 3 respondents chose to purchase brand Vodafone which is 17.5% of respondents.

The people who perceive the brand to be Superior as well as Price a Minor Barrier have 50% purchase behaviour. The brand loses out on customers who perceive the brand to be of Good Quality and Price a Minor Barrier where it has only a 17.6% conversion.

2 13% 57% 3% 0%3 0% 7% 10% 0%4 0% 0% 0% 0%

Belief Grid

% of purchaser

QualityPrice

1 2 34

1 0% 33% 0% 0%2 50% 18% 0% 0%3 0% 0% 67% 0%4 0% 0% 0% 0%

Avg Monthly spend by purchasers 3300

Quality

Price1 2 3 4

1 0 550 0 0

2 700 1500 0 0

3 0 0 550 0

4 0 0 0 0

Purchaser who will continue 3300

Quality

Price1 2 3 4

1 0 1 0 0

2 1 2 0 0

3 0 0 1 0

4 0 0 0 0

NOTE:

Quality PriceSuperior (1) Price not a barrier (1)Good (2) Price is a minor barrier (2)Acceptable (3)

Price is a major barrier (3)

Poor (4) Price is a absolute barrier (4)

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We have also found out the average monthly spend of the people who have decided to purchase Vodafone. Their average monthly spend is Rs. 3300. This is the next best after Airtel. Also the purchase basket is highest for the grid where the respondents perceived brand Vodafone to be of Good Quality and Price a Minor Barrier.

We also found out the people who would stick to brand Vodafone. This figure comes to 62.5%, which is the closest to Airtel. Airtel has a figure of 70% in this category.

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Analysis

Total Loyalty

Purchasers Purchasers % Continuity Continuity%

Airtel 20 67% 14 70%

Vodafone 8 27% 5 63%

BSNL 1 3% 1 100%

Reliance 1 3% 1 100%

The respondents were asked to choose a brand which they will purchase after

choosing their belief about the price and quality. Out of 30% respondents 20

choose Airtel giving it a 67% purchasing behaviour. 8 respondent chose

Vodafone whereas 1 each for BSNL and Reliance.

Now from these purchasers we have asked them if they will continue with their

preferred brand or not. We find that 14 out 20 respondents will continue with

Airtel giving it a 70% brand loyalty where as BSNL and Reliance have a 100%

brand loyalty as they have only one respondent which chooses to purchase the

brands and continue using it. For Airtel the respondents who perceive Airtel to

have a superior quality and for them price is not a barrier for purchase, have

purchased brand Airtel and also continue using it. This gives Airtel 100% loyalty

in the top box.

Brand loyalty will lead to brand resilience. Brand resilience is a brand’s ability to

protect itself and generate consistent volume and revenue, year after year.

Resiliency also describes a brand’s ability to gain more than its fair share of

category revenue and profits in the face of inadequate marketing or competitive

attack. We find that Airtel has a brand loyalty of 70% amongst the respondents

giving in 70% brand resilience. The brand loyal customers will stick to Airtel if

other brands take out sales promotion and other techniques to win over Airtel’s

customers. These loyal customers will help Airtel to generate cash flows and

volumes over time to giving it continuity.

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Equity Market Share Vs Market Share

Sales Mkt Share % Loyalty Loyalty

Contributio

n

Equity

share

Airtel 9175 68% 70% 6422.5 67%

Vodafon

e

3300 24% 63% 2062.5 22%

BSNL 500 4% 100% 500 5%

Reliance 600 4% 100% 600 6%

Total 1357

5

100%   9585 100%

At the time of the interview we had asked respondents for their monthly average

spend on the brands they will purchase. From this we find out total sales for each

brand. The brand sales give us an idea of the expenditure of the respondents for

all the brands. After that we can simply find out the market share of each brand,

this can be done by finding the sales contribution of each brand to the total sales

of the entire brands. We see that Airtel has the highest market share compared

to all the brands for the respondents.

We have already found the loyalty of the respondents, therefore we find out the

sales generated by the loyal customers. Airtel again has the maximum sales

generated by the by the loyal customers. From this we can find the equity index

of each brand. The total of the loyalty sales for each brand divided by the total

loyalty sales for all the brands, gives us the equity share for each brand. We find

the equity share is high compared to other brands; the share is 68% the other

brand Vodafone has 22%. Whereas BSNL and Reliance who had a brand loyalty

of 100% each can only convert an equity share of 5% and 6% respectively as the

respondent who will stick with these brands generate a small sum of revenue for

the respective brands. Equity share metric reflects the relative percentage that a

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brand owns of the sales attributable to all loyal customers in the category. It

represents the brand’s share of the category’s most desirable, and profitable,

customers. It can be translated into both sales and profit figures but is specific to

brand performance and has no category equivalent. In our example below, Brand

A has “equity share” that is disproportionate to its market share.

Leveragability

Sales Loyalt

y

Loyalty

sales

Sale

s

Loyalt

y

Loyalty sales

Q1P2 Q1P2 Q1P2 Q2P

1

Q2P1 Q2P1 Leveragabilit

y

Airtel 2800 83% 2333 1075 100% 1075 68%

Vodafon

e

700 50% 350 550 100% 550 39%

BSNL 0 0 0 0 0 0 0%

Reliance 0 0 0 0 0 0 0%

Brand leveragability attempts to measure the relative importance of product

quality with respect to price, suggesting that if the degree of quality perception

is much stronger than price, there is a potential to leverage that perception into

other areas beyond the immediate market. To find the brand leveragability we

have found out the leveragability index which will help us to quantify the

leveragability of the brand.

To find this index we have taken the second best grids after superior quality and

price not a barrier as the customers are in this grid. The grids taken are superior

quality and price a minor barrier (Q1P2) and good quality and price not a barrier

(Q2P1). For these grids we find the total sales as well as the loyalty amongst

customers. From this we get the loyalty sales for each of the grid. The

leveragability index can be found out by the formula Q1P2 loyalty sales/ (Q2P1

loyalty sales Q1P2 loyalty sales).

The leveragability index gives us a picture that the highest leveragability is for

Airtel 68% coming second is Vodafone with 39%.

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Weightage

Quality

Price

1 2 3 4

1 5 4 3 2

2 4 3 2 1

3 3 2 1 1

4 2 1 1 1

Quadrants/

Brands

Airtel BSNL Reliance Vodafone

Q1P1 15 5 0 0

Q1P2 20 0 0 4

Q2P1 8 0 0 4

Q2P2 12 0 0 6

Q3Q3 0 0 1 1

Total 55 5 1 15

Brands Market

Share

Brand Equity

Index

Share Quality

Index

Airtel 68% 55 37.17%

BSNL 4% 5 0.20%

Reliance 4% 1 0.04%

Vodafone 24% 15 3.60%

The main aim of finding the brand equity of a brand is to find the marketing ROI.

We can find this with the help of brand equity index. This index gives us the

contribution of loyal customer. From our question to the respondent will they

continue with the brand which they purchase we have found out the loyalty

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contribution and we know on which grid of the quality and price grid are each of

the respondents.

After this exercise we assign weights to the top grid and all the grids Q1P1 has

better weights that Q1P2, these weights are assigned from 5 to 1, 5 being the

highest. Now we know the weights for each grid, we multiply the loyal customers

with these weights. We find out the total of the loyal customers into the weights

for the grids, the total of this gives us the brand equity index for each brand.

From the BEI share we can find the share quality index which is the true value or

equity of the brand in the marketplace. Share quality index can be found by

multiplying the brand equity index into the market share. We find that Airtel has

a share quality index of 37.17%.

Market

Share

Equit

y

Share

Loyalty

Contributi

on

Leveragabili

ty Index

Brand

Equity

Index

Share

Quality

Index

Airtel 68% 67% 70% 68% 55 37.17%

BSNL 24% 22% 63% 39% 5 0.20%

Reliance 4% 5% 100% 0% 1 0.04%

Vodafon

e

4% 6% 100% 0% 15 3.60%

From our findings and analysis we can conclude that Airtel has high brand equity

and is the leader in all the attributes of brand.

The Emotional Connect:

We conducted a survey among 30 respondents to find out the level of emotional

connect that each respondent has with different brands. They were asked to

identify a brand with different brands. This is because the more a consumer

identifies with and connects with a brand, the more he/she will purchase it. Also

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it can result in better brand loyalty leading to better brand resilience and higher

brand leveragability.

The findings were almost completely in favour of Airtel. Most number of

respondents connected emotionally. The different words that were used were

Leader, Respectable, Successful, Humble, Approachable, Honest, Powerful,

Sincere, Creative, and Reliable. One of the reasons why Airtel enjoys high brand

loyalty and has a high NPS score could be that most users identify with Airtel.

Airtel has a good brand personality to its users. However Vodafone is very close

to Airtel in almost all the aspects. Airtel should emphasise on building on this

strong emotional connect that it has got it has with its users.

The findings are shown below graphically:

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The Net Promoter Model

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Net promoter Model:

The Net Promoter Model is developed by Fred Reichheld. It tests the brand

loyalty factor on the basis of whether or not present users recommend the brand

to prospective users. It is a tool that measures the level of customer satisfaction

and in turn customer loyalty. The real challenge for organizations is to make

employees just as accountable for providing a superior customer experience as

they now feel for delivering superior profits. Traditional satisfaction surveys

simply don't work; they don't measure what companies really need to know. The

Net Promoter is a unique model that can focus an entire organization on

improving every customer's experience. The process is both simple and radical.

Companies need to ask this all-important question in a regular, systematic, and

timely fashion. They need to track and publicize the answers, and they need to

put the information to work immediately. Companies that actively use this

process can manage customer loyalty and the growth it produces just as

rigorously as they can manage for profits.

To do this companies have to identify customers as Promoters and Detractors.

Promoters are loyal enthusiasts - people who will talk up a company to their

friends and family, while detractors are unsatisfied customers who will spread ill-

will. Once a company determines the percentage of each, it can compute its

NPS. The higher the NPS, the more promoters a company has. Obviously a

company must strive towards having a high percentage of promoters. With a

simple click of a button via the Internet, detractors can share their dissatisfaction

with thousands of potential customers, thereby strangling a company's growth.

One of the temptations that a company must fight against is the lure of bad

profits - profits that come at the customer's expense, such as charging a high fee

to change a plane ticket, charging higher renewal fees to current subscribers

than to new ones, and not giving credit for unused gas when a rental car is

returned, for example. Research shows that the most common reason a

company fails to achieve growth and gain loyal promoters lies in these kinds of

bad profits, and many companies are hooked on them without even realizing it.

Bad profits, he shows, cut off a company's best opportunity for true growth.

Elements of The Net Promoter Model:

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The Net Promoter Model has two basic elements i.e. Promoters and

Detractors. Promoters and detractors exhibit dramatically different behaviours

and produce dramatically different economic results. The value of a promoter or

a detractor can be quantified. Given the vital role of word-of-mouth, indeed, it

must be quantified. Several factors distinguish detractors and promoters - and

why companies need to increase the number of promoters and decrease the

number of detractors. We shall look at each of the elements separately:

Promoters:

Promoters are customers who are so enthusiastic about a firm or brand that they

not only increase their own purchases, but also refer their colleagues or friends.

They are satisfied with the brand of the products that they are using and this

result in positive word of mouth publicity. They buy more of the brand and also

bring in new users. These customers are the ones that provide the company

insulation from price wars, and short term fads. It also provides the company

some amount of surety of purchase thereby resulting in maintaining market

share. The company needs to treat these customers with great care as these are

the customers who bring repeat business at much lower costs.

Detractors:

Detractors are customers who feel so badly treated that they cut back on

purchases, switch to the competition, and warn others to stay away from the

company. These are the customers that are not satisfied with the brand. This

results in negative word of mouth publicity. They detract from the brand and also

take away prospective users. These customers are price sensitive and move

away towards lower prices and sales promotional gimmicks by the competitors.

Companies sometimes earn profits at the expense of the customers by providing

dubious goods and services. These earnings turn customers into detractors and

are called BAD PROFITS. The company needs to be wary of these customers as

they can take way a majority of the prospective customers by negative word of

mouth publicity.

A comparison of Promoters and Detractors on various attribute is shown below:

Parameters Promoters Detractors

Retention High Retention Rates as Low retention rate as

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Rate satisfaction is high satisfaction is low

Price

Sensitivity

Low sensitivity to price

fluctuations

High sensitivity to price

fluctuations

Annual

Spend

Higher annual spend Lower Annual Spend

Word Of

Mouth

Positive Negative

Good Profits:

Good profits are earnings from creating customer value, which in turn, creates

customers who are promoters. Satisfied customers become, in effect, part of the

company's marketing department, not only increasing their own purchases but

also providing enthusiastic referrals. They become promoters. The right goal for

a company that wants to break the addiction to bad profits is to build

relationships of such high quality that those relationships create promoters,

which generate good profits, and fuel true growth. Also these profits come at

relatively lower costs as the publicity is mostly word of mouth and the market

spend need not be high. Some examples of good profit earned by companies

are:

Amazon: Amazon.com could easily afford to advertise more than it does; instead

it channels its investments into free shipping, lower prices, and service

enhancements. Founder and CEO Jeff Bezos have said, "If you do build a great

experience, customers tell each other about that."

Southwest Airlines: Southwest Airlines doesn't charge for flight changes, instead

offering passengers a credit that can be used anytime over the next twelve

months. The carrier has also replaced the industry's elaborate segmented pricing

structure with a transparent two-tier pricing policy. Southwest now flies more

domestic passengers than any other U.S. airline and boasts a market

capitalization greater than the rest of the industry combined.

These examples show that these companies focussed on maintaining good

customer relationships than earning a few big bucks in the short term. This

resulted in positive referrals for the companies. This lead to lower customer

acquisition costs.

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Bad Profits:

Bad profits are profits earned at the customer's expense; in other words, profits

earned from customers, which then become detractors. Most companies can

boost short-term profits by exploiting customer relationships by raising prices

whenever they get away with it. Or they can cut back on services or product

quality to save costs and boost margins. Instead of focusing on innovations to

improve value for customers, companies can boost bad profits by channelling

their creativity into finding new ways of extracting value from customers. But no

company can do that and achieve sustained growth, because their customers

will be converted into detractors. Although the company may earn profits in the

short run, in the long run it loses present as well as prospective clients. Some

examples of bad profit earning by various companies are;

Financial Services: Mutual funds bury often-exorbitant administrative fees in the

fine print, so that customers won't know what they're paying. Brokerage firms

slant their research to support investment-banking clients, thus bilking their

stock-buying clients. Retail banks charge astonishing fees for late payments or

bounced checks. Banks also develop algorithms that process the largest checks

first each day, so that depositors will be hit with more insufficient-funds

penalties.

Healthcare: Hospitals, Pharmaceutical Companies, : Many hospitals won't reveal

the deals they have cut with insurance companies. Many insurers do their best to

exclude people who might actually need the coverage - and if you do have

coverage, they drown you and your doctor in complicated paperwork. Many

pharmaceutical companies pay doctors to push their drugs, while quashing

studies suggesting that a potentially lucrative new drug may be ineffective or

dangerous. Many HMOs promise to provide cradle-to-grave coverage, yet balk at

paying for many procedures their physicians recommend.

Mobile Phone Operators: Most mobile-phone operators have created pricing

plans that cleverly trap customers into wasting prepaid minutes or incurring

outrageous overages. One mobile-phone operator calculates that proactively

putting customers in the plan that was best for them would cut profits by 40%.

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Providers also lobbied to restrict the portability of phone numbers. In their efforts

to trap customers, they ensured that customer loyalty would decline and that

they would lose the potential to expand their tarnished brands into related

markets.

Rationale behind using this model:

The group has chosen a brand, i.e., Airtel in the telecom sector. This sector is

one which is very highly competitive. There is tremendous competition among

the existing players. Also newer players are entering the market which will

intensify the competition. The mobile penetration rate in India is on a high and

the competition is only going to intensify in the coming future.

Moreover mobile operators create short term tariff plans that lure customers into

using them. These plans keep changing frequently. Also, in India number

portability is not yet allowed. This implies that the customers get ‘stuck’ with a

number. Hence testing the brand loyalty becomes difficult. This is because

subscribers stay on with a brand of service providers as the exit costs are high.

Also, the category on a whole is relatively sensitive to price. The Net Promoter

model will help the group identify the brand loyalty enjoyed by a particular

brand. The group asked the respondents whether they would recommend their

brand to new users. This helped the group ascertain the level of user satisfaction

that a brand enjoys.

Research Methodology:

The group prepared a questionnaire for this model. The questionnaire was

administered to 50 respondents. The respondents were students of Praxis

Business School. The sample was representative of Airtel Users and Non Users.

The questionnaire had three questions.

Method of Survey: Questionnaire

Sample Size: 50.

A graphical representation is shown below:

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Questions

Q1) Are you an Airtel user?

Rationale: This will help the group know how many users of Airtel are there in the

sample. Also it will help in identifying what percentage of Airtel users/non users

recommend Airtel.

Q2) Would you recommend Airtel?

Rationale: This will help the group test the brand loyalty that Airtel enjoys. If a

user is loyal to a brand, he/she will recommend it to prospective users. This will

also help the group identify the promoters and detractors of brand Airtel.

Q3) If other players were to reduce their prices would you still use Airtel?

Rationale: Brand loyalty is characterised by price insensitivity. This question will

help the group ascertain the price insensitivity that Airtel enjoys. The more the

number of price insensitive users, the more is the brand loyalty that Airtel

enjoys, and hence higher the brand equity that Airtel has.

Findings:

There were 30 Airtel Users and 20 Non Airtel Users in the sample of 50 that we

chose. Out of the 30 Airtel users, 26 users said that they would recommend

Airtel. This comes to a healthy 86.66%. This means that they are satisfied with

the product offerings of Airtel. Also among the 30 Airtel users 22 said that they

would stick to Airtel even if the competitors were to increase their prices. This

means that 73.33% of the Airtel are brand loyal as they are not price sensitive.

This is a pretty high figure. Also of the 20 Non Airtel Users, 20% said that they

would recommend Airtel. This means that Airtel has certain degree of respect

and loyalty even among non users.

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From the above analysis we can also comment on the brand resilience of Airtel.

Brand Resilience means the capacity of a brand to withstand trends. This

insulation is provided by brand loyal customers. A figure of 86.6% is proof of

Airtel’s resilience. In the telecom sector tariff rates change very frequently. On

being asked whether the users would stick to Airtel even in the face of

competitors cutting prices a high percentage (73.33%). This provides Airtel the

insulation against fluctuating market trends.

Net Promoter Scores:

The Net Promoter Score is arrived at by deducting the percentage of detractors

from the percentage of promoters.

Promoters are the users who would recommend the brand to others. They are

the satisfied customers who spread positive word of mouth for the brand and

also bring new customers.

Detractors are the users who would not recommend the brand to others. These

are the unsatisfied/dissatisfied customers. These customers spread negative

word of mouth publicity and take away prospective consumers from the brand.

Also these customers are price sensitive and change brands as the prices

fluctuate. Also these customers can be easily lured away by the competitors

through sales promotion techniques.

Therefore:

The NPS provides the means for gauging performance, establishing

accountability, and prioritizing investments because it connects to growth. If a

company's "growth engine" were running at perfect efficiency, it would convert

100% of its customers into promoters. The worst possible engine would convert

100% of its customers into detractors. The best way to gauge the efficiency of

the growth engine is to calculate a company's NPS.

The Net Promoter Score for Airtel is given below:

% of Promoters of Airtel: 86.66% (26 out of 3o Airtel users said they would

recommend Airtel)

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NPS=% of Promoters- % of Detractors

% of Detractors of Airtel: 13.33% (4 out of 30 Airtel Users said they would not

recommend Airtel)

How the Net Promoter Score correlates to Corporate Growth:

Individual customers can't have a Net Promoter Score (NPS); they can only be

promoters, passives, or detractors. But companies can calculate their NPS for

particular segments of customers, for divisions or geographic regions, and for

individual branches or stores. NPS is to customer relationships what a company's

net profit is to financial performance. It's the one number that really matters.

Companies that maintain higher % NPS's also demonstrate higher growth rates;

whereas companies that maintain lower % NPS's also demonstrate lower growth

rates. This implies that Airtel has a fairly high score of net promoters. This means

that 73.33% of its users are satisfied with Airtel’s offerings and would

recommend it to other users. . Also, Airtel has a figure of 73.33% of its users who

will stick to Airtel even if competitors reduce their prices. This means Airtel is

fairly insulated against price wars and enjoys a high degree of brand loyalty.

Recommendations:

Airtel has a Net Promoter Score of 73.33%. This means that 73% of Airtel’s

customers are its Promoters (as defined). This score is quite high. However there

is still scope for improvement for Airtel. A high NPS score implies that its

customers are not only loyal but also bring in new customers at a much lower

cost.

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NPS =86.66%-13.33% = 73.33%

However, Airtel should keep working on this aspect. Bad profits earned at the

cost of Promoters can turn them into Detractors. Airtel has to keep differentiating

itself in this tremendously competitive industry to maintain having an edge.

This industry is not a very highly differentiated one. Product offerings can be

very easily copied by the competitors. It is mostly perceived differentiation by

the consumers. This is where Airtel scores high. The recommendation for Airtel

on the basis of its NPS would be to keep building on the perceived differentiation

which it enjoys among its users.

Airtel has a high loyalty contribution percentage of 70%. This loyalty factor

provides Airtel insulation against short term fads and sales promotional activities

by competitors. Also Airtel has the highest Brand Equity Index. Airtel is clearly

the leader with the highest brand equity among all the major mobile service

providers. Airtel can leverage this fact to move into different but related product

categories like content development for mobiles etc. Also with the launch of

Apple’s iPhone, and Vodafone also providing this service, Airtel’s brand

leveragability will be tested again.

The key recommendation, for Airtel, Airtel will however be to keep differentiating

itself from competition. This differentiation is mostly perceived as competitors

can easily copy leading to an absence of absolute core competence. This

perception is something which will give Airtel more number of Promoters and will

help it to grow.

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