Brand Equity Definition and Importance

Brand Equity is defined as the premium charged by the company for its particular product or service offered as it has a renowned and recognized name in the market as compared to a similar line of products or services having same features and utility. It is the commercial value that is derived as a result of the positive perception of the consumer about the brand and its offerings.

Companies can generate the positive and high level of Brand Equity for their specific line of products or services by making them memorable and recognized in the minds of the consumers creating an emotional connection through various marketing and promotional campaigns. But above all, the offerings have to be superior in quality and reliable to create a good Brand Equity and if it not so, no amount of marketing or promotions can help the company to attain this required objective. Even when the quality is superb, companies have to do a lot of marketing campaigns to build brand equity.

For example, if the consumers are opting for a generic product rather than a branded product, it is the result of negative brand equity towards the brand and its product and the reasons could vary from the usage of product harming the environment to its operational value and performance is not as per the brand’s promise.

Table of Contents

What is Brand Equity?

Brand Equity comprises three components namely, the perceptions of the consumers, the negative and positive effects, and the resulting value on the brand and the company as a whole.

To start with, the Brand Equity is built on the knowledge that the consumers have about the brand such as its values, strength, unique selling propositions, and competitive advantage along with the nature and features of the products and services offered to them that results in the perception about the brand in their minds.

The perception then results in the consumers holding a positive or negative effect on the product or service. If the result is positive, they will surely indulge in the purchase of the same that will be quite beneficial for the company in terms of higher sales, increased profits, and customer loyalty.

And if the effect is negative and consumers go for the generic product or a competitor’s products or services in the market, the company needs to work on its levels of quality and service along with the features and attributes of the offerings.

It is one of the most crucial assets of the brand and is evident in the financial books of the company such as share market prices, demand, and profitability.

It also symbolizes the relation that consumers share with the brand and the way they perceive, see, feel, and act towards the brand and its offerings. Today, the facet of Brand Equity holds the significant amount of value in the market as the brands compete against each other over the Brand Equity of the specific and similar line of products and services offered to the target market and audience.

Having a good and power Brand Equity gives tangible value to the company such as increased sales, profits, ease of introducing new line of products or services, and huge database of consumers along with intangible value such as increased awareness, farther reach, customer loyalty, and the elevated brand value in the market and in the consumers’ minds. This is why a brand always tries to build a solid brand personality.

Brand Equity is derived from six constituents namely, brand awareness, brand association, brand loyalty, brand experience, brand preference, and the perceived quality of the products and services offered to the consumers.

Effects of Brand Equity

There are positive as well as negative effects of Brand equity. If the effect is positive then most likely your revenue and sales will increase for the company or brand because the value of the company has increased. Whereas if the effect is negative then the sales and revenue will drop.

For this to happen, you need to know your market very well. Keeping a track of the market lets you know which products you need to launch. The management can also launch brands which will command the loyalty of the market. This will naturally give a boost to the equity of the brand. Remember that a few products can always become a few brands in the management portfolio. Hence thinking of branding from the start is necessary. Examples of this are all around us in home and kitchen appliances and consumer durable segments where the loyalty of the market shifts based on the new products launched by companies.

We have seen the rise of Zoom and how it became a brand. Subsequently, many people shifted to other video calling products because of privacy reasons and this affected the equity of zoom heavily. This is why you have to be careful of your brand during brand building efforts. A negative image can destroy equity of the brand.

Importance of good Brand Equity to Brands

1) Brand Equity is a crucial asset of the company

Brand Equity is one of the crucial assets of the company and it can be leased, sold or licensed to the other companies in the market as it has a strong foothold in the industry. It leads to increased goodwill for the company.

2) Premium price

The company can charge more prices for its products and services than their actual price as per the market standards. The company is in a position to command a premium from the consumers.

3) Good Brand equity results in increased market share

Having a good and strong Brand Equity increases the market share of the company owing to the factor of customer loyalty and their affinity towards the brand and its offerings.

4) Introduce new line of products or services

As the company enjoys a good Brand Equity for its existing line of products and services, it is easier to introduce the new line of offerings to the same target market and group plus to the untapped markets and consumers as well due to the strong legacy that has been formulated.

Brand Equity Examples

1) Apple

Apple, the technology giant enjoys a very positive and strong Brand Equity not only in the country of USA but all across the globe as its offerings of mobile phones, I-pads, watches, televisions, computer systems, and laptops amongst others are manufactured on the objectives of quality and operational excellence and the brand has caught the nerve of the market and consumer requirement. Even if their new line of mobile phones have more or less the same features as compared to the previous version but the brand is still able to command a premium and enjoy a huge loyal customer base. Since last seven years, it is one of the top brands in the mobile and technology industry.

2) Facebook

We all love Facebook to the core and our lives are literally incomplete without it and it is on our fingertips in regular intervals throughout the day for various reasons. There are many social networking sites that have got introduced and vanished from the market, but as Facebook has a strong and powerful Brand Equity, it is constant in the market with millions of users all over the world. Facebook must also be appreciated on increasing its Product line by adding Whatsapp and Instagram to its portfolio.

Brand Equity is just not built in a day but it requires a lot of effort and hard work on the part of promoters and the key members of the management to offer the products and services that are qualitative, value consumers by offering the finest levels of service and experience plus build the awareness about the brand by initiating the correct and optimum marketing and promotional techniques. It is a continuous process due to the volatile nature of the market and the evolving preferences of the consumers.

How to Manage Brand Equity?

Most small businesses can take lessons on managing brand equity from the huge corporates out there. Brand equity is the total of the additional value added to your product or service because of the brand. So, if a normal sugared water were to sell for $1, it might be selling at $3 because it is from Coca-Cola or Pepsi. That’s how brands affect price and the $2 is the brand equity value in this case.

Thus, if you build a brand, it is more likely that you can demand premiums and maintain a margin to be profitable. But in today’s day and age of Social media, it is more getting more difficult to manage brand equity rather than building it. Because a single mistake, gets plastered all over the web.

1) Build amazing Value in your offerings

When a customer chooses your brand, he is most likely choosing it through all the different products you have in your portfolio and the feelings he has for those products combined, rather than picking a single product. Hence, the more value you add to each product that you launch, the more likelihood of you having an excellent and well-managed brand equity.

Example – Samsung has many products but it is a clear market leader in Smartphones. However, the brand equity which Samsung has earned in smartphones have rubbed across its televisions, refrigerators and others.

Now imagine Samsung giving very good products in refrigerators and televisions as well – The brand equity has hit the roof and Samsung is one of the highest ranked brands in the world. This is done by adding amazing value in each product that Samsung launches.

2) Continuous Differentiation

A brand which was formed on the pillars of differentiation needs to continue the differentiation over the years to stay alive and thrive in a tough business environment. A perfect example of this scenario is Apple.

Example – Apple as a brand was known for its innovation and strong differentiation by launching Ipad, Ipod, Iphone and others. It is with the iPhone that Apple is facing most challenges in managing brand equity. Time and time again, Apple has to challenge the many smartphone makers and differentiate its brand to rank on top; And it has been continuously doing the same and winning market share. The net result is, that even in 2017, Apple was the 2nd highest valued brand in the world.

3) Maintaining the brand image

To manage brand equity, you have to manage brand image over a long period of time. This involves maintaining the same brand promise you have made to existing customers or the brand promise you are going to make to the new customers. For premium brands, the brand image is everything. It is the only reason that the brands sell at a high margin and are able to survive.

Example – Louis Vuitton, Hermes, Prada, Chanel, Gucci, Dior – all are brands which are to be found only in premium locations or which have their very own premium outlets. They are also involved in many marketing activities which help them build their brand images. Louis Vuitton is known for its automobile fashion – making seats and interiors of branded cars. If you want to learn more about managing brand equity, and If you are a fashion brand, you will not find better teachers then the brands mentioned above.

4) Continuous Expansion

A strong brand equity is always built and managed by brands which have expanded strongly. The expansion can be product expansion or geographical expansion. A business expansion gives assurance to customers with regards to the capability and the operational size of the business enterprise. Furthermore, there are more and more interactions and touch points possible between the brand and the customer, thereby more chances being given to the brand for managing brand equity.

Example – Google, the number 1 brand in the world has a presence in practically all the countries in the world and is Present in so many diverse digital products with so much capacity. Google search, Google maps, Android OS are all indispensable products from the house of Google and Google keeps expanding and giving delight to its customers. Naturally, Google faces not much difficulty in managing brand equity because its products and their vast presence is a delight for its customers.

5) Building Brand awareness

Creating and building brand awareness, especially for newly launched products is a way of maintaining the brand image as well as maintaining brand equity over time. This is especially true for Consumer durable brands as well as FMCG brands who have to focus on creating brand awareness for the numerous product variants that they keep launching.

Example – P&G spends $4 billion on an average to build brand awareness for the various products it has in its portfolio. It keeps launching new products and new variants. Similarly, we see a lot of investment from consumer durable brands or automobiles.

6) Brand recall

Another huge investment besides brand awareness for managing brand equity is Brand recall. If you want to rank high and position your brand higher in the minds of your customers, then you need a better brand recall. For this, repeated frequency, repeated advertising or repeated touch with the customer is a must. It helps in brand equity management.

Example – AT&T is a brand which is known to advertise heavily. The same goes for Verizon. These are brands which have similar products and both of them advertise heavily. This advertisement is not for awareness but it is more for recall, which has resulted in Verizon repeatedly being the top 10 brands ranked by brand equity in the world.

7) Managing Social Media

In today’s time, if you want to be good at managing brand equity, you have to be good at managing Social media. Any brand which comes up as “trending” because of a negative reason, is sure to receive a lot of flak from the media as well as its brand loyal community. On the other hand, a brand which comes up as “trending” because of a positive development, is sure to get a lot of free publicity. So as a brand, what would you like to “trend” for? Positives or negatives?

Example – One of the smartest social media players in the market is Wendy’s chain of burgers. Wendy’s is known for its wisecracks and for taking on McDonald’s and Burger King even though it is a smaller chain then both. It is therefore not a surprise that many people like Wendy’s just because of the connect they made with the brand on social media. If you learn to handle social media properly, you will find it easier to manage brand equity.

8) Customer involvement – By using emotions

We have an excellent article on Emotional appeal and its role in marketing. You can refer to that article to understand how emotional appeal can result in customers getting involved with the brand and buying more and more products from the brand. Customers associate various emotions with such brands.

Example – Walt Disney is a company which has taken its brand offline via Disneyland. The same can be said for Universal. However, with its fantastic portfolio of characters, Disney makes a far better impact on its visitors such that they absolutely fall in love with the brand. Disney makes an impact right from childhood, inciting customer involvement throughout the family life cycle. Everyone loves Disney!!

9) Being Proactive

Being proactive in brand building and proactively managing brand equity can help the firm in the long run. This involves the brand using all tools and elements of branding at its disposal so as to attract and retain the customer interest towards the brand. Online companies are some excellent examples of being proactive towards brand building.

Example – The success of Amazon is not only because of its online business model, it is also because of the genius of the Amazon Marketing team and its focus on being proactive towards brand building. Right from the logo of amazon, the packaging boxes, the transportation vehicles, the warehouses, the ATL and BTL ads, everything shouts AMAZON clearly.

There is a holistic approach to branding the company – an approach which has been adopted by most E-commerce companies by now. But the pioneer of proactively building and managing brand equity In the online space was Amazon – And look at where this proactiveness has brought Amazon – To become one of the top E-commerce companies in the world.

10) Reactions are important too

Brands can face many problems in the long run. These problems can heavily affect the brand equity. Rising back and walking tall from these problems depends on the smartness of the brand and the decisions that they take.

Example – Maggi was once banned in India because of high lead content. At that time, Nestle as the parent brand received a lot backlash. Nestle revised the contents of Maggi and got the brand back on its tracks. After Maggi ban was lifted, Nestle launched many variants of Maggi and started heavy advertising for its products. The net result is that Maggi’s brand image is still positive today.

Automobile callbacks or product callbacks are other examples of companies taking the onus of their mistakes. These companies are actually reacting positively although their margins will be affected due to product callbacks. They receive more boost to their brand equity because they took care of their customers.

11) Focus

Focusing on the brand elements and building brand equity will help in managing brand equity as well. The focus helps the brand recall as well as brand awareness. Brand building efforts should be holistic in nature but a focused approach helps the brand in having a single direction for the complete organization.

Example – Walmart which has regularly ranked as one of the top brands in the world has a clear directive – They are a firm which has pioneered “Everyday low prices” and that is their brand motto and tagline as well. As a result, across the organization, everyone has one single focus – To bring the cost down as much as possible. This focus helps Walmart achieve its vision and manage brand equity.

12) Consistency

Consistency over a long period of time is almost mandatory for a product to become a brand. There are online brands which have grown massively within a few years which is the disruptive power of online marketing (example Uber, AirBNB). However, most brands which are not online and which are amongst the top brands in the world, have existed for Decades.

Brands like Walmart, Microsoft, P&G, HUL, Verizon, AT&T, Apple, Google are all brands which have maintained a consistent approach towards customer satisfaction and towards brand building. They have repeatedly delighted their customers and have rules and profiles of managing brand equity thereby maintaining a consistency in their brand promise.

13) Understanding Trends & Preferences

A brand can develop its brand byuity in leaps and bounds if it understands the changing trends and preferences. Most of the old school brands which were champions of offline have managed to maintain their brand equity by shifting their brands online. These include the likes of Zara, Fashion retailers, Grocery retailers, Electronics brands as well as the many other brands out there who are finding that online sells more than offline. This is a trend which many brands have adopted proactively.

McDonald’s is an example of a brand which has been managing brand equity by understanding people’s preferences. Every country you go to, you will find a different menu of McDonald’s. This is because the preferences of local people is different. McDonald’s proactively launches variants of burgers to match the local preference. As a result, all the elements of brand equity rise in value, thereby giving a higher brand equity to McDonald’s in every region it operates in.

14) Understanding the Consumer psyche

Consumer preferences, beliefs, needs and wants keep changing with time. You can always refer the customer life cycle to understand the different phases a customer goes through. For brands which want to manage brand equity, it is important to stay one step ahead of the trend and to forecast the customer preferences of the future. By doing so, brands enter the consumer psyche and understand the requirements of the customers and make those dreams possible.

Example – Netflix is one brand which looked towards the future and changing customer lifestyle. It launched a product which allows you to watch fantastic television series right from your home. This simple understanding of consumer psyche, brought down the BLOCKBUSTER retail chain within some time. Netflix now has a market capitalization of 62 Billion dollars! All because it focused on understanding the consumer psyche.

15) Think long term

For Managing brand equity, you need to really think long term. You need to understand the various points in a brands life cycle which are important in taking the brand to even more heights and growing the valuation of the brand. Brand equity management is a slow and arduous procedure, filled with lots of potential to explore over the years.

A brand which has had fantastic brand equity since decades is Coca cola. Coca Cola is known as a master of branding and has left many FMCG companies behind with its branding initiatives. Some of the smartest brand recall and awareness campaigns have come from Coca Cola. The brand also has a strong association with its consumers and vendors. If you have to think long term vision of managing brand equity, you will not find a better brand then Coca cola to observe.

What is the secret of a brand entering your subconscious mind? How do you take a decision of purchasing a brand? Or more precisely, when does a product become a brand? These are some of the questions which a newbie marketer might ask an expert brand manager. How to do branding is known by many people, but the implementation of the same is very difficult. There is one simple way to make a brand enter our subconscious mind – Brand Visibility.

How Brand visibility can help Increase Brand equity?

Brand visibility is the single, most powerful message that a consumer can receive. And the message says that, this product is good and you can trust this product. This brand visibility, encourages and motivates the customer to look at the product along with the brand attributes. Brand managers hire different media agencies with focus on out of home media, television and broadcast, online marketing and others to increase the visibility of the brand. Here are some of the ways that brand visibility can be increased and brands can be made to enter our subconscious mind.

1) Through repeated advertising

One of the sure shot ways to increase brand visibility, is to advertise. Advertisements can be in the form of TVC’s or in the form of radio ads. They can be in print, in magazines, online or anywhere where the target audience can be found. Through repeated advertising, a customer becomes familiar with the message of the brand and gets a personal feel of the brand. With such an increased visibility, and with repeated bombarding of the brand name, the customer is sure to prefer the brand which is being advertised over other brands which are not using advertising.

Example – Insurance companies are the best example of repeated advertising. Insurance was previously used for insurance purposes only but now it is also used for investments. The change in concept was tough to implement because of the lack of trust in insurance companies. However, due to voracious advertising by all insurance companies, the trust gradually rose and now you can find many insurance companies doing very well in the Indian environment.

2) By actually seeing the brands being used in the market

4The maximum boost to a brand value is received when the product is actually seen in action by the customer. For example, GM cars were used in the movie “Transformers” so that the future buyers could see the GM cars in action and a desire for the cars is created. Similarly, cars like BMW increase their want factor every time they are seen on a highway in full speed by an auto enthusiast. Thus, the more product visibility in the market, the more will be the hike in brand equity and increase in desirability for the brand.

3) With a proper marketing mix

We mentioned advertising but at the same time, the marketing mix is important as well. The places where you sell your products, the price, and the promotion, all contribute to making a product which is a delight to be obtained, and which in turn contributes to the brand equity of the company. Thus, the better the marketing mix, the more is the increase in purchase and visibility, and the more is the increase in brand equity.

4) Through word of mouth

Dove has recently started testimonial advertising in the last couple of years. The reason – Word of mouth is probably the most strongest form of marketing ever. Nothing will cinch the deal, like your best friend saying that he enjoyed using the product, or that, there have been positive changes since he started using the product. When your brand visibility increases, word of mouth increases. People talk about you. The lesson here is that if you give a positive experience to your customers, they will definitely talk positive about you. Which will create more word of mouth sales, thereby increasing the brand equity for your company.

5) Through an inner promise that this is the right choice

With all the above factors in place (which are in place for many top brands), the brands enter our subconscious mind and place themselves firmly there. It appears that the brand has made a promise to perform optimally when needed for the customer. Thus in the end, subconsciously, the customer knows he will buy that brand. All this, in the long term, because of brand visibility.

There are two ways to sell a product – Push and Pull. With good brand visibility, a pull is created for your products in the market. More and more customers want your product because they hear your product name everyday, they know your brand colors and logo, they trust your product to perform, and ultimately, they feel comfortable with you and your brand. The importance of increasing brand equity, is in the feeling of comfort which your customer get when buying your brand.

Conclusion

The better your brand equity, the more competitive advantage you have over a long run. A good brand accumulates a lot of wealth over the years due to its brand advantage. This wealth helps the company in lean times (Something we realized in the recession a decade back)

A brand with deep pockets can execute a lot of strategies and be successful in many of them because of the funds they have in hand. Thus, there are many advantages of managing brand equity and the above strategies can help you with the same.