What is Brand Equity? 

Brand equity is the additional brand value that a customer attaches to a particular brand due to the perception and the experiences with the brand. A positive experience will generate positive brand equity, while dissatisfying expertise will result in negative brand equity.

In simple terms, brand Equity is the loyalty, perception, and awareness of a customer towards a brand. Brand equity can be created over a period of time by offering products that give a memorable experience, excellent quality, and highly reliable products to its customers. 

Brand equity is an asset that is the most valuable for a company, and even though it is intangible, it is vital for the success of a company.

To summarize, brand equity is like the public’s valuation of a brand. Brand equity depicts the consumer’s emotions with a brand.

For example, Starbucks’s customers have chosen the brand over other coffee brands due to its quality. According to Fortune magazine, Starbucks is rated as the fifth-most-desirable company in the world. It has more than 21,000 stores globally and remains as a top roaster and retailer of Arabica coffee beans.

Components of Brand Equity

Brand equity is made of a variety of components. A few important components include:

1. Brand Awareness

Brand awareness is a key component of Brand equity. When a customer is able to identify a brand and can associate it with a product or service, it is referred to as brand awareness. This is the first stage of building brand equity as the consumers have to be first familiar with the brand before the brand can start building value.

For example, companies such as Nike, Coca-Cola, BMW, etc., have build brand awareness to the extent that people can immediately identify the brand just by seeing their logo.

Brand awareness can be built over time by proper advertising on an appropriate medium such as social media and television, adding an eye-catching visual, blogs, and case studies. The key aspect of brand awareness is to build a good image of your brand so that your audience notices your brand.

2. Brand Association

The deep mental impression that a customer possesses about a brand is referred to as a brand association. This is the image that a customer gets in his mind when a brand name is presented to him. For example, when we think of the Nike brand, we always associate it with athletic performance. When a consumer interacts with a brand, the brand association starts building.  Brands should associate themselves with something positive to build a positive association.

When a customer thinks about a particular brand, they start to recollect the logo, and it’s colors, the product it offers, their past experience with this brand, the location where they find it, and also in the social media age, they also recollect the influencers who endorse these brands.

For example, when you think of M&M, you still recollect their slogan, “Melts in your mouth, not in your hand.” This brand slogan was a classic example of describing an important attribute of M&M that remained forever in the memory of many customers. This kind of brand association helps customers to recollect about a particular brand.

3. Perceived Quality

Perception is one of the most powerful forces in consumer buying behavior.  Perceived quality is the way that a customer feels about the quality of a product with respect to its ability to fulfill their expectations when compared to the intended purpose of the product.  Perceived quality plays a major role in building brand equity. Perceived quality is at the heart of customers’ buying decisions. Importantly, perceived quality has the ability to spread its measure of goodness to various other elements of the brand, thereby strengthening brand equity.

The perceived quality of a product depends on its performance, reliability, features, durability, conformity with specifications, finish, service, and fit. But for a service, perceived quality depends on responsiveness, tangibles, competence, reliability, responsiveness, and empathy. Customers’ The knowledge that a customer possesses about the brand and his association and experience with the brand are important variables for decision making.

For example, Pepsi has a brand image that is built over a period of time. Customers have perceived this brand as an image of youth, innovation, fun, dynamic, next-generation drink, cool, smart, and upbeat. These perceived qualities have increased the brand equity of Pepsi.

4. Brand Experience

Brand experience is a collective experience of a customer with a product as well as the overall brand. It does not include just the product but is inclusive of the pre-sale experience, sale, and post-sale experience as well. When a customer encounters good experience with a brand, he will consider the brand as superior compared to other brands, and thereby will definitely prefer it over all other competitor brands. This reflects positively on the brand equity as well. 

Brand experience can be elevated by evoking positive feelings and emotions from customers. Brand experience defines the way in which customers feel towards a brand, thereby creating brand-faithful customers and eventually increasing brand equity.

Lego is a great example that offers excellent brand experience. It has gone far and beyond to create great brand experience before, and after-sales, which has evoked feelings from customers. Even before making a purchase, customers are allowed hands-on experience in their Lego shops and Legoland destinations. They have created excellent videos, movies, games, and virtual reality experiences to make a positive brand experience.

5. Brand Preference

Brand preference refers to the choice that a customer makes in buying a particularly preferred product over a lot of similar products available in the market at the same or lesser price. Customers go that extra mile to purchase their favorite brand even if they have to spend extra money and effort in buying their preferred brand.

Brand preference influences brand equity to a large extent. Brand preference is often a result of quality, service, customer loyalty, consumer choice, and effective marketing. In fact, brand preference arises due to the consumer bias towards a brand which could have emerged due to the emotional responses towards brand proposition and marketing strategy.

For example, Harley-Davidson is a company that had made its mark in history through personality and grit. Now mostly the world’s well-known motorcycle brand, the Harley Davidson brand has emerged a winner after facing tough challenges while creating customers who would go any extent for their favorite brand.

6. Brand Loyalty

Brand loyalty is a situation where a consumer consistently buys from the same brand over time rather than buying from different suppliers from the same category. Loyal customers do not buy from different sellers and do not like to substitute for any other brand in case their brand product is unavailable.

Brand loyalty influences brand equity. Brands experience repeated purchases from its loyal customers even when there is an increase in its price or decrease in convenience. Loyal customers do not get influenced by the marketing efforts of its competitor brands, thereby ensuring there is continuous use of its brand products.

For example, Maybelline, which is owned by L’Oreal, has a loyal fan following for many years. Though it went through a lot of changes in its ownership, it still maintained a #2 position in the cosmetics brand. Brand loyalty proved to be important to maintain brand equity for L’Oreal.

Importance of Brand Equity

Brand equity is an important component of your business and holds great value for your business. The tangible value of your brand includes higher pricing and higher revenues, whereas the intangible value of your brand includes brand awareness and goodwill.

Brand equity is important to increase the valuation of a brand. The value of a strong brand translates into numerous business benefits: 

  • Increase in margin

A brand can charge higher than the market price when it has positive brand equity as customers are ready to pay a premium for your brand. The additional value that customers pay in the name of brand equity will boost your profit margins.  

  • Increases market share

Brand equity gives rise to brand loyalty, which makes a customer stick to a particular brand, thereby increasing the market share. 

  • Business expansion

Brand equity gives the opportunity to a company to spread its business into new products and new geographies by using the positive brand name that already exists.

  • Intangible Asset

Brand equity is an intangible asset. Positive brand equity has higher value and can be licensed, sold, or leased to others. 

  • Competitive edge

Brand equity offers a competitive edge in the market. Customers identify a brand and are loyal to a brand. This leads to improving the competitive edge of the products. When there is higher brand recognition for a company, there is higher brand equity, which automatically gives a competitive edge with other well-known brands.

Factors Responsible for Strong Brand Equity

Every company strives hard to achieve brand equity by offering higher value, great customer service, reliable products, great quality, and much more, which ensures a higher place for the product in the competitive marketplace.

A company can build strong brand equity by making their product unique and by offering a memorable experience so that customers are delighted upon using their products. Social media campaigns, online content, effective marketing campaigns, etc., are essential for the creation of brand equity.

There are five major factors that influence the growth of brand equity:

1. Emotional Bond With Customers

A company that offers similar quality, customer service, and price, can make a difference in the competitive market by adding softer elements such as emotions. Bigger brands have included emotional bond with customers by offering them emotional reasons such as a sense of pride, passion, trust, faith, self-expression, and a sense of belonging with the brand.

For example, PG&E releases an advertisement. Thank You, Mom – Strong. This advertisement was a collection of emotional stories that showed how different athletes respected their mothers, who helped them to overcome various struggles. This connects with the consumers quickly as they associate a story of their own with such brands.

2. Quality of Customer Experience

Great customer experience is capable of creating great brand value, which directly leads to greater brand equity. A company that has decided to improve brand equity should start by improving the experience for their customers. The first step will be to know what makes a customer happy, which in turn creates value for your business. Your employees are at the gatekeepers of excellent customer service as the interaction of a customer starts with an employee.

For example, Southwest Airlines follows a team-based environment. It places high importance on the core values that encourage employees to enjoy their work. Motivated employees take pride in their work, thereby creating long-lasting customer service experiences.

Southwest Airlines depicted great customer service when the pilot went above and beyond to serve his customer. A man had booked a flight to Denver to see his little grandson for the one last time. But due to traffic he could not arrive on time and was late for the flight by 12 minutes. But to the surprise of the customer, the pilot had waited for the man to board the flight.

3. Branding Strategy

Branding strategy is a long-term action plan for an organization and is used to differentiate their products and services from that of its competitors. Brand strategy is essential to define the image that a company wants to build for its customers.

When a company has a cohesive brand strategy, it creates better communication with customers. When the communication is clear, it is likely to attract customers who become loyal customers, thereby increasing brand equity.

For example, Taco Bell ruled the largest market share for many years until Chipotle was introduced to the market. Chipotle was introduced to the market with a high competition on quality and not price. Chipotle made a mark by differentiating with competitors by using great branding strategies. They slowly built brand equity by introducing clever jokes on their soda cups and creating a hip urban atmosphere.

4. Product Innovation

Consumers often feel that most of the brands offer products that are very similar or in some cases, exactly the same as each other. Customers look for products that offer value and can solve their problems. Hence organizations are facing the challenge of offering a product that can stand out in the crowd. This can be achieved through product innovation.

When companies do not acknowledge and implement different ways of innovation, it is sure to face the risk of losing their brand equity share to their competitors.  Given the fierce competitive landscape, the importance of brand equity cannot be overstated. High level of brand equity indicates a strong product that makes its presence felt in the marketplace

For example, The Infinite Monkey Theorem is a true case of innovation. When most of the companies were busy bottling wine, it was Ben Parsons, founder of The Infinite Monkey Theorem, who came up with the idea of single-serve cans for wine. This was a big hit amongst youth and emerging adults who did not care about fluff and pomp that was traditional wine culture. It completely opened up new options such as carrying wine can in a backpack and even being served on airplanes.

5. Positive Social Media Reputation

In an era of the social media revolution, if you know how to maintain an excellent online reputation, you can expand your growth and opportunities, which will lead to strong brand equity.

Building a reputation is no different than building a brand. It requires dedicated efforts over a long period of time where you need to constantly prove to your customers that they can lay their trust in your brand.

Your social media reputation is social proof of how customers feel about your brand, products, or services. Many businesses maintain an extremely high online reputation through which the business can be taken to greater heights.

As per a New York Times report, a like, retweet, thumbs up and positive comments on social media inspire more users to do the same. Getting this initial positive feedback is crucial for your brand’s reputation on social media.

With the help of social media, companies can track their brand equity to understand their current position and thereby find areas for their growth.

Staples is a classic example of how a boring stationery products company can make it big on social media. Some of their social media posts have gone a long way in improving their brand equity.  They have made entertaining social media posts that not just poke a little fun at work but at the same time are successful in selling some products.

Types of Brand Equity

Brand equity is of two kinds:

1. Positive Brand Equity

2. Negative Brand Equity

A positive brand experience creates higher trust in a product and impacts the choice that a customer makes while buying a product.

When consumers perceive that a particular product offers value and convinces that it is worth buying the product, it’s brand value, and brand equity automatically shoots higher. Positive brand equity is necessary for a company to gain superiority over its competition. Positive brand equity can help greatly in product expansion plans.

Negative brand equity is created when a brand consistently fails to deliver its promise and hence disappoints its customers to the extent that customers stop buying their products and also recommend others not to use it. Negative brand equity will damage and hurt the existing products by having a long-lasting effect on a brand.

Brands with negative brand equity are short-lived and eventually disappear, or they will get rebranded and come with a new name. 

Examples of Positive Brand Equity

Many companies such as Apple, Starbucks, Coca-Cola, Porsche, etc. have established positive brand equity by delivering the highest quality to the consumers.

Tylenol is a company that has built positive brand equity and ranks above several other companies in the pain relief category. Tylenol has offered quality products such as Tylenol Extra Strength, Tylenol Cold & Flu, and Tylenol Sinus Congestion & Pain. In a study conducted by EquiTrend, it shows that consumers have high trust in Tylenol over many other brands.

Another example of positive brand equity is the Porsche brand. It has developed a strong brand image in the automobile industry due to high-quality automobile parts and by using unique materials. Porsche is not just a luxury car, but it has created an experience for the customers. It has been ranked as the top 3 brands in the US.

Examples of Negative Brand Equity

Some of the well-known brands lost their brand value when they go caught in different actions that led to a negative impression on the customers. Goldman Sachs, which had great brand equity, lost its brand value when it was associated with the financial crisis. Volkswagen’s vehicle recalls got their brand equity down, and BP and Shell were impacted negatively due to the oil spills.

BP faced an exit from the top 100 brands immediately after the Deepwater Horizon oil spill. It stripped BP of its brand value worth billions of dollars. In 2010, when the deepwater horizon rig exploded it killed 11 workers, damaged surrounding environment, wildlife, fishing, and tourism. It went down in history as one of the biggest environmental disasters in the world.

Volkswagen’s reputation was damaged when they had to recall as many as 11 million diesel vehicles that were fitted with faulty emissions testers. It was estimated that they lost US$10 billion in brand value due to this emissions scandal.

Developing Brand Equity

In today’s competitive market, a company has to create strong brand equity, which can be achieved only by connecting with consumers to create a positive impression in the minds of consumers. But the process of creating a positive brand image can be done only with the help of creative marketing efforts that can build the desired brand image.

There are five essential steps to build a strong brand:

Step 1: Quality Product

This is the first and the most obvious step in building brand equity. Create value in the product that will make the customer come back to it again and again, thereby building customer loyalty. Customers look for a product so that it can solve the problem that they are facing. Companies should be able to develop a strong marketing strategy that can explain the problem and how their product can solve the problem.

Step 2: Consistent Brand Image

After building a strong and unique product, maintaining a consistent brand image is equally important. Provide a positive experience consistently in the minds of the customers.

Step 3: Monitor Competitors and Industry Trends

Industry trends change like lightning, and a brand will be out of the market within no time if they don’t keep a tab on the latest trends. A strong brand should be able to adapt to the changes in the industry quickly. Monitoring its competitors to find their strategies and innovation will help a brand to keep ahead of its competitors.

Step 4: Memorable Brand Messaging

Create your brand message that can be easily remembered. Create and use a simple logo that customers can easily associate it with your products. Remind customers repeatedly about your brand through various channels such as TV, radio, newspaper, and social media.

Step 5: Capture and Measure Feedback

Brand equity exists because customers have an image in their minds about your brand, which can be measured only when it is provided in the form of feedback. With social media and online forums, it has become possible to capture online conversation and feedback that can be measured using the latest technology, such as artificial intelligence and machine learning. Deep insights can be derived relating to drivers that make customers adopt the product/services of your brand and discover category trends from customer conversations.