IN TERNATIONAL CONFERENCE ON - CIFBA 2020 EFFECT OF BRAND EQUITY ON BANK FINANCIAL PERFORMANCE IN HO CHI MINH CITY Ha Van Dung Banking University Hochiminh City ABSTRACT The study tests the effects of brand equity on financial performance of commercial banks in Hochiminh City, Vietnam Detailed components of brand equity will be examined Based on a survey of 321 customers, the paper employs methods of testing Cronbach's Alpha, Exploratory Factor Analysis (EFA), and multiple regressions for analysis The results show that most important brand determinant of bank financial performance is brand associations Other brand determinants can be named as perceived quality, brand relevance, brand loyalty and brand awareness Since then, the paper proposes some policy implications for commercial banks to improve their performance Keywords: Brand Equity; Financial Performance; Bank INTRODUCTION Brand equity is considered one of the important tools in attracting and creating focal points for customers in all fields and industries Financial performance shows that profit levels and risks can minimize to maximize profits (Narteh, 2018) And researchers point out that brand equity also has a relationship with financial performance In the banking sector, brand equity has a positive effect on financial performance (Narteh, 2018) The relationship between brand equity and financial performance is a concern of researchers for many years Some previous studies investigating the impact of brand equity on firm financial performance were conducted by Aaker (1991), Keller (2003), Capon (2013), Felício et al (2014), Wang and Sengupta (2016), Sharma et al (2016) They have found that brand equity has a positive impact on financial performance Corresponding author Email address: dunghv@buh.edu.vn 496 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS However, there has been no research on evaluating the financial performance of commercial banks in Ho Chi Minh City from the perspective of brand equity Therefore, this research is conducted to find the impacts of brand equity on bank performance in Ho Chi Minh City and thereby to propose some policy implications for commercial banks Specifically, the paper aims at the following objectives - Identify brand equity factors affecting the financial performance of commercial banks in Ho Chi Minh City - Measure brand equity factors affecting the financial performance of commercial banks in Ho Chi Minh City - Propose policies to improve the financial performance for commercial banks in Ho Chi Minh City Based on this, the study should answer the following questions - Do the factors of brand assets affect the financial performance of commercial banks in Ho Chi Minh City? - How is the influence of factors of brand assets on the financial performance of commercial banks in Ho Chi Minh City? - What are the necessary policy implications to improve the financial performance of commercial banks in Ho Chi Minh City? THEORETICAL BASIS AND RESEARCH METHODS 2.1 Theoretical basis Brand has a great significance in many organizations around the world (Chen & Green, 2009) Brand is essential for all types of organizations due to its benefits such as differences, customer loyalty and competitive advantage (Keller, 2013; Zachary et al., 2011; Roll, 2009) One of the most prominent brand results in literature is brand equity Brand equity has been studied by many researchers like Wang and Sengupta (2016), Felício et al (2014) Keller (2003) defined that brand equity is the distinct effect of brand knowledge on consumer/customer response to brand marketing Capon (2013) defined that brand equity is the consumer/customer response to the brand for the organization's competitive marketing activities Therefore, brand equity is largely considered a strategic result of branding including strategic advantages over competitors (Wang & Sengupta, 2016) Aaker (1991) measured brand equity based on five aspects: brand awareness, brand association, perceived quality, brand relevance and brand loyalty Keller (1993) used two direct and indirect approaches to measure brand equity based on customer consciousness Felício et al (2014) determined that the financial performance is profits, reduction of investment risks and superiority to competitors Financial performance is the key for all firms Organizations will maximize the value of brands they manage to ensure long-term sustainability and market dominance Ogbonna and Harris (2000) showed 497 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 that the link between brand equity and financial performance is a multi-dimensional and complex phenomenon The relation between brand equity and performance requires specific measures to follow Other scholars such as Aaker and Jacobson (2001) argued that financial performance can be measured in terms of profit and returns on investment In Vietnam, Nguyen et al (2019) have shown that brand equity includes factors such as: brand awareness, brand association, quality received, brand relationship and brand loyalty Along with that, Hoang et al (2015) have demonstrated that brand awareness is one of the components of brand assets, and it has a positive impact on the financial structure of organizations Based on that, the author proposes the following hypotheses: - Hypothesis H1: Brand awareness positively affects (+) bank financial performance - Hypothesis H2: Brand associations positively affect (+) bank financial performance - Hypothesis H3: Perceived quality positively affects (+) bank financial performance - Hypothesis H4: Brand relevance positively affects (+) bank financial performance - Hypothesis H5: Brand loyalty positively affects (+) bank financial performance 2.2 Research methods During the project implementation, the author has applied mixed research methods as follows: - Qualitative method: Direct exchange of expert opinions The author exchanges and discusses directly with experts to acknowledge and synthesize comments on brand equity factors affecting financial performance - Quantitative method: By collecting the opinions of customers who have transactions with commercial banks in Ho Chi Minh City through surveys from there, conducting methods like: Descriptive statistics methods, empirical analysis (by the method of linear regression model) All variables in the research model according to Likert scale of levels BA (Brand awareness) includes items, BAS (Brand association) includes items, PQ (Quality received) includes items, BR (Brand relationship) includes items, and BL (Brand loyalty) consists of items All scales of these independent factors are inherited from research of Sharma et al (2016), Keller (2008) while FP (Financial Performance) including items is inherited from Felício et al (2014) Within this study, the data is collected via a survey A questionnaire is the results of both literature review and experts’ opinions In total, 10 sales managers of banks are invited for interview Nine of ten experts agree that brand equity should include brand awareness, brand association, perceived quality, brand relevance and brand loyalty The last expert adds one more item: brand complexity However, after reviewing other experts’ opinions, the paper does not take into account this item Total 350 respondents who are supervisors/middle managers and have been working in banking industry are selected for interview The total number of valid forms received was 321 498 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS Describe the research sample Amongs 321 respondents, there are 131 women accounting for 40.81 per cent and 190 men accounting for 59.19 per cent, this result shows that for 321 subjects, the number of men is more than female Higher education or more with an undergraduate and postgraduate rate accounts for 69.89 per cent The age ranges from 25 to 45 years, accounting for 72.31 per cent and the income ranges from to 10 million VND per month, accounting for the highest rate with 65.32 per cent RESULTS AND REVIEWS The results of testing the reliability of the scale of factors show that brand relevance has highest Cronbach's Alpha coefficient of 0.933 The brand association has the lowest Cronbach's Alpha coefficient of 0.739 All Cronbach’s Alpha coefficients of factors are relatively high at 0.7 or higher And all variables included in the Cronbach’s alpha analysis are significant except for BA5 and BA6 variables (Brand Awareness); PQ5 (Perceived Quality); BL5, BL6 (Brand Loyalty) and FP4 and FP5 (Financial Performance) These components have correlation coefficients of less than 0.3 and so they are excluded Therefore, the remaining components (22 components, including 19 components of independent variables and components of dependent variable) are guaranteed in EFA factor analysis Table EFA results of independent variables KMO Bartlett's test of sphericity 0.718 Approx Chi-Square 6.746.530 df 171 Sig 0.000 Source Author calculations With the results of factor analysis, the paper obtained KMO coefficient of 0.718 with Sig of 0.000 This KMO value ensures the appropriateness of the exploratory factor analysis and the significance of the data included in the factor analysis Chi-Square statistic of Bartlett's test is worth of 6,746,530 at Sig's significance level of 0.000 499 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Table Rotated Component Matrix Component BR1 0.972 BR4 0.971 BR3 0.969 BR2 0.713 BL3 0.977 BL2 0.971 BL4 0.940 BL1 0.696 PQ3 0.934 PQ4 0.925 PQ2 0.842 PQ1 0.817 BA3 0.860 BA4 0.817 BA2 0.788 BA1 0.723 BAS1 0.862 BAS2 0.783 BAS3 0.639 Eigenvalue = 1.248 Cumulative per cent 22.895 40.537 57.699 70.460 77.030 Source Author calculations At the same time, the analysis of Total variance explained showed that the average variance extracted reaches the value of 77,030 per cent This indicates that 77,030 per cent of the variation of the data is explained by above factors The scales are drawn and accepted The stop when extracting the factors at the 5th factor with the specific value, eigenvalue = 1,248 is greater than (this confirms that the input variables are arranged into groups of factors) The results of the factor rotation show that the coefficients are significant (the values of load factor are greater than 0.5) All factors are classified into separated groups of brand awareness, brand association, perceived quality, brand relevance and brand loyalty Table EFA results of dependent variables KMO Bartlett's test of sphericity Source: Author calculations 500 0.713 Approx Chi-Square 343.209 df Sig 0.000 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS In addition, the exploratory factor analysis results for the financial performance showed that the KMO value is 0.713 The KMO value ensures the appropriateness of the exploratory factor analysis and the significance of the data included in the factor analysis Chi-Square statistic of Bartlett's test is worth 343.209 at Sig's significance level of 0.000, which is smaller than per cent This result shows that KMO test are completely statistically significant with per cent significance level The analysis of average variance extracted from the dependent variables shows that the average variance extracted reaches 73.650 per cent This implies that 73.650 per cent of the variation of the data is explained by one factor and the scales are drawn and accepted The average variance stops when the first factor is extracted with the eigenvalue value is 2.210 Table Component Matrix Component FP2 0.880 FP1 0.852 FP3 0.843 Eigenvalue 2.210 Cumulaive per cent 73.650 Source Author calculations Loading factors of component variables such as FP1, FP2, and FP3 are 0.852, 0.880, and 0.843, respectively All loading factors are greater than 0.5 This shows that the component variables of the financial performance factor ensure the inclusion in data analysis Based on the results of the correlation analysis of factors (Table 5), it can be drawn that the dependency factor of financial performance has a positive correlation with independent, specific factor The Pearson correlation value of brand awareness, brand association, perceived quality, brand relevance, and brand loyalty with financial performance is 0.147, 0.581, 0.561, 0.273, and 0.178, respectively The significant level of correlations between dependent variable (financial performance) and independent variables (brand awareness, brand association, perceived quality, brand relevance, and brand loyalty) is at per cent, which shows high correlation amongs them Table Correlation Result Brand awareness Financial performance Brand as- Perceived Brand rel- Brand sociations quality evance loyalty Pearson Correlation 0.147** 0.581** 0.561** 0.273** 0.178** Sig (2-tailed) 0.008 0.000 0.000 0.000 0.001 321 321 321 321 321 N Financial performance 321 ** Correlation is significant at the 0.01 level (2-tailed) Source Author calculation 501 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Some post-estimation tests have been done to ensure the reliability of regression Firstly, the results show that variance inflation factors of all independent variables are smaller than In details, the VIFs of brand awareness, brand association, perceived quality, brand relevance and brand loyalty are 1.056; 1.346; 1.281; 1.021; 1.008, respectively These numbers are within the allowable limits (less than 10), so there is no multicollinearity in the model Secondly, the d value (Durbin Watson) equals 1.744, which is within the acceptance zone (almost 2) It means that the model does not have first-order autocorrelation (Trong Hoang and Nguyen Mong Ngoc Chu, 2008) Other tests of normal distribution and heteroskedasticity also pass Table Coefficients Result Model (Constant) Unstandardized Coefficients B Std Error Standardized Coefficients Beta t Sig -2.239 0.026 Collinearity Statistics Tolerance VIF -0.817 0.365 Brand awareness 0.106 0.050 0.106 2.140 0.001 0.947 1.056 Brand association 0.419 0.049 0.389 8.565 0.000 0.743 1.346 Perceived quality 0.331 0.040 0.367 8.279 0.000 0.780 1.281 Brand relevance 0.214 0.042 0.201 5.095 0.000 0.979 1.021 Brand loyalty 0.210 0.045 0.181 4.615 0.000 0.993 1.008 a Dependent Variable: Financial performance Source: Author calculations Thus, the regression equation (according to the non-standardized coefficient) shows the impacts of other variables on bank financial performance: FP = -0,817 + 0,106*BA + 0,419*BAS + 0,331*PQ + 0,214*BR + 0,210*BL + ei The results of the regression analysis showed that R2 is 0.518, this result shows that the suitability of the model is 51.8 per cent, or in other words 51.8 per cent variation of the financial performance is explained by factors: brand awareness, brand association, perceived quality, brand relevance and brand loyalty In ANOVA analysis, F test is 67.669 and is significant at per cent This result shows the combination of independent variables in the model can be used to explain the change of financial performance With the coefficient of brand association equals to 0.419, it implies that when the brand association increases by unit, the bank performance would increase by 0.419 units The other independent variables have same positive effects on bank performance So, all hypotheses are accepted and the results are in accordance to those of Aaker (1991), Felício et al (2014), or Wang and Sengupta (2016) In order to identify the level of impacts, the paper uses standardized coefficients The strongest impact to bank financial performance comes from the brand association factor and this effect is positive The second strongest determinant of bank financial performance is the perceived quality with the standardized coefficient of 0.367 The next determinant of bank performance is brand relevant The last two weakiest determinants are brand loyalty and brand awareness with standardized coefficient of 502 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS 0.181 and 0.106, respectively The level of impacts of independence variables can be summarized as in image Image Results of research model Source Results of the author's analysis, 2019 CONCLUSION The research uses surveyed data to investigate the determinants of bank financial performance in Ho Chi Minh city, Vietnam From 350 answers of supervisors and bank managers, the paper analysis bases on a sample of 321 valid questionnaires Employing both qualitative and quantitative methods, the research find that items of brand equity including brand association, quality received, brand relationship, brand loyalty, and brand awareness In this study, brand association and perceived quality have strongest impacts on bank performance while brand loyalty and brand awareness have the weakiest impacts From the above results, some policy implications could be drawn: Brand association: Build a good bank image in the eyes of customers through improving service quality, serving the good process, being dedicated to customers; actively participate in social activities, voluntary works to create a good impression and attention in the minds of customers Perceived quality: Improve product quality to provide and serve customers in the most diverse way; Update and innovate the most advanced technology system in banking industry; Apply service policies and inform customers via automatic messaging system; Improve the quality of human resources in order to serve customers Brand relevance: Create links with other banks to meet the diversification of customer needs and ensure the schedule, fast and accurate; Update and grasp the situation of other banks' operations so that they can innovate themselves and create a competitive position compared to other banks 503 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Brand loyalty: Enhance customer service in the best way to bring reliability and reputation in the eyes of customers; Perform product/service management; Apply procedures according to ISO quality management standards to bring up efficiency and quality in the management Brand awareness: Do research and apply practical products/services, suitable for customers' needs to diversify the products/services that banks are offering; Diversify forms of advertising and communication; Carry out outdoor advertising programs such as cycling around the area on major roads with the bank's slogan and logo In spite of trying to perfect the study in the best way, however, due to time and knowledge limitations, the study still has some certain limitations such as the sample size is still quite small, the scope of research is at commercial banks in Ho Chi Minh City only Therefore, the subsequent studies can increase the sample size and expand the scope of research across many other organizations, fields and provinces REFERENCES [1] Aaker, D (1991), Managing Brand Equity: Capitalizing on the Value of a Brand Name, Free Press, New York: NY [2] Aaker, D.A and Jacobson, R (2001), The value relevance of brand attitude in hightechnology markets, Journal of marketing research, 38(4), 485-493 [3] Capon, N (2013), Capon’s Marketing Framework, 3rd ed., Wessex Publishing, Bronxville: NY [4] Chen, H.C and Green, R.D (2009), Marketing mix and branding: competitive hypermarket strategies, International Journal of management and marketing research, 2(1), 17-34 [5] Felício, J.A., Duarte, M., Caldeirinha, V and Rodrigues, R (2014), Franchisee-based brand equity and performance, The Service Industries Journal, 34(9-10), 757-771 [6] Keller, K L (2013), Strategic Brand Management: Building, Measuring, and Managing Brand Equity, 4th ed., Pearson: Essex [7] Keller, K.L (2003), Understanding brands, branding and brand equity, Interactive Marketing, 5(1), 7-20 [8] Narteh, B (2018), Brand equity and financial performance: The moderating role of brand likeability, Marketing Intelligence & Planning, https://doi.org/10.1108/MIP-052017-0098 [9] Ogbonna, E and Harris, L.C (2000), Leadership style, organizational culture and performance: empirical evidence from UK companies, International Journal of Human Resource Management, 11(4), 766-788 [10] Roll, M (2009), The Impact of Culture on Branding, Branding Strategy Insider, available at: www.brandingstrategyinsider.com/2009/05/the-impact-of-culture-on-branding html#.WoF-sbPLfIU (accessed 16 August, 2019) [11] Sharma, P., Davcik, N.S and Pillai, K.G (2016), Product innovation as a mediator in the impact of R&D expenditure and brand equity on marketing performance, Journal of Business Research, 69(12), 5662-5669 504 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS [12] Trong Hoang, Nguyen Mong Ngoc Chu (2008), Textbook of Data Analysis with SPSS Episodes & 2, Hong Duc Publishing: TP.HCM [13] Wang, H.M.D and Sengupta, S (2016), Stakeholder relationships, brand equity, firm performance: a resource-based perspective, Journal of Business Research, 69(12), 5561-5568 [14] Zachary, M.A., McKenny, A.F., Short, J.C., Davis, K.M and Wu, D (2011), Franchise branding: an organizational identity perspective, Journal of the Academy of Marketing Science, 39(4), 629-645 505 ... assets on the financial performance of commercial banks in Ho Chi Minh City? - What are the necessary policy implications to improve the financial performance of commercial banks in Ho Chi Minh. .. factors affecting the financial performance of commercial banks in Ho Chi Minh City - Propose policies to improve the financial performance for commercial banks in Ho Chi Minh City Based on this,... study should answer the following questions - Do the factors of brand assets affect the financial performance of commercial banks in Ho Chi Minh City? - How is the influence of factors of brand