Brand equity describes the level of sway a brand name has in the minds of consumers, and the value of having a brand that is identifiable and well thought of. Organizations establish brand equity by creating positive experiences that entice consumers to continue purchasing from them over competitors who make similar products.
This is done by generating awareness through campaigns that speak to target-consumer values, delivering on promises and qualifications when consumers use the product, and loyalty and retention efforts. By offering consumers loyalty incentives such as points that can be exchanged for discounts or a free product on their birthday, they are more likely to continue to purchase from your brand rather than moving on to a competitor. Awareness and experience are the two key tenets of brand equity.
- Awareness: Can consumers easily identify your brand? Messaging and imagery surrounding your brand should be cohesive so consumer can always identify it, even for a new product. What kinds of values do consumers associate with the brand? Perhaps they think of sustainability, quality, or family friendly qualities.
- Experience: How have first hand experiences with your brand gone? This could mean that the product performed the way it was supposed to, that encounters with brand representatives and customer service teams have been accommodating and helpful, and that loyalty programs have been worthwhile.
Why is Brand Equity Important: The Effect on the Bottom Line
A key benefit of establishing positive brand equity is the benefits it can have on ROI. Organizations that leverage the power of branding often earn more money than competitors, while spending less - whether on production, advertising, or elsewhere. For example, positive brand equity enables brands to charge price premiums. When consumers believe in the values put forth by a brand and the quality of their products, they will pay higher prices to purchase from that brand. Additionally, should an organization want to add new product offerings, marketing them under the same umbrella brand will help the new product take off faster, as trust has already been established.
Brand equity can positively affect the bottom line in the following ways:
Order Value per Customer
If your brand has a positive brand equity, people are more likely to spend more money to purchase those products.This results in higher profit margins. It may cost companies the same amount as competitors to make a product. However, consumers are willing to pay for the brand name. For example, a pair of designer shoes rather than those of a less well known or generic brand.
Reputation & Less Ad Spend
If your products have a good reputation, people will seek you out as their go-to brand. This results in less money being spent via advertising and leads to increased sales when you launch a new product due to established trust.
- Customer Lifetime Value: If your customers are loyal to your brand, they will purchase more from you. Apple is regularly regarded as one of the organizations with the highest brand equity. Apple users tend to own other Apple products, while Android users do not generally have a loyalty to a specific PC technology provider.
- Customer Loyalty: Customers are 7 times more likely to forgive brands they are loyal to for mistakes. Additionally, consumers are 9 times more likely to try new products from brands they are loyal to.
- Stock Price: Strong brand equity can increase stock market process for organizations, out of the expectation that it will continue to perform.
How to Build Brand Equity
There are obvious payoffs to establishing brand equity, but it takes a lot of work and research upfront to build and maintain this status. It begins with conducting research into the values and needs of a target audience, as well as identifying what makes your brand different. Once established, organizations must continue to spread awareness to earn new business, while fostering loyalty among existing customers.
Understand Your Why
In Simon Sineck’s book Start with Why, he argues that compelling organizations have a purpose behind their brand. Too many advertisers focus on the How (How my product will make your day easier) versus the Why (Why does this organization do what it does). For companies like Apple, their Why is immediately apparent. They defy the status quo and stretch what’s possible. Because their advertising focuses on their brand (and not their computers), they were able to expand their product lines into new areas such as phones and music, where other computer companies failed.
Test your Messaging
When creating messaging, it is still important to test your positioning with consumers. How do they react? What do they respond best to? Are you addressing their pain points? Are you creating the type of message they will stop and engage with? Developing messaging and creative elements should be a data-driven process, informed by what your specific consumers are drawn to. This is especially crucial in today’s fragmented market.
Once you have a compelling message, you must drive awareness for both your brand and your company focus. This often means emphasizing brand values over product attributes, and emotional connections over conversions. In a world focused on the next immediate transaction, it can be hard to advocate for such long-term planning. Brand campaigns must run on longer timelines for consumers to register messages and connect them back to branded products. This increase on brand focus will yield to results down the line if done correctly.
Once your brand is established, be consistent. This includes using consistent typefaces and style guides. Treat your brand like a writer would treat a character. Even if the advertising idea is good, if it is outside of your brand’s “personality”, don’t pursue it.
Due to the rise of social media and the individual consumer’s voice, brands are no longer just defined by what advertisements say. Brands are what consumers discuss or perceive. Having a focus on the customer and putting them in the center of your company will help elevate your overall brand. Consider Amazon’s review system. The site encourages users to be active in reviewing products and communicating with sellers to ensure they get exactly what they need - rather than just making a sale. When choosing between immediate transactional value and the needs of the customer, they choose the customer. Amazon understands that taking this long-term approach to customer experience will have a better impact on the bottom line.
Social media is also a great way to get face time, so to speak, with your actual consumers. For example, Nike has a dedicated Twitter page (NikeSupport) to respond to consumer needs 24 hours a day in seven languages. This provides insight into where your brand may be missing the mark, which can then be used for optimizations.
How to Measure Brand Equity
Brand equity can seem like and abstract concept that is difficult to measure or quantify. Depending on the goals of your branding efforts, there are multiple methods that can be used to measure equity through brand tracking efforts. Brand tracking not only provides an understanding of a brand campaign’s ROI, but can help to measure awareness, association, and more. These studies focus on either business impact metrics - retention, conversions, price - or consumer impact metrics such as consumer research, sentiment analysis, etc.
Here are a few ways to measure goals from a branding perspective:
For those looking to assign a numeric value to a brand, consider the following
- Company Value: To measure the brand equity, you could think of the firm as an asset. When subtracting the tangible assets from the overall value of the firm, you would be left with the brand equity.
- Market Share: What is your company’s market share? Leaders in the market tend to have a higher brand equity.
- Revenue potential: What does the revenue potential look like for your product? How does this compare to your company’s current revenue?
A good way to measure this would be to compare a generic product with the branded product. In the case of soap, Unilever can measure if women were more likely to purchase Dove over the store brand. Additionally, you could consider what users may be prefer - for example, Coca Cola compared to Pepsi.
Conducting a brand audit can also help you get a better understanding of how your brand is performing. To begin a brand audit, review comparison sites, social channels, and web analytics. Pull this data together to see how consumers are talking about you and if this is inline with the vision for your brand.
Brand Association - Keller’s Brand Equity Model
This model was developed by Dartmouth professor Kevin Lane Keller and emphasizes the need to mold the feeling associated with a brand’s products. By creating positive associations with your products, you can shape how customers think about your brand. The model is based on a hierarchy of brand equity that begins with a brand establishing their identity and differentiation, and is fully realized when the brand establishes resonance and connection with target consumers. By understanding where your brand is in the pyramid, you can get a better idea of how much brand equity you have, and what the next steps should be to further establishing your brand in the consumer conscious. The steps consist of:
- Brand Awareness
- Communicating the Idea behind a Brand
- Understanding Customer Response
- Brand Resonance/ Connection
Understanding Consumer Perception
Although not as quantifiable, mapping consumer perception to your brand is also an important aspect of understanding brand equity.
- Recall and Recognition - Do people remember your brand without a prompt (unaided brand awareness) or do they need an aide? (aided awareness). Understanding how familiar people are with your brand can help you address any gaps in the market.
- Emotions Associated with the Brand - Failing to address negative emotions with your brand can be a costly mistake. Even if your brand holds a monopoly of the market, consumers who are eager to switch will do so as soon as a competitor grows into maturation.
Examples of Companies with High Brand Equity
There are a few brands that stand out as those who have mastered positive brand equity. These brands have achieved consistent, identifiable design, unaided awareness, and, in many cases, unwavering consumer preference over competitors.
In 1997, John Sculley, a former executive at Pepsi who went to Apple, said to the Guardian, "People talk about technology, but Apple was a marketing company. It was the marketing company of the decade." In the 1990s, Apple nearly went out of business. As Marc Gobe, author of Emotional Branding, said “It goes beyond commerce. This business should have been dead 10 years ago, but people said we've got to support it.” This support comes from the loyalty of Apple product users, so that when Steve Jobs returned to Apple, there was a base for him to build upon.
As Simon Sinek said, “People don’t buy what you do. They buy why you do it.” Many companies tried to make the switch from computers to other products, but failed. They had spent the majority of their time highlighting features (for example: Gateway was certainly qualified to make flat screen TVs, but their new products never caught on with the public.) Apple on the other hand focused on the brand and its relationship with the consumer. They dared consumers to challenge the status quo right alongside them, so when they introduced revolutionary products such as the iPod or iPhone, consumers were eager instead of confused. Focusing on brand creates customer relationships and unties a company in a single direction.
Nowhere is the emphasis on brand more prevalent than in the constant debate of Pepsi versus Coca-Cola. While Pepsi shares may be higher due to its diversified portfolio, Coke still outshines Pepsi in both companies’ key product lines. The Pepsi Challenge campaign in the 1980s forced the Coca-Cola company to take a look at their product line in one of their marketing campaigns (The Pepsi Challenge). Coke even sweetened their drink to try to meet consumer demand, but was faced with backlash. Coca-Cola began focusing on its brand more so than the product. They emphasize how Coca-Cola brings families together using relationships and nostalgia (i.e. Share a Coke campaign). The brand uses a logo, font, and color scheme that are immediately identifiable.
We continue to see instances of brand over product today. In fact, Adidas recently announced plans to move away from short-term metrics to focus on overall brand health. The brand’s Global Media Director called out the focus on short-term and conversion-focused campaigns that are popular now in order to deliver on quarterly earning expectations. Their hope is to move away from this model, to use a 60/40 ratio of long-term brand building campaigns and short-term conversion campaigns.
As demonstrated by these and other brands, establishing positive brand equity can have a marked effect on the bottom line. With this in mind, organizations should devote resources to building out these campaigns with customer values and experience in mind.
Additional Tips and Resources
- Your Guide to Brand Tracking
- Trend Analysis: The Shift to Brand over Product
- Measuring the Power of Your Brand