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GuidesMarket researchWhat is brand equity, and how can you get it?

What is brand equity, and how can you get it?

Last updated

3 April 2024

Author

Dovetail Editorial Team

Reviewed by

Cathy Heath

In today's business world, companies face the challenge of capturing and sustaining their market share and building customer loyalty. As a result, brands have switched their focus to the customer and employ strategies to emphasize and grow a brand's perception positively.

Brand equity has become one of the most important factors influencing consumer behavior and purchasing decisions. A powerful brand will attract more clients. However, a poor perception would hamper business growth and development. That's why businesses are trying to adopt the most effective strategies to enhance their reputation.

Developing your brand's competitive potential necessitates a thorough understanding of brand equity.

This article will take you through brand equity and why it is vital for your business's growth.

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What is brand equity?

Brand equity is the added value that a business derives from a product or service with a well-known brand name. For consumers, brand value entails both positive and negative experiences with a firm, whereas, for businesses, it is the consumer's perspective viewed as an intangible asset.

Generally, this concept aims at explaining and justifying why consumers react differently to marketing initiatives for different brands.

Building a solid reputation requires producing high-quality, reliable goods or services to entice customers and gain their loyalty. Mass advertising campaigns that connect with your target consumers and deliver on promises also help develop brand equity.

Why is brand equity important?

Positive brand equity promotes a company's products or services, increasing profits. That is, a business can realize its benefits in either tangible or intangible value. For instance, if your business has a good reputation, it will gain tangible value through a higher return on investment. 

Intangible value can be hard to quantify, but it involves emotions and awareness around how a brand is perceived, the level of awareness in the market, and feelings of loyalty and attachment.

Organizations with positive brand equity spend less on production and marketing than their competitors. They also have a flexible production and pricing strategy. Furthermore, brand equity enables businesses to gain popularity, which helps increase customer acquisition, retention, and profitability.

Leveraging the power of branding is also vital for boosting sales, as consumers are loyal to reputable brands. According to a Forbes survey of over 1,000 consumers, 52% are willing to spend more on branded products. This is because they believe they will get value for their money in terms of quality and performance.

Brand equity impacts your business's success by determining who will actually purchase your products or services.

What is the difference between brand equity and brand awareness?

In business, brand equity and awareness may appear synonymous, but they mean different things. As previously stated, brand equity is the perceived value of your business. This value reflects how customers perceive your brand. It can be positive or negative, depending on the quality of your goods or services and the level of customer service you deliver.

On the other hand, brand awareness is a subset of overall brand equity that refers to how familiar customers have grown with your brand. In short, it is about determining whether consumers can answer questions such as:

  • Do your customers know who you are?

  • Will customers identify your brand's name or logo on a product?

  • Do consumers know your brand exists?

Brand equity and brand awareness are complementary because customers can only rate a company's brand equity as negative or positive if they have previously been exposed to its goods or services. Therefore, the more consumers know about your brand, the more likely they are to perceive the value of your business.

How brand equity impacts return on investment (ROI)

Building high brand equity is essential to success in the long run. While it may be difficult and time-consuming, it can positively impact your bottom line.

By having strong brand equity, your firm can enjoy the following revenue benefits:

Increases order value per customer

High brand equity means higher profit margins because customers are loyal to the brand name and willing to pay more for the goods or services. In other words, consumers pay higher prices for brands with favorable brand equity.

Reduces ad spent by improving reputation

Companies that provide superior products typically attract more customers and build trust. Thus, they spend less on advertising while increasing sales when they launch a new product.

Brand equity also results in a high customer lifetime value and improved stock market procedures. This is based on the expectation that the business will remain competitive.

Increases the profit margin

If your organization has strong brand equity, it will be able to charge much more for products and services than its competitors. This puts the business well ahead of the competition by raising profit margins per customer without increasing costs or decreasing sales.

Increases sales

High brand equity also increases sales. It makes no difference whether you produce cheaper or more expensive goods than your competitors; if you provide the most efficient and longest-lasting commodities that satisfy your clients, they will always buy from you. As a result, regardless of competition, you will see sales increase as buyers flock to purchase your products.

Maximizes customer retention

Strong brand equity additionally results in high client retention, which is critical for long-term business growth. A corporation that can retain existing customers can also enhance profit margins because it invests less in marketing campaigns while still achieving the same sales volume. It is cheaper for firms to keep an existing client than to gain a new one.

Four elements of brand equity

Brand equity has four main dimensions that include:

1. Brand loyalty

Your customers are your most ardent supporters; thus, developing a solid brand will allow you to boost your profit margins and have greater control over your consumer influence. They will not only become your loyal fans but most likely become your brand ambassadors, referring your goods and services to their friends.

2. Brand awareness

Are customers familiar with your brand? The first phase of building brand equity is ensuring that consumers know your brand's existence and recognize the products and services you provide. Keep your brand consistent across all channels and ensure your marketing content is cohesive to reach new clients and strengthen your brand identity.

3. Perceived quality

Brand equity depends on how customers perceive and feel about the general quality of your goods or services. They form this perspective based on repeated contact with your brand. To raise perceived quality, focus on providing a consistent and excellent experience, from design to customer service.

4. Brand association

What makes your brand unique, and what value does it offer customers? Positive interaction with your consumers is important because it will add to your brand equity.

Focusing on these activities will ensure that your business keeps customers in check. All these elements will determine or add to your brand equity.

How brand equity develops organically

Brand equity can organically develop through awareness of how your target customer interacts with your goods or services. The brand gradually becomes apparent when a consumer can recognize it again after an interaction, whether in person or online.

The brand has to go through a trial period where customers try out your products or services and get used to them through regular interaction. And if they find satisfaction with the brand, they start preferring it over competitors. When they have a consistently good experience, they become loyal and choose your product over all others.

How to create brand equity

To create brand equity, you'll have to follow these key processes:

Market your brand to create awareness

Create an identifiable trademark for your brand to use when consumers search for goods and services. Maintain excellent customer service while staying in touch with your clients on social media and other platforms.

Have a distinct meaning for your brand

Know and confidently convey the performance and principles that your brand represents. Consider the satisfaction customers get from your brand and its social and psychological implications.

Build a positive perception and impression of your brand

Consumers will judge your brand based on its credibility, quality, and relevance to their needs over rivals. Keeping these factors under control aids in creating a long-term positive view and impression of your brand.

Establish a cohesive bond with your clients

Build a deeper relationship with your clients by being more consistent and exceeding their needs. As a result, they will feel attached to your brand and become regular customers.

Benefits of developing brand equity

Strong brand equity translates into tangible and measurable business benefits. Some of them include:

Increased profit margin

Positive brand equity allows you to charge premium prices for your product or service since customers will be willing to spend more for your brand name.

Competitive advantage

A high brand equity distinguishes your business from others because customers will come to you for more than just your goods. They will come to you because they are familiar with your brand and trust you.

Easy expansion to new markets

Brand equity comes with expansion opportunities that can support a company's long-term growth. A reputable brand can easily introduce new product lines or expand into new markets because it has a large customer base.

Greater negotiation power

Your business will be in a favorable negotiating position if its brand equity is robust. This is so because vendors, producers, and distributors believe your brand's reputation will benefit their companies.

Can brand equity increase revenue?

Brand equity increases revenue because it has a direct link to profitability. If your brand has a high reputation, it will enjoy consumer loyalty, which translates to a high client retention rate, resulting in increased profitability in the long run.

How to measure brand equity

Here are three key factors to consider when measuring brand equity:

1. Financial indicators

Your business's financial outcomes and revenue growth will always indicate your brand position in the market. Metrics like market share, revenue, customer retention rate, price, and branding investment can help measure brand equity. Also, compare your premium price with your rivals, as well as the lifetime value of your consumers.

2. Client indicators

Branding investment is more critical for consumers. So, monitor client purchasing behavior and how they view your brand. Conduct a survey to evaluate your brand's emotional connection, value, and relevancy.

3. Strength indicators

Keep track of your brand awareness, accessibility, consumer retention rate, loyalty, and licensing potential. You can do this by using open-text surveys and social media platforms. Strong brands typically endure change and generate greater brand equity.

Examples of companies with high brand equity

Let's look at companies that have consistently and unwaveringly attracted consumer preference and those with negative brand equity.

Companies with positive brand equity

Netflix is one of the businesses with strong brand equity. With about 193 million users worldwide, it is the top on-demand media brand. Apple and Coca-Cola, regarded as the most well-known brands globally, provide excellent examples.

Companies with negative brand equity

Organizations like Goldman Sachs had negative brand equity due to public perceptions of their involvement in the 2008 financial crisis.

In 2009, when Toyota was forced to recall more than 8 million vehicles because of sudden acceleration, the company also suffered brand damage. Another notable example is Chipotle's 2015 food poisoning outbreak, which caused its brand equity to decline.

The lowdown

Brand equity is the value that a brand adds to a product or service. This brand encompasses the consumer's awareness of it, their connection to it, their impression of its products, and their level of loyalty. Creating high brand equity requires consistent marketing campaigns, customer satisfaction, and brand reputation. Remember that the stronger your brand equity, the more profitable your company or corporation will be.

FAQs

What is an example of customer-based brand equity?

A great example of a brand with strong consumer loyalty is the iPad. In essence, the iPad was designed to be visually appealing, easy to use, and capable of meeting user demands. Consumers loved it, and Apple fixed any flaws that drew complaints.

What is customer vs. brand equity?

Brand equity is more concerned with the strategic issues that may arise while managing a business. Conversely, customer equity focuses more on the financial value that customers offer the brand. It is a far more inclusive alternative because it frequently disregards a brand's additional value.

What is the importance of brand equity for customers?

Customers value brand equity because it inspires trust. Most consumers like branded goods because they want to feel a certain amount of trust when purchasing them. They think reliable sellers can provide more value with every sale.

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