What Is Brand Equity and Why Is It Valuable In Business?
“Your brand is what other people say about you when you are not in the room.”
This quote by Jeff Bezos, the founder of Amazon, perfectly sums up the importance of branding.
A brand is no longer what we tell the consumer – it is what consumers tell each other.
As a co-founder of Intuit and a director of eBay and Procter & Gamble, Scott Cook knows exactly what he is talking about, as his companies have built and maintained numerous famous brands.
“Psychologically speaking, branding is an incredibly powerful marketing strategy, and it can make all the difference.”
The term “brand” seems synonymous with quality, meaning consumers are more likely to select branded products believing they will deliver on their promises. Brand equity is one of a company's most valuable assets, and although intangible, it is critical to its financial success.
Many people are confused about the whole concept of branding and even believe that brand identity and logo design are approximately the same. No wonder brand equity, an even more complex and elusive construct, is hard to interpret and comprehend.
Even some marketing experts struggle to define and measure brand equity, so we will discuss this topic and offer some guidelines.
The Importance of Branding
Even marketing professionals sometimes reduce a company to a mere logo or symbol, although it is much more complicated. A brand is an abstract idea that incorporates various aspects of a product, including a logo, font, name, colours, packaging, and a wide array of consumers’ perceptions of it.
The initial idea behind the branding was to help customers distinguish between similar products by different manufacturers, and its primary role was to improve visibility and awareness. However, in time, the concept of branding developed and grew, and now we can talk about brand equity as vital to any entity's value.
Brand equity is how consumers perceive an organisation, equalling the sum of interactions, experiences, and expectations.
Famous brands like Apple, Nike, and Coca-Cola have substantial brand equity, which can translate into their ability to attract and retain customers. In other words, consumers will always pick the brand they are loyal to over unbranded or competitor products. Moreover, brand loyalty means your clients are seven times more likely to forgive you if you make a mistake.
Last but not least, people are willing to pay more for the company they prefer, which means that strong brands have the luxury of commanding higher prices.
When your lips are dry, you try to find your ChapStick; when it is hot, you grab a Popsicle to cool you down. In both examples, you are using brand names as generic terms. That is the power of brand equity.
Xerox, the famous office equipment manufacturer, has been trying for years to prevent people from referring to photocopying as “xeroxing”, but to no avail. Its brand equity is so substantial that “Xerox” is now a verb.
Some brands have become household names to the extent that consumers started associating and using them synonymously with a group of similar products.
This competitive psychological edge allows these favourite brands to command prices and still be preferred despite being more expensive. This goes hand in hand with a common belief that the more expensive a product is, the better its quality is.
So, how does all this relate to brand equity?
All these perceptions about the quality of a particular company and the impact that name has on consumers’ purchasing decisions generate brand equity. However, saying that brand equity is identical to brand value would jump to conclusions.
When discussing brand equity, we can translate it to the number of people willing to pay more than a product is worth to receive its value.
Brand equity can be measured regarding customer loyalty, corporate reputation, or familiarity. In other words, brand equity is an intangible asset, which makes it difficult to pinpoint it in a company’s financial statement.
On the other hand, brand value is the monetary value of a brand. For example, it is almost universal knowledge that Apple is the most valuable global brand, with almost $950 billion. This stat, however, doesn’t make it the most equitable name, as Lego tops that list.
Brand equity can be boiled down to three factors:
- Consumer perception;
- The impact of this perception on a brand;
- The value of this impact.
Types of Brand Equity
It is essential to state that there are two kinds of brand equity – optimistic and damaging.
Naturally, positive brand equity means people trust the company and have a reasonable opinion. This perception profoundly impacts their choices, as they always pick a brand they believe will offer reliable and consistent quality.
Apple is the first thing that comes to mind when looking for a positive brand equity example. We all remember people waiting in long lines for a couple of hours only to be able to lay their hands on the new iPhone.
This seemingly inexplicable sales frenzy testifies that more than quality and fresh marketing campaigns make it desirable. Consumers perceive it as valuable and worth having, precisely the thing that skyrockets its global value. Of course, almost all Apple products have a stellar reputation regarding their performance and lifespan, and that is the starting point.
When discussing customer loyalty and their desire to possess a specific company's products, Apple comes to mind again. However, it does not hold the first spot on the most equitable brand list, as the company’s devoted following religiously waits for the launch of every new iPhone.
On the other hand, a tarnished reputation leads to negative brand equity, and the most recent example can be observed in the car industry. Shares of Volkswagen, the German car giant, plunged ever since the company admitted to falsifying emissions tests.
Chipotle can serve as another example of negative brand equity, as the company nearly destroyed all its carefully built customer loyalty with a single food poisoning incident that took place back in 2015.
Although loyal consumers are seven times more likely to forgive brands, they respect when a mistake happens, and specific errors should not be made.
Positive branding equity is not significant just because people will be ready to buy more expensive products that they perceive as more valuable. It will also affect the company’s stock price.
Developing Brand Equity
The brand equity model consists of several stages, starting with brand awareness. This juncture aims to introduce the brand to its target audience using marketing and advertising.
Social media platforms successfully improve brand visibility and bring brands closer to consumers.
The second stage is recognition, and its purpose is to help consumers get acquainted with the brand and start recognising it. After that, people try the brand and assess its quality, which is a trial stage. That’s where the quality comes in because the first impressions are the most lasting, so if consumers are satisfied, they will probably select the same brand again.
At this stage, clients also start forming brand associations based on their experiences with the brand, employees, customer service, marketing, and many other factors. That’s why brands must plan each interaction with their clients, media, employees, or shareholders to reduce the possibility of any negative associations that could ruin the brand’s image and, subsequently, brand equity.
Preference is the next stage, when people decide that the brand is their preferred choice based on several positive experiences and interactions.
Finally, loyalty results from a series of positive experiences. Not only will loyal customers always opt for a particular brand, but they will also recommend it to their friends and family.
Brand Equity Pyramid
When discussing building a solid brand, mentioning Keller’s Brand Equity Model is inevitable.
This theory advocates that the critical ingredient of brand building is shaping your customer base’s opinions and feelings about your brand name, which has the form of a pyramid.
Brand identity is at the base of this pyramid and is called salience.
The next level is about establishing brand meaning and identity through performance and imagery. This means you should ensure your brand meets your client's needs and help them remember and recognise your brand’s visual identity. Ask yourself how you want your customers to experience and perceive and shape your brand.
The third level is the brand response, consisting of judgments and feelings. It’s crucial to know how to evoke certain emotions in your consumers. Observe your competitors and use comparison methods to achieve this.
When it comes to forming judgments, consistency and credibility are crucial, as your customers will be able to relate to your brand if you never fail to deliver on your promises.
At the top of the pyramid is brand resonance. Consumers will likely engage with your brand even when not making a purchase. They want to be associated with your brand's community or fan base.
Evaluating Brand Equity
To find out how healthy your brand is, identify its possible weaknesses, and fix them, it is vital to assess your brand equity.
A brand audit health check can help you learn what your target audience and employees think about your brand. Sometimes specific weaknesses cannot be spotted easily, and this procedure will be able to unearth them and help you minimise or eliminate them.
People notice discrepancies and inconsistencies in communicating your brand message, leading to trust issues and customer churn. Surveying is one of the best and most effective methods to evaluate and measure your brand equity, as consumers will be eager to give you the feedback you need and make some money in return.
The six-stage brand development model is used to help you assess whether you have the necessary characteristics and measure its equity:
Recognisability is an essential component of any identity. If your brand lacks it, you should develop a better marketing strategy and branding plan to boost its exposure and make it more visible.
Memorability is another crucial factor because it is the first thing that springs to a customer's mind when purchasing. If your brand is not memorable, you should educate your audience and explain to them what makes it unique and special and what pain points you can help them solve. Try not to be too salesy, and give them helpful advice because that is the best way to win them over. Engaging with your audience on a rational and emotional level is essential.
Favourability is a component that makes all the difference. You need to convince your target audience that you are the one they need and will meet all their expectations. Instead of only being aware of your company, people should perceive it favourably, as that will make them pick it among similar products.
Distinctiveness is necessary because if you want your name to be valuable, it has to stand out and be distinguished from the competition. Highlight its benefits and functionality, and help your customers realise that it will improve the quality of their lives and solve their problems.
Preferability is a game-changer, as it is what leads to repeat purchases. If that preference is not high, you must find out why that is so and build brand trust, as it is paramount for brand loyalty.
Satisfaction of your target market with your name will not only skyrocket your profits but also spur word-of-mouth marketing as satisfied fans share their experiences with others, thus helping your name grow. Reliable and thorough brand equity measurement methods are indispensable for creating a winning brand strategy that will catapult your business into the spotlight and increase its value.
5 Strategies for Defining Brand Equity
Developing positive brand equity has several stages based on consumers' experiences with the brand.
There are five main steps essential for defining substantial branding value:
1 – Awareness
This step starts when a company presents a quality product in the marketplace.
There’s no need to emphasise this moment's importance because the first impressions are the most lasting, and capturing consumers' attention is the primary goal.
Clever advertising tactics paired with attractive packaging, labelling, and delivering on the promise are a surefire way to get noticed.
Check out this guide example of starting a business on eBay.
2 – Recognition
If the first step is well-executed, customers will likely remember and recognise the product when they see it on the shelves.
At the same time, it is wise to keep an eye on the competition and make the necessary changes and improvements to remain relevant to the market.
3 – Trial
When people become aware of the company and its products, as well as able to identify it with other similar names, they decide to try it.
What’s extremely important is to build a consistent brand image and ensure that all interactions and experiences customers have with the name are positive.
4 – Preference
If people are satisfied with the value and quality of the brand, they will start considering it their preferred choice.
5 – Loyalty
After several positive experiences with excellent brand design, customers become loyal, and word-of-mouth marketing is triggered.
At this stage, it becomes their exclusive choice. It is not enough to create a quality product and expects that it will generate brand equity on its own
This process is a two-way street, as people and their interactions play a crucial role in developing positive brand equity.
Companies need to have a clear and precise idea of what their target audience thinks about the company to create and improve their strategy and boost their branding efforts.
One of the best methods to get that valuable feedback is with paid surveys, as customers will be eager to have their say and be rewarded.
3 Metrics for Measuring brand equity
Measuring and assessing something as abstract and intangible as brand equity is complicated. Although this value will not usually appear on the balance sheet, other ways exist to perceive quality.
According to one approach, three metrics for brand management can be used:
1 – Knowledge metrics
They measure how famous a brand name is regarding how well customers know it and whether they can recognise it with or without help.
There’s an additional layer to these metrics provided by two different categories of customer awareness:
Functional and emotional associations.
Functional associations are those that refer to the use of a particular product.
They show how well customers understand what the product or service does, its primary functions, and whether they know what value they get from it.
These metrics can help brands improve their advertising efforts, target the right audiences, and realise how consumers use their products and services.
As their name suggests, emotional associations describe how a product by a particular brand makes people feel.
Many brands play the sentimental card by creating a narrative their audience can relate to. Unlike functional associations, which provide more practical information, they give a glimpse into the subjective value of the product.
For example, Red Bull has targeted its audience with surgical precision, and the advertising pitch is mainly directed at extreme sports aficionados. Its rhetoric revolves around pushing people to achieve the impossible.
All the brand’s marketing efforts are consistent, and we all remember Felix Baumgartner’s unprecedented jump from the edge of space sponsored by Red Bull and the famous slogan “Red Bull Gives You Wings”.
2 – Preference metrics
This set of metrics measures how customers perceive a brand and its position within the industry.
Brand relevance is the first factor. Its role is to establish whether and to what extent a name offers and provides a specific benefit or a unique selling proposition that distinguishes it from the competitors.
Accessibility is the second factor, which shows whether a business can reach its target audience.
McDonald’s, with its countless restaurants, is one of the most accessible fast-food companies, which inevitably improves their preference index, as no matter where you are, you can always count on the fact that you can easily buy a Big Mac.
The emotional connection is the third factor that measures how emotionally appealing a brand is to its target audience compared to other similar names.
Finally, value is the fourth factor that compares a product's price to what it offers to customers.
So, brands that provide the same benefits as their competitors for less money are preferred by consumers.
3 – Financial metrics
It is a no-brainer that these metrics present the financial matters of a brand, and the most important ones are market share, growth rate, transactional value, and revenue generation and potential.
They are pretty straightforward and easily calculated and can give valuable insight into how well it does and how successful it is.
Brand equity is not the most natural concept, but brands who do their homework and know how to implement development and measurement strategies are leaders in their industries.
If you are just getting started, you may be interested to learn how branding helps a startup.
Personal Brand Equity – Increasing Leadership Credibility
Disney, Apple, Microsoft, Michael Kors, Land Rover.
These are all brands that have had sustainable brand equity.
Brand equity can be understood as the commercial value that derives from consumer perception of the brand name of a particular product or service rather than from the product or service itself.
It is a brand's value premium, power, and credibility.
Personal Brand equity can be created by making products memorable, easily recognisable, and superior in quality and reliability.
It is comprised of:
Awareness – Knowledge of existence. Not having to be reminded the brand exists.
Brand Associations – Anything the consumer connects to it, the attributes triggered when they hear the brand. What the brand reminds the consumer of.
Perceived quality – Product performance based on consumers' parameters or expectations.
Brand Loyalty – Dedication to the brand. It exists when the consumer chooses a particular brand over other brands if given the option.
Proprietary Brand Assets – Trademarks, patents, logo design, etc.
Every leader has personal brand equity.
The degree to which others are aware of that personal brand may vary. The degree of credibility that a personal brand has earned also varies.
There is a misconception that the credibility we have earned sometimes remains the same.
We either gain credibility or lose credibility in every situation as a leader.
Our brand has a significant influence on that credibility.
Establishing your leadership brand is an ongoing process of building on a positive impression or reputation as a leader, specifically in the mind of others.
Things that make up your personal brand equity, but are not limited to, are:
- Command Presence
- Ability to be Influenced
- Performance, execution, and follow-through
- The effectiveness of communication at all levels
- Relationships with others
- Education, Achievements
You must embrace feedback, self-reflection, and visibility to enhance your personal brand equity.
A 360-degree feedback session will allow you to gain perspective from leaders you interact with across the hierarchy.
The assessment allows the feedback to be direct and can be very genuine.
It will improve your self-awareness and clarify how others view you.
You must be willing to digest the feedback, learn from it, and revise your leadership as applicable.
It can help you improve your personal brand equity and as a focal point of your development.
As a leader, I have built self-reflection into my leadership routine.
I reflect on any feedback I've gotten in the past week, I reflect on how well I planned and stuck to my plan, and I reflect on any disconnects between expectations and execution that were impacted by my leadership or lack of.
I ask peers and team members for feedback and reflect on perceptions I may have missed.
I place myself in a cyclical learning environment via feedback and self-reflection.
Combined, these two things can help you have more authentic leadership and brand equity awareness.
Visibility as a leader is directly correlated to his/her effectiveness which impacts leadership brand equity.
Visibility can appear in many ways – Participating in or leading meetings, conference call presence, mentorship roles, and the leader's name or area of responsibility at the top of a scorecard.
Positive words and recommendations spoken by those who influence your leadership can create visibility beyond your tangible presence.
Visibility is what others notice about you, what stands out, and their perception of your connection with them.
Increasing visibility can be done in very purposeful ways:
- Have a voice utilising multiple communication vehicles. (Calls, Meetings, Blogs, One on One interactions, emails, etc.)
- Hold feedback sessions where others can hear your ideas and solicit feedback.
- Spend purposeful time on Social Media.
- Solicit feedback to continue to improve. (LinkedIn, Facebook, Instagram)
- Volunteer for stretch assignments.
- Shadow a mentor and connect with others in their network.
Increase your personal branding value by understanding where others see value in you and growing as a leader in an obvious way.
People regularly notice things considered positive and value-added to improve their personal brand equity as a leader.
Increase your personal brand's power by being great at influencing, both with and without authority, in ways that earn you respect as a leader.
Influencing without authority is much more challenging than affecting power.
Authority requires others in your charge to listen, pay attention and respond to your leadership.
Impressive leaders can persuade others to change their minds, influence others to engage differently, and impact the behaviour of others without a title that requires it.
Also, you can increase your personal brand power by having more of a command presence.
Let your leadership precede your presence when you walk into a room.
Command presence occurs when others respond to you as if you have authority even when you do not.
Command presence exists when you are cloaked in the trust and respect of others.
Increase your personal brand's credibility by being consistent, effectively communicating, and leading by example regarding integrity and ethics.
Consistency in carrying yourself, collaborating, contributing, and adding value to an organisation or team improves your credibility.
Communicating confidently and clearly in an adaptable way that always resonates with a leader or audience is critical to credibility.
Leading as a reflection of the company values and having the courage to be vocal when others' leadership contradicts those values or lacks integrity is the foundation of credibility.
You can add an exclamation point to your credibility by performing in the top percentile of your organisation as an expectation and bringing your team along in the process.
You can also earn the title of an industry expert to expand your credibility.
Continue to build on your personal brand equity and the value of it in every decision, through every behaviour, via every communication – every moment, every day of every week.