Brand Equity: What it Is & Why It's Key to Your Business
As companies increasingly shift their focus from the product to the consumer, the general perception of a brand is more important than ever. Additionally, roughly 74% of today’s customers expect more from brands in regard to how they treat customers, employees, and the environment. To stay ahead of this shift, organizations need to consider how their various marketing initiatives contribute to brand equity to bolster their overall image, as well as KPIs such as revenue and customer loyalty.
Let’s take a look at the strategies that they can leverage in order to effectively build and improve upon their overall brand equity:
What is Brand Equity?
Brand equity is 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. Brand equity is typically attained 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 move on to a competitor. Awareness and experience are the two key tenets of brand equity:
• Brand Awareness: Can consumers easily identify your brand? Messaging and imagery surrounding your brand should be cohesive so consumers 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. Positive brand awareness is a large contributor to positive brand equity.
• Brand 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?
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 premium prices. When consumers believe in the values put forth by a brand and the quality of its 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. This is especially important as a rising number of consumers, roughly 80%, now refuse to do business with or buy from a brand that they don’t trust, and nearly 90% intend to disengage from a brand that breaches their trust.
What is the Difference Between Brand Equity and Brand Awareness?
While brand equity and brand awareness may seem like identical concepts at first glance, they play very different roles in the overall brand health of an organization. To put it simply, the difference between brand equity and brand awareness comes down to a customer’s ability to answer one of two questions.
- When brand awareness is being measured, the question for the consumer would be “Have you heard of this brand?”.
- For measuring brand equity, it would be “Based on what you’ve heard about this brand, how valuable or useful would you say this brand is?”.
Brand awareness is about knowing the simple fact that a brand exists, without making judgments as to its status, value, popularity, or anything else. On the other hand, brand equity is about knowing the brand’s reputation and value to the market, which can be a measure of either positive or negative stature.
How Brand Equity Impacts Return on Investment (ROI)
Developing brand equity has a number of benefits, but the most important is how brand equity can positively affect your bottom line. Let's take a look at how taking the time to build positive brand equity can create revenue benefits down the road:
Increases Order Value per Customer
If your brand has 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 may be worth more to consumers as opposed to those of a lesser-known or generic brand.
Reduces Ad Spend By Improving Reputation
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 loyalty to a specific PC technology provider.
- Stock Price: Strong brand equity can increase stock market process for organizations, out of the expectation that the brand will continue to perform.
Increases Profit Margin
When a company has high positive brand equity, the perceived value of its products and services goes up compared to those of competitors and/or a generic alternative. Whether those goods and services are actually superior is almost irrelevant, as it’s the perceived value created by positive brand equity which drives the brand’s ability to charge higher prices. The capacity to charge higher prices for goods and services obtained at the same cost as the competition puts the company with high positive brand equity far ahead of the pack by increasing profit margins without increasing costs or reducing sales.
Similar to the case for strong brand equity to create higher profit margins, it can also drive increases in sales. Whether a company’s brand equity relies on its products or services being the cheapest, most efficient, longest-lasting, flashiest, or almost anything else, everyone wants the “best” of whatever it is. This drive to get the best increases sales as buyers flock to buy the company’s popular offerings, regardless of the competition.
Maximizes Customer Retention
High positive brand equity also creates high customer retention, allowing a company to spend less on marketing to attract new customers, as their current ones just keep coming back. Think of a company like Apple: customers often buy an interconnecting constellation of products from the brand, and don’t simply use them until they wear out, but instead go back for the newest version as soon as they can. Whether it’s Apple’s innovation, ease of use, aesthetic, or another element that keeps customers coming back, one thing is for sure: their high positive brand equity definitely helps their customer retention.
Four Elements of Brand Equity
David Aacker created a model which features all the components of brand equity. We aren’t going to break down all of them, but here are four of the most important ones:
- Brand Awareness: Can consumers easily identify your brand? Messaging and imagery surrounding your brand should be cohesive so consumers 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.
- Brand Attributes: 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.
- Perceived Quality: Elevating perceived value will enhance the customer experience and increase sales. Perceived quality is when customers judge product quality based on the overall brand experience. The product itself might be good, but if the customer did not have good past experiences with the brand, they are less likely to react positively to the product and the brand.
- Brand Loyalty: Brand loyalty is made up of past and current experiences with the brand, brand awareness, and the brand’s attributes. Though brand loyalty is mostly customer preference, building up these other brand qualities will allow you to increase your profit margins and gain more control over your customer influence.
Combining all of these assets will ensure that your brand is always focusing on the consumer and you, in turn, will retain a loyal customer for life. With overall consumer perception being one of the most powerful components of developing positive brand equity, it’s extremely important that your current and potential customers think highly of your brand and its products.
How Brand Equity Develops Organically
Some businesses are lucky enough to enjoy organically-developed positive brand equity, rather than needing to enact a carefully-though-out plan to create it. Like a field of wildflowers, positive brand equity seems to magically bloom for these companies, almost regardless of outside influences. Let’s take a look at the process through which organic brand equity tends to develop.
- Awareness: A customer in the brand’s target audience comes into contact with the brand's products or services.
- Recognition: The customer comes into contact with the brand again, either in person or online, and recognizes it from prior experience.
- Trial: Becoming more comfortable with the brand through repeated interaction, the customer gives the product or service a try.
- Preference: If the customer has a good experience with the brand, they start to prefer it over others.
- Loyalty: With continued positive experiences, the customer will start to recommend the brand to others, and make it their preferred product of choice in that industry, over all other alternatives.
How to Create Brand Equity
There are obvious payoffs to making a concerted effort to establish 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 and build ever-increasing positive brand equity 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, the Why is immediately apparent. They defy the status quo and stretch what’s possible. Because Apple's advertising focuses on its brand (and not its computers), they were able to expand their product lines into new areas such as phones and music, where other computer companies failed. Apple is now a shining example of positive brand equity, in large part because of its adherence to its “Why”.
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's 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. The increase in brand focus will provide results down the line if done correctly, both in terms of higher sales but also in improved brand equity.
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 at 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 focusing on 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 both its bottom line and its overall brand equity.
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 (NikeService) to respond to consumer needs 24 hours a day in seven languages. Talking directly to, and hearing directly from, consumers can provide invaluable insight into where your brand may be missing the mark, which can then be used for optimizations.
Benefits of Developing Brand Equity
While some of the benefits of developing brand equity may seem obvious, others are more subtle. They are all, however, crucial to the health and success of any growing brand, even when their advantages may seem too nuanced to detect.
- Developing Greater Market Share: Carving out a healthy share of the market is especially important in saturated industries, and high positive brand equity can help a company do just that. This is especially important to drive early revenue and growth for fledgling businesses.
- Charging Premium Prices: Brands with high positive brand equity can charge a premium without increasing costs, effectively boosting both average customer value and profit margins in one fell swoop.
- Easily Expanding Product Lines: This benefit is likely obvious. After all, if a brand has a popular, reliable product line with strong sales and high brand equity, wouldn’t it make sense that the next product line would be easier to sell, and at higher prices?
- Having a Greater Impact as a Company: Brand equity can be something of a “magic key” to open doors to much greater opportunity. More influence, lower prices from suppliers, and more lucrative partnerships are all within reach for a brand with high positive brand equity.
Can Brand Equity Increase Profits?
Absolutely. Brand equity has a direct correlation to profitability. When consumers recognize your brand, they’re likely to choose your product over a competing brand – even if your product has a higher price tag.
For example, people with seasonal allergies will look for Claritin, and may not even know what “Loratadine” is. At the same time, they may perceive Claritin to be more effective than the generic store brand, even if the ingredients are nearly identical. This is because Claritin has invested heavily in brand equity.
Once your brand equity is established, customer loyalty will follow. This will allow for a high customer retention rate and will translate into profitability for years to come.
How to Measure Brand Equity
Brand equity can seem like an 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 brand 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.
While brand tracking studies are useful for determining if attitudes are shifting, it’s important to understand how they should be applied and understand their limitations. Marketers are expected to prove the value of branding investments so it’s ideal to be able to measure then optimize the impact branding has on driving profitable incremental sales. This used to require expensive custom modeling approaches that attempt to correlate trended data with transactional oriented KPIs like website registrations, membership enrollments and of course sales. Such approaches are flawed as they blend together different kinds of models which were built for specific use cases not to be joined together and then ingested in other models. When models are blended together their inherent model errors end up being magnified.
Today there are more innovative scientifically proven methods available with AI and machine learning that leverage huge datasets to analyze the impact branding has on driving sales. Today’s marketers should make a point to stay current and informed about improved measurement techniques.
Here are a few common 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 brand equity.
- Market Share: What is your company’s market share? Leaders in the market tend to have 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?
- Profit Margins: How much does your company spend on costs vs the sales price of its goods and services, especially as compared to competitors? Is it relatively cheap or expensive to create and sell your goods and services?
- Price Sensitivity: How much can you increase your prices before customers jump ship for a competitor? Does your brand equity keep them with you happily, or do they only stay until they find a lower price?
- Growth Rate: How fast, and consistently, is your company growing? Has that growth been steady or choppy?
- Purchasing Frequency: How frequently do your customers come back for more of your goods and services? Do they jump at the chance to purchase a new product, or are rollouts of new items lackluster?
- Automated AI: The ultimate way is to use an automated AI machine learning marketing analytics platform with an approach designed to link branding impact on sales for a definitive ROAS.
A good way to measure product value is to compare a generic product with a 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 potentially prefer, such as Coca-Cola compared to Pepsi, for example. However, it’s important to accept that marketers really only have control over their own product and branding.
Conducting a brand audit can also help you get a better understanding of how your brand is performing. Some easy ways to begin a brand audit include reviewing comparison sites, social channels, and web analytics. Pull this data together to see how consumers are talking about you and if this is in line with the vision for your brand. There are three main methods brands often use to conduct an in-depth brand audit to determine how much brand equity they garner:
- Social Proof: This can come from website analytics, social media engagement, discussion forums for your brand or industry, and other places where consumer response to your products and services is made obvious.
- Focus Groups: When in doubt, always ask the customer. Focus groups allow brands to pull together consumers in their target market to directly ask them questions about their brand. This often allows them to get answers they might not have otherwise been able to find through other methods, such as data collection alone.
- Brand Recognition: In the context of your industry, can your customers even differentiate between your products or branding and that of competitors? Does your brand stand out in a positive way, or does it get lost in the crowd?
Brand Association - Keller’s Brand Equity Model
This brand equity 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 its 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 build further brand equity and establish your brand in the consumer's mind. The steps consist of the following:
- Brand Awareness
- Communicating the Idea behind a Brand
- Understanding Customer Response
- Brand Resonance/ Connection
Understanding Consumer Perception
Although not as quantifiable, mapping consumer perception of 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 a “memory jogger”? (aided brand awareness). Understanding how familiar people are with your brand can help you address any gaps in the market and build stronger brand awareness.
- 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 on 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 arguably 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 the 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 consistent 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.
We continue to see instances of the brand over the 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.
The Future of Brand Equity
The shifting of focus to the consumer means that organizations must actively think about the brand image they are creating for themselves, as well as how each action and initiative contributes to overall brand awareness and perception. Today’s marketers need to keep current and informed about improved measurement techniques. Using state-of-art automated solutions such as Marketing Evolution’s attribution and planning and optimization SaaS platform, organizations can gain insight into what makes their brand resonate with customers. Equipped with this information, marketing teams can make strategic, data-driven decisions about how to optimize future strategies designed to build brand equity, drive ROI and finally prove the value of branding investments.
Additional Tips and Resources
- Your Guide to Brand Tracking
- Trend Analysis: The Shift to Brand over Product
- Measuring the Power of Your Brand