What Is Brand Equity and Why Is It Valuable In Business?

What Is Brand Equity and Why Is It Valuable In Business?

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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 – it is what consumers tell each other it is.

Being a co-founder of Intuit, as well as 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.”

It seems that the term “brand” has become synonymous with quality, meaning that consumers are more likely to select branded products believing that they will deliver on their promises. Brand equity is one of the most valuable assets that a company has, and although intangible, it is critical to its financial success.

Many people are confused about the whole concept of branding, and they even tend to believe that brand identity and logo design are approximately the same things. No wonder that brand equity, a construct that is even more complex and elusive, is hard to interpret and comprehend.

Even some marketing experts struggle when it comes to defining and measuring brand equity, so we are going to discuss this topic and offer some guidelines.

The Importance of Branding

Trader Joes Branding

Even marketing professionals sometimes tend to reduce a company to a mere logo or symbol, although it is much more complicated than that. A brand is an abstract idea that incorporates various aspects of a product, including a logo, font, name, colours, packaging, as well as a wide array of consumers’ perceptions of it.

The initial idea behind 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 something that is of vital importance to the value of any entity.

Brand equity is how consumers perceive an organisation, equalling the sum of interactions and experiences, as well as their expectations from it.

Famous brands like Apple, Nike, or Coca-Cola have substantial brand equity, and it can be translated into their ability to attract customers and retain them. In other words, consumers will always pick the brand they are loyal to over unbranded or competitor products. Moreover, brand loyalty means that 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 are trying 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.

What Is Brand Equity

Xerox, the famous manufacturer of office equipment, 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 too.

Some brands have become household names to the extent that consumers started associating them and using them synonymously with a whole group of similar products.

This competitive psychological edge allows these favourite brands to command prices and still be a preferred choice even though they are 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 be jumping to conclusions.

When we are talking about 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 means that it is 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 an almost universal knowledge that Apple is the most valuable global brand with $170 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:

  1. Consumer perception;
  2. The impact of this perception on a brand;
  3. The value of this impact.

Types of Brand Equity

Types Of Brand Equity

It is essential to state that there are two kinds of brand equity – positive brand equity and negative brand equity.

Naturally, positive brand equity means that people trust the company and that they have a good opinion about it. This perception profoundly impacts their choices, as they will always pick a brand that they believe will offer reliable and consistent quality.

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Apple is the first thing that comes to mind when we are 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 there’s more than just quality and fresh marketing campaigns that make it so desirable. Consumers perceive it as something valuable and worth having, and this is precisely the thing that skyrockets its global value. Of course, almost all Apple products have a stellar reputation when it comes to their performance and lifespan, and that is the starting point.

When we are discussing customer loyalty and their desire to possess the products of a specific company, Apple comes to mind again. However, it does not hold the first spot on the most equitable brand’s list, as the company’s devoted following religiously wait 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 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.

Brand Equity Examples Chipotle

Although loyal consumers are indeed seven times more likely to forgive brands, they respect when a mistake happens, 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, but because it will also affect the company’s stock price. 

Developing Brand Equity

Developing Brand Equity

The brand equity model consists of several stages, and it starts with brand awareness. The goal of this juncture is to introduce the brand to its target audience using marketing and advertising.

Nowadays, social media platforms are successfully used to improve brand visibility and bring brands closer to their consumers.

The second stage is recognition, and its purpose is to help consumers get acquainted with the brand and to start recognising it. After that, people decide to try the brand and assess its quality, and this 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 most 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, and this is the moment when people decide that the brand is their preferred choice, based on several positive experiences and interactions they had with it.

Finally, loyalty is the result of a series of positive experiences, and 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

Brand Equity Pyramid Example

When we are talking about building a strong brand, it is inevitable to mention Keller’s Brand Equity Model.

This theory advocates the idea that the critical ingredient of brand building is shaping your customer base’s opinions and feelings about your brand name, and it has the form of a pyramid.

 At the base of this pyramid is brand identity, and it is called salience.

The next level is about establishing brand meaning and identity, and it consists of performance and imagery. This means that you should make sure that 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 your brand, and shape it in that manner.

The third level is the brand response, and it consists 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. This means consumers are likely to engage with your brand even when they are not making a purchase. They want to be associated with the community or fan base of your brand.

Evaluating Brand Equity

Evaluating Brand Equity

To find out how healthy your brand is, identify its possible weaknesses, and fix them, it is of vital importance to assess your brand equity.

A procedure, known as a brand audit health check, can help you learn what your target audience, as well as your 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 any discrepancies and inconsistencies in communicating your brand message, and this leads to trust issues, and ultimately to customer churn. One of the best and most effective methods to evaluate and measure your brand equity is by surveys, 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 come up with a better marketing strategy and branding plan that will boost its exposure and make it more visible.

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Memorability is another crucial factor because it means being the first thing that springs to a customers mind when they are about to make a purchase. If your brand is not memorable, you should educate your audience and explain to them what makes your brand unique and special, and what pain points you can help them solve. Try not to be too salesy, and give them useful advice, because that is the best way to win them over. It’s essential to engage with your audience both on a rational and emotional level.

Favourability is a component that makes all the difference. You need to convince your target audience that you are the one that they need, and that will meet all their expectations. Instead of only being aware of your company, people should perceive it favourably, as that is what 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. In case that preference is not high, you need to find out why that is so and build brand trust as it is of paramount importance 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 will 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

Brand Equity Quote

The process of 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 how critical this moment is because the first impressions are the most lasting, and capturing consumers' attention is the primary goal.

Smart 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 start a business on ebay.

2 – Recognition

If the first step is well-executed, customers are very likely to remember the product and recognise it 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 make sure 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 they have 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 the development of positive brand equity.

To know how to create and improve their strategy and boost their branding efforts, companies need to have a clear and precise idea of what their target audience thinks about the company.

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 for that.

3 Metrics for Measuring brand equity

Tips Measuring Brand Equity

Measuring and assessing something as abstract and intangible as brand equity is complicated, and although this value will not usually appear on the balance sheet, there are other ways to the perceived quality.

According to one approach, three metrics for brand management can be used:

1 – Knowledge metrics

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They measure how famous a brand name is regarding how well customers are aware of it, and whether they can recognise it with or without any 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, what its primary functions are, 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 are using their products and services.

Emotional associations, as their name suggests, describe how a product by a particular brand makes people feel.

Many brands play the sentimental card by creating a narrative that 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 that Felix Baumgartner’s unprecedented jump from the edge of space sponsored by Red Bull, as well as the famous slogan “Red Bull Gives You Wings”.

2 – Preference metrics

This set of metrics measures how customers perceive a brand and how it is positioned within the industry.

Brand relevance is the first factor, and 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, and it shows whether a business is capable of reaching its target audience.

McDonald’s with its countless restaurants is one of the most accessible fast-food companies, and that 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 in comparison with other similar names.

Finally, the value is the fourth factor which compares the price of a product 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 a valuable insight into how well it does, and how successful it is.

Brand equity is not the most natural concept to grasp, 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.

Best Books on Brand Equity

SaleBestseller No. 1
Managing Brand Equity
  • Hardcover Book
  • Aaker, David A. (Author)
  • English (Publication Language)
  • 299 Pages - 09/09/1991 (Publication Date) - Free Press (Publisher)
Bestseller No. 2
Strategic Brand Management: Building, Measuring, and Managing Brand Equity, Global Edition
  • Keller, Kevin Lane (Author)
  • English (Publication Language)
  • 600 Pages - 10/08/2019 (Publication Date) - Pearson (Publisher)
SaleBestseller No. 3
The New Strategic Brand Management: Advanced Insights and Strategic Thinking (New Strategic Brand Management: Creating & Sustaining Brand Equity)
  • Kogan Page
  • Kapferer, Jean-Noël (Author)
  • English (Publication Language)
  • 512 Pages - 02/15/2012 (Publication Date) - Kogan Page (Publisher)
Bestseller No. 4
The Billion Dollar Branding Blueprint: 7 Steps to Building A Brand and Creating Wealth Through Brand Equity
  • Ullmann, Bernt (Author)
  • English (Publication Language)
  • 232 Pages - 06/25/2019 (Publication Date) - Calling Card Books (Publisher)
Bestseller No. 5
Strategic Brand Management: Building, Measuring, and Managing Brand Equity, 4th Edition
  • Used Book in Good Condition
  • Hardcover Book
  • Keller, Kevin (Author)
  • English (Publication Language)
  • 608 Pages - 08/10/2012 (Publication Date) - Pearson (Publisher)
SaleBestseller No. 6
Pearson eText for Strategic Brand Management: Building, Measuring, and Managing Brand Equity -- Access Card
  • Keller, Kevin (Author)
  • English (Publication Language)
  • 04/18/2019 (Publication Date) - Pearson (Publisher)
SaleBestseller No. 7
Branding and Brand Equity (Relevant Knowledge Series Marketing Science Institute (MSI))
  • Used Book in Good Condition
  • Kevin Lane Keller (Author)
  • English (Publication Language)
  • 86 Pages - 10/01/2002 (Publication Date) - Marketing Science Institute (Publisher)
Bestseller No. 8
Brand Admiration: Building A Business People Love
  • Amazon Kindle Edition
  • Park, C. Whan (Author)
  • English (Publication Language)
  • 274 Pages - 09/16/2016 (Publication Date) - Wiley (Publisher)
Bestseller No. 9
The Power of Licensing: Harnessing Brand Equity
  • Hardcover Book
  • Stone, Michael (Author)
  • English (Publication Language)
  • 374 Pages - 10/07/2018 (Publication Date) - American Bar Association (Publisher)
SaleBestseller No. 10
Assessing English Language Learners: Bridges to Educational Equity: Connecting Academic Language Proficiency to Student Achievement
  • Sage Publications Ltd
  • Gottlieb, Margo (Author)
  • English (Publication Language)
  • 296 Pages - 04/05/2016 (Publication Date) - Corwin (Publisher)

Last update on 2020-10-30 / Affiliate links / Images from Amazon Product Advertising API

What Is Brand Equity

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