Brand equity is a term that refers to the value of a brand in the eyes of consumers. It is the difference between what a product or service is worth with and without the brand name attached to it. Brand equity can have a positive or negative impact on a company’s profitability, market share, and customer loyalty.
But what makes a brand valuable? How can a company build and measure its brand equity? And what are some examples of brands with high or low brand equity? In this blog post, we will answer these questions and more.
Components of Brand Equity
According to David Aacker, a renowned marketing professor and author of “Managing Brand Equity”, brand equity consists of five components: brand awareness, brand association, perceived quality, brand loyalty, and other proprietary assets.
- Brand awareness is the extent to which consumers recognize and recall a brand. It is important for creating brand salience, which means that the brand occupies a prominent position in consumers’ minds when they search for a product or service category. For example, when you think of soft drinks, you might immediately think of Coca-Cola or Pepsi.
- Brand association is anything that consumers link to a brand, such as its attributes, benefits, personality, values, or image. Brand associations can evoke positive or negative emotions and influence consumers’ preferences and choices. For example, Nike is associated with sports, performance, innovation, and inspiration.
- Perceived quality is the consumers’ perception of the overall quality or superiority of a brand compared to its competitors. Perceived quality can affect consumers’ willingness to pay a premium price for a product or service, as well as their satisfaction and loyalty. For example, Apple is known for its high-quality products and customer experience.
- Brand loyalty is the degree to which consumers are committed to a brand and repurchase it repeatedly. Brand loyalty can reduce marketing costs, increase sales volume, and create positive word-of-mouth. For example, Starbucks has loyal customers who visit its stores frequently and enjoy its coffee and atmosphere.
- Other proprietary assets are any legal or competitive advantages that a brand has over its rivals, such as patents, trademarks, licenses, or distribution channels. These assets can protect the brand from imitation and erosion and enhance its value. For example, Google has a dominant position in the search engine market and owns many popular online services.
How to Build Brand Equity?
Building brand equity requires a strategic and consistent approach to managing the brand across all touchpoints with consumers. Here are some steps that can help a company build its brand equity:
- Define the brand identity. This involves creating a clear and distinctive vision of what the brand stands for, what value it offers to consumers, and how it differs from competitors. The brand identity should be communicated through a catchy name, logo, slogan, design, and tone of voice.
- Deliver the brand promise. This involves ensuring that the product or service meets or exceeds consumers’ expectations and delivers on the benefits that the brand claims to offer. The product or service should also be consistent in quality and performance across different channels and locations.
- Create positive brand experiences. This involves providing consumers with memorable and engaging interactions with the brand at every stage of their journey, from awareness to purchase to post-purchase. The brand should also respond to consumers’ feedback and complaints promptly and effectively.
- Build strong brand relationships. This involves fostering trust, loyalty, and advocacy among consumers by offering them value-added services, rewards, incentives, or community platforms. The brand should also leverage social media, influencers, or celebrities to create buzz and word-of-mouth.
Measuring Brand Equity
Measuring brand equity can be challenging because it involves both quantitative and qualitative aspects. However, there are some common methods that can help a company assess its brand equity:
- Financial methods. These methods involve calculating the financial value of a brand based on its market share, revenue, profit margin, or growth rate. They also take into account the cost of creating and maintaining the brand, as well as the risk of losing it. Some examples of financial methods are discounted cash flow analysis (DCF), royalty relief method (RRM), or economic value added (EVA).
- Behavioral methods. These methods involve observing how consumers behave toward a brand in terms of their purchase frequency, volume, price sensitivity, retention rate, or referral rate. They also take into account how consumers perceive the brand in terms of their awareness & recognition.
Examples of Brand Equity
To illustrate the concept of brand equity, let’s look at some examples of brands that have high or low brand equity in their respective markets.
- Coca-Cola. Coca-Cola is one of the most valuable and recognizable brands in the world, with a brand value of $84 billion in 2021, according to Interbrand. The company has built its brand equity through decades of consistent marketing, innovation, and social responsibility. Coca-Cola enjoys high levels of brand awareness, association, perceived quality, and loyalty among consumers, who associate it with happiness, refreshment, and celebration. Coca-Cola can charge premium prices for its products and leverage its brand name to launch new products or enter new markets.
- Nike. Nike is another global brand with high brand equity, ranking 16th on Interbrand’s list with a brand value of $37 billion in 2021. Nike has established itself as a leader in the sports and fitness industry, with a strong brand identity based on performance, innovation, and inspiration. Nike has created positive brand associations through its iconic slogan “Just Do It”, its distinctive logo “Swoosh”, and its endorsement deals with famous athletes and celebrities. Nike has loyal customers who perceive its products as high-quality and stylish and are willing to pay more for them.
- Tylenol. Tylenol is a brand of pain reliever that has suffered from negative brand equity due to several product recalls and scandals over the years. The most notorious one was the 1982 Tylenol poisoning case, where seven people died after taking Tylenol capsules that were laced with cyanide. The incident damaged the brand’s reputation and trust among consumers, who switched to other brands or generic alternatives. Although Tylenol has taken measures to restore its brand equity, such as introducing tamper-proof packaging and launching public relations campaigns, it still faces challenges in regaining its market share and profitability.
- Kirkland Signature. Kirkland Signature is a private label brand owned by Costco, a warehouse club retailer. Unlike most private labels that have low or negative brand equity due to their perceived inferiority to national brands, Kirkland Signature has positive brand equity due to its high-quality products and low prices. Kirkland Signature offers a wide range of products, from food and beverages to clothing and electronics, that are comparable or superior to national brands in terms of quality and performance. Kirkland Signature has loyal customers who trust the brand and prefer it over other brands.
Why Is Brand Equity Important?
For businesses, brand equity can:
- Increase sales volume and market share by attracting new customers and retaining existing ones
- Increase profit margin by charging premium prices and reducing marketing costs
- Increase customer satisfaction and loyalty by delivering on the brand promise and creating positive experiences
- Increase competitive advantage by differentiating the brand from rivals and creating entry barriers
- Increase growth potential by expanding into new product categories or markets
- Reduce perceived risk and uncertainty by providing reliable information and assurance
- Reduce search costs and time by simplifying choices and decision making
- Increase self-expression and identity by reflecting personal values or preferences
- Increase social influence and status by signaling membership or affiliation
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