Brand Equity: Level up with Our Comprehensive Guide – Tackling the extraordinarily deep topic of brand equity can at first, be intimidating. However, when analyzed deeply, we see that brand equity is an essential revenue-building asset. It’s easy to overlook this asset in the grand scheme of things, but you do so at your own peril. With this in mind, let’s explore this topic at length.
You will find yourself becoming excited as you learn more about brand equity. The reason for this is simple: it’s the end result of building desirable attributes such as brand loyalty and brand awareness. As such, building it at healthy clip results in higher profit margins over time.
In this post you will learn how to:
- Identify brand equity
- Measure brand equity
- Build brand equity
Let’s get started.
A Brief Tale of Two Brands
When was the last time you bought an off-brand item for your face or body? We all have, to be sure. Time pressure is a common reason. You’re in a rush in the store and don’t see your usual brand. The off-brand is right there, and heck, it’s a dollar cheaper. But how common is this really? When you do buy a product you’re unfamiliar with, are you more or less likely to check online reviews? If you’re like most people, the answer is…much more likely.
But when we buy products from brands we trust, all that changes, doesn’t it? Whenever powerhouse brands like Nike, Coca-Cola, Apple, and Microsoft release a product, customers snap them up in droves. This isn’t too surprising, and it comes down to a concept known as brand equity.
When Oculus Rift was released by Oculus VR, customers were initially wary of the new technology. But when the brand was acquired by Facebook, sales increased at a healthy clip.
The technology that goes into Oculus devices was more or less the same after the acquisition. So what gives? The answer is, of course, brand equity. Facebook is a powerful brand, and while VR may seem far out of the social network’s wheelhouse, the unusual purchase was nevertheless a wise one.
Because VR is an emerging technology, Facebook saw the Oculus as a way to spread out, so to speak—just in case social media turned out to be a fad after all. Product diversification is a good strategy in its own right. But by acquiring Oculus, Facebook also gave the brand legitimacy it didn’t have before.
Facebook was accomplishing two things here:
- Safeguarding their future by diversifying their offering
- Boosting the Oculus brand—which they now owned—by instantly transferring brand equity to it.
In other words, Facebook was bolstering its brand equity in two directions. First, they were shoring up their own brand image by embracing new, hip technology. Second, they were infusing equity into their acquisition, effectively transferring recognition and reputation from Facebook to Oculus.
But what is brand equity, exactly?
What is Brand Equity?
In short, brand equity is an additional value that a brand name adds to a product offering. In other words, it’s those sales that are driven by brand recognition and reputation alone, independent of marketing and other sales efforts.
This concept is known by other monikers. Here are a few:
- Good standing
- Commercial value
There is a strong relationship between brand equity and brand recognition. In order for brand equity to kick in, a customer must first be aware of, and be able to recognize, the brand. So equity requires recognition, but mere recognition does not imply equity. Brand equity provides additional value that the brand name alone does not.
Let’s take a deeper look at the difference:
The ability of a customer to recognize the identifying characteristic of a brand. The customer can tell the product of one company from the product of another.
The tangible, and additional, the value that the brand provides the product.
For instance, brand equity is the difference between store-brand cola and Coca-Cola Classic once we’ve accounted for the following:
- Difference in the formula
- Difference in the advertising budget
- Difference in market share
Brand equity is that special something leftover that drives additional sales.
Let’s look at another example.
Wal-Mart, one of the largest corporations in the world, has a catchall store brand. The store sells everything from facial cream to chips under the Great Value label. Of course, Wal-Mart also offers store shelf space to name brands. Naturally, if you look at Great Value Potato chips and, say, Lay’s Potato Chips, you will notice they have the same ingredients. No surprise there.
You could do this analysis with many Great Value products and come to the same conclusion.
Each product may have the same ingredients when compared to its name-brand counterpart, and it performs the same function in the customer’s life. Yet the name brands are invariably more expensive. Why is this?
This is the power of brand equity.
Consumers have more faith in the name brand. They may even have the—often erroneous—idea that the name brand is of higher quality or that it tastes better. The more passionate the customer is about the product, the more likely they are to respond to strong branding.
Many customers are willing to pay a premium for the name brand. They do this gladly—but only because of their trust in the brand. More on how to build brand loyalty later.
Indeed, studies have shown that more expensive wines taste better to wine experts than cheaper wines despite little molecular difference between the two. But casual consumers do not display this preference.
So where does brand equity actually exist? It’s ephemeral. It exists only in the minds of consumers. Strong brands have a stronger standing in the marketplace, and that is only possible because consumers hold them in high esteem.
Businesses who have built up brand equity often see an advantage in sales performance. In fact, they can only expect to capitalize on brand equity if they keep their prices higher than their competition. This is, of course, an enviable position to be in.
In effect, when a customer decides to buy a name brand, they’re paying for the product and the branding. What this means for the brand owner is that they increase their profit margin considerably and enjoy a higher market share.
Summary: brand equity only exists in the minds of customers. But it is a real asset that you can build over time. This is why big brands vie for the hearts and minds of consumers, and why you should too.
Our first case study is a robust cross-section survey. The study examines the effects of admixing and corporate image on brand equity. The brands studied are all in the dairy industry, which is highly competitive. Check this case study out when you’ve finished today’s post. It’s well worth a read.
The Components of Brand Equity
As with any powerful sales driver, brand equity has a few key ingredients. The first is time. As you might expect, this isn’t something you can buy directly. But there is a direct correlation between time on the market and consumer trust.
In general, most of the components of brand equity are factors that influence you. The first is one we’ve already touched on: brand recognition. Equity is created as your customers become aware of your offerings, and as they associate those products with your overall brand. The process looks like this:
- The customer becomes aware of your brand
- The customer forms positive associations with your brand through repetitive exposure
- Over time, your customers begin to associate your product with quality, utility, and value on a subconscious level
Then, and only then, do you get the most out of your logo and other branding materials?
Let’s examine a few of the other components.
#1 Brand Perception
It’s incredibly important to understand the difference between brand perception and brand positioning. The breakdown looks like this:
• Brand perception. What customers actually believe about your product
• Brand positioning. What you try to make customers believe about your product based on marketing, press releases, branding, labeling, and other forms of communication
Positive brand perception will help you build brand equity. Brand positioning alone will have only a marginal effect.
Even so, companies try to influence brand perception via brand positioning. They do this through:
- Creating associations
- Targeted marketing campaigns
Now recall that brand perception is what customers believe your product or service is all about. But what does it represent?
Consider Nike. Nike designs and distributes shoes. But arguably, they sell an experience. They sell prestige. Status. Nike is a good example of brand perception and brand positioning being in alignment.
Here’s the key: when the brand positioning activities mentioned above are in alignment with existing brand perception, the inevitable result is brand equity.
This is the secret behind the staggering impact of marketing’s biggest success stories, from Coca-Cola to IHOP.
Marketing managers spend 40-70 hours a week planning and executing a given marketing campaign. But consumers spend only seven seconds choosing between a name brand and a store brand.
Important note: it also takes only seven seconds for a customer to form a first impression of your brand. Keep this in mind when having your logo designed for the first time.
At the end of the day, a consumer’s perception of your brand is something that occurs in their own headspace. You can only influence it so much. Other factors, such as your customer service, your quality, and your price, also have an impact.
Naturally, this is why you should learn the ins and outs of marketing. This will allow you to drive brand positioning proactively and effectively.
In our next case study, we turn to coffee giant Starbucks.
In this case study, the authors examine the following question: do logo redesigns hurt your brand? Does updated branding erode brand equity? Come back to this case study once you’ve absorbed all the valuable data in this post to find out.
#2 Positive or Negative Experiences
All the small interactions the customer has with your brand while researching, buying, and using your product affect brand equity. And, of course, the way the customer perceives your brand impacts their actions. Let’s examine these factors one by one.
• Customer experience. Customer experience is the culmination of brand interactions made by the customer over time. This is why, for instance, demand for Apple products tends to increase. Apple is a strong brand, and it provides a desirable customer experience. This is also why Apple products come preinstalled with games that are easy to win. They also come packed with handy apps. These built-in apps enhance customer experience.
• Quality. There are several factors that go into product quality. One of these is the supply chain. Another is reputation. Last, but not least, we have trust. Remember that product quality is, at the end of the day, in the eye of the beholder. In this case, that’s the customer. You may think your product is of high quality. But the customer can always disagree, whether their opinion is rational or not.
• Customer preference. This brings us to customer preference. Because perception of your product quality is subjective, the customer always has the ability to choose your competitor over you. When customer preference goes against you consistently, you suffer degradation in brand equity.
The above factors, taken together, determine your brand equity over time.
What’s more, preferences can arise because of emotional interactions and reactions. Kellogg’s was launched in the 1920s. The company has traditionally promoted its brand via cartoon characters. The consequence of this is that, as children age, they continue to associate Kellogg’s with fun. Then, when these folks have children of their own, they tend to pass that emotional association on to their children.
These days, when customers react positively to a brand, they’re likely to share brand-relevant content on social media. You can think of this as a new, powerful form of word-of-mouth advertising. However, this cuts both ways. When customers react negatively to a brand, they tend to leave one or two-star reviews, criticize the product or service or even boycott it. All of this, good or bad, is amplified by the Internet.
#3 Gauging Positive or Negative Value
Whether positive or negative, brand perception comes in one of two forms: tangible or intangible.
• Tangible value. Tangible value can be measured directly. It is physical in nature. For instance, you may see increased revenue or a higher return on investment in an advertising campaign. When negative, you may see reduced sales and an increase in bad reviews.
• Intangible value. However, intangible value cannot be tracked easily, nor can it be replicated predictably.
Now that we’ve gone over the components of brand equity, let’s take a closer look at how to measure it.
Measuring & Building Brand Equity
Let’s get down to brass tacks.
How do you measure brand equity? How do you use this powerful force for yourself? Is this easy to do? It is. In fact, there are several core strategies you can use. In this section, we’ll go over all of them in detail.
But first, let’s look at a cautionary tale from Coca-Cola.
As of 2021, Coca-Cola is worth an estimated $84-billion. While the company sells soda in almost every country in the world, that doesn’t mean the brand can rest on its laurels. In the 1980s, Coca-Cola, locked in a fierce war with Pepsi, decided to change its formula.
The new product—called New Coke—was almost universally panned by customers in blind taste tests. Coca-Cola, flummoxed and distressed, went into panic mode. It is perhaps fortunate for the company that this debacle did not occur in the age of social media. If it had, Coca-Cola would have a much harder time recovering.
However, as this was the ‘80s, the company was able to recover relatively quickly. The solution was straightforward, but implementing it required the company to swallow its pride. They gave their customers what they wanted. In the end, Coca-Cola withdrew its new formula from the market. Further, the company rebranded its flagship offering as Coca-Cola Classic.
This is an excellent example of how even a large brand can get it wrong. Had the company not righted the ship quickly, they would have risked losing valuable brand equity.
The moral: as your business grows, don’t get stuck in a pattern of useless change and subsequent course correction.
In modern times, Internet companies in particular are prone to this. If you value your brand, do not change things merely for the sake of change. If you do, you risk alienating your customers.
Never forget that your regular customers keep you in business. They are loyal to you, so you should be loyal to them. This is a reciprocal relationship that helps you build your brand over time.
This cautionary tale out of the way, let’s explore how to measure brand equity.
How To Measure Brand Equity
• Financial metrics. This is perhaps one of the most straightforward ways to measure it. Investors will always want to see your balance sheet so they can determine brand health. As the business owner, you have a similar priority. A positive balance sheet indicates that sales are strong and that your revenue is growing. This is an indirect indicator of brand equity.
Note: a positive balance sheet is a reliable way to measure brand equity, but it shouldn’t be your only go-to. Brand equity develops over time, and strong sales are not necessarily indicative of future success. You can, of course, use strong sales as a way to sway potential investors.
• Brand strength. Strong brands tend to survive despite economic downturns. Negative changes to either the company or the product don’t hold these brands down for long. But what is brand strength? One indicator of brand strength is an increase in sales in the face of new competition.
Strong brands understand that their presence in the market drives customer loyalty. So if your sales are increasing as these copycats enter the market, you have strong brand equity. A word of caution, though: don’t become complacent.
• Consumer metrics. You should always track consumer purchasing behavior over time. This data unearths powerful patterns that can indicate a strong brand. Consumer sentiment towards your brand is one of the most powerful ways to measure brand equity. You can use a service like Mention or Google Alerts to keep tabs on what people are saying about you.
The cost of such analysis has gone down significantly since the 1980s and ‘90s. Always take advantage of this. But remember, people can be cruel online. See their feedback as optimization data, and don’t take it personally.
These days, powerful machine learning algorithms exist that can help you analyze social media posts. Text analytics software like this can interpret customer sentiment—how customers feel about your brand. Again, don’t take this data personally. This can be a tall order at first, but if you see this as optimization data you can easily find ways to improve your business model.
How to Build Brand Equity
Now that you know how to measure brand equity, it’s time for you to discover how to build it.
#1 Go For Brand Awareness
Brand awareness is exceptionally important. Recall our definition of brand awareness from earlier: it is, essentially, how likely a customer is to think of your brand instead of that of your competition. In a customer’s moment of need, is he thinking about your product? If he is, you are enjoying high brand awareness.
Over time, your main goal should be to reach this enviable position. If your brand doesn’t stand out among all the others in the customer’s mind, you’ve already lost. There are several ways that you can build brand awareness.
• Use consistent branding, and update your logo only rarely
• Maintain stellar customer service
• Use marketing that emphasizes benefits over features
• Come up with a heartwarming brand origin story
• Put a focus on providing ongoing value
• Maintain continuous communication with customers via email, newsletters, and social media
#2 Communicate Your Brand Meaning
How well does your product or service meet the needs of your customers—and not just their physical needs, but their social and psychological needs? For instance, when a company produces a genuinely useful product or service, and when that company genuinely commits to social responsibility, said the company will attract like-minded customers.
IKEA has invested in sustainability throughout its entire company history. Sustainability is baked into their business model. Over half of their wood is sourced from sustainable sources. 100 percent of their cotton as Better Cotton Standard. Collectively, their stores use over 500,000 solar panels. The solar panels reduce the company’s reliance on the energy grid.
These measures help the company build immense brand equity, in two ways. The first: these measures attract like-minded customers, as mentioned. But then, these measures appeal to an ecology-conscious population. The end result? When these folks enter the store they feel good about themselves. This makes them more likely to visit the store in future.
It really is that simple.
#3 Shape Customer Sentiment
As we’ve seen, when customers feel warm and fuzzy about your product or service, they tend to be more loyal to you. Moreover, they engage invaluable word-of-mouth advertising. Keep in mind that customers are making judgments about your product at every interaction point, whether positive or negative. Every time a customer interacts with you, they’re making judgments about:
• Your Credibility
• Your quality
• Your capability
• Your relevance
• Your superiority to your competitors
Therefore, the successful brand maintains positive judgments and avoids negative judgments.
These brands win out over others. Consider Apple. Think of the iPad. Before you owned your first tablet, did you sit around wishing you had one? Perhaps not. After all, the desktop computer was the paradigm, and laptops were available. Before Apple could release a novel product like the iPad, they had to shape consumer sentiment. They had to make customers aware of why they needed a tablet. Companies do this via targeted marketing campaigns.
Think back to the marketing you have been exposed to throughout your life. Think about ads for smartphones, TVs, gaming consoles, etc. each of these was a new type of device at one time or another. When new, customers didn’t know what to think of them. Successful companies shape customer sentiment on purpose. The alternative is to wait for the market to do it for them.
Building brand equity proactively, then, means predicting when you will need to do this.
Takeaway: don’t wait for the market to decide what you’re all about. Tell the market what you’re about.
#4 Build Brand Loyalty
Now that you’re shaping how customers see your brand, take steps to build brand loyalty over time. As discussed, brand loyalty and brand equity go hand-in-hand. However, building brand loyalty is one of the most elusive aspects of this process. Customers form strong bonds with brands. If you’re new to the market, pulling folks away is going to be difficult at first.
Nevertheless, if you’re going to succeed, you will have to do this.
While building brand loyalty, consider lowering your prices. Sales, discounts, and special rates can help you sway customers. If you take this route, keep an eye on customer service. Indeed, building brand loyalty is where stellar customer service can help you out the most. Look into the history and practices of Amazon company Zappos for an excellent example of how to do this.
Once you’ve snagged a good number of customers from your competitors, you will find that some of them become brand ambassadors. Brand ambassadors are loyal customers who are also very passionate about your product or service. They see the value in it for themselves, and they see the value in it for others.
These folks will sing your praises on social media, in forums, and at physical events. Don’t overlook the power of physical events in the modern age, either. Real-time events allow other customers to see your brand ambassador being passionate about your product or service. These events let their sincerity shine through their body language and expressions.
Just think about GoPro and how quickly it gained adoption by the masses.
One way to build brand loyalty is to encourage reviews and gather testimonials. Too many business owners shy away from reading reviews for fear of receiving negative feedback. This is a mistake. As mentioned, feedback is optimization data. You should actively seek reviews and testimonials at all times. If you hear the same criticism over and over, you have work to do. That’s all. Don’t take it personally.
Negative reviews illuminate issues in your process. If you see negative reviews as optimization data, and you take corrective action, you solve that problem. Simple. Done.
In other words, by facing negative reviews head-on, negative reviews will give way to positive reviews. This builds brand loyalty. By extension, it also builds brand equity.
Moreover, testimonials are the best way to gain social proof.
#5 Monitor Your Competitor’s Offerings & Optimize Your Own
As you go about building brand equity, continue analyzing purchase metrics. These metrics will help you figure out which products are most popular among customers. Don’t just focus on your own business, though. Your competitor’s products are optimization data for you as well. When your competitors come out with a product you didn’t think of, that is an indication that you might be resting on your laurels.
However, resist the impulse to create a copycat product right away.
Ask yourself this instead: when creating this product, what did your competitor miss? You may discover a superior product idea that will help you regain market share. Over time, this practice will help you gain a reputation that is truly innovative.
We hope this post has given you fresh insights into how to identify, measure and build brand equity. If it did, could you give this post a share? By doing so, you help your fellow entrepreneurs enhance their own endeavors. Thanks!