“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.
No wonder that brand equity, a construct that is even more complex and elusive, is hard to interpret and comprehend.
Even some marketers struggle when it comes to defining and measuring brand equity, so we are going to discuss this topic and offer some guidelines.
What is brand equity?
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.
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 customers 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 despite the fact that 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 brand, 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.
This stat, however, doesn’t make it the most equitable name, as that list is topped by Lego.
Brand equity can be boiled down to three factors:
The impact of this perception on a brand;
The value of this impact.
Types of brand equity
There are two types of brand equity – positive and negative.
In other words, customers assess brands based on their own opinions, so if they are satisfied with the overall value that a name delivers, they will be loyal to it, and this will generate positive brand equity.
Similarly, if they are not satisfied with a brand, this will affect their future purchase choices, and the brand equity will be negative.
When we are discussing customer loyalty and their desire to possess the products of a specific brand, Apple comes to mind again, although 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.
Chipotle can serve as an 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 it is true that loyal customers are seven times more likely to forgive brands they respect when a mistake happens, specific errors should not be made.
Positive brand 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
The process of developing brand equity has several stages based on customers’ experiences with the brand.
There are five main steps essential for building strong brand equity:
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 customers’ 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.
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 on the market.
3 – Trial
When customers become aware of the brand 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 brand are positive.
4 – Preference
If customers 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 a great brand design, customers become loyal, and word-of-mouth marketing is triggered.
At this stage, the brand becomes their exclusive choice.
It is not enough to create a quality product and expect that it will generate brand equity on its own because this process is a two-way street as customers and their opinions and interactions with the brand play a crucial role in the development of 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 what their target audience thinks about the brand.
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.
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 establish it.
According to one approach, three metrics can be used:
1 – Knowledge metrics
They measure how popular a brand 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, and 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 their audience with surgical precision, and the brand’s advertising pitch is mainly directed at extreme sports aficionados, and 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 brand is capable of reaching its target audience.
McDonald’s with its countless restaurants all around the world 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 the brand 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.