What is brand equity?
Brand equity is a marketing term and a performance metric that describes a brand’s value. That value is determined by consumer perception and engagement with the brand.
If people think highly of a brand, it has positive brand equity. When a brand consistently under-delivers and disappoints—to the point that people recommend others avoid it—it has negative brand equity.
Here’s an example we all know: Apple. Apple's brand equity goes beyond the functional features of its products. People are willing to pay a premium for Apple products because of the brand's reputation for innovation, design, and reliability.
Apple's brand equity is so strong that people often refer to their products by the brand name itself, such as "I need to buy a new iPhone" instead of saying "I need to buy a new smartphone."
This strong brand equity has helped Apple become one of the most valuable companies in the world, and it continues to attract loyal customers who are willing to pay a premium for its products, even when competitors have similar or better products at more reasonable prices.
Why is it important to measure and improve brand equity?
Positive brand equity has value as it allows companies to charge more for their products, transfer the equity to related products, and boost their stock price. Here are some reasons why you need to focus on brand equity.
Better understanding of customer perception: Measuring brand equity can help companies better understand how customers perceive their brand. This insight can help them identify areas where they need to improve and develop strategies to enhance their brand image.
Increased brand loyalty: Strong brand equity can increase brand loyalty, which can lead to repeat purchases and advocacy from satisfied customers. This can also lead to increased market share and profitability. For instance, Nike customers are loyal to the brand because of its quality, performance, and social impact. Similarly, Starbucks has notable brand loyalty because of its personalized service, convenience, and rewards program.
Competitive advantage: Companies with strong brand equity have a competitive advantage over their rivals. Customers are more likely to choose a brand they trust and have positive associations with, even if it means paying a premium.
Increased brand value: Strong brand equity can increase the overall value of a company, making it more attractive to investors and potential buyers.
Protects against negative brand associations: Measuring brand equity can also help companies identify negative associations with their brand and take steps to address them. This can protect against potential damage to the brand's reputation and future sales. An example in this context is Procter & Gamble’s Tide laundry detergent was involved in a dangerous trend of people eating Tide Pods, which are highly toxic and can cause serious harm. Volkswagen’s emissions scandal revealed that the company had cheated on emissions tests and lied about the environmental impact of its diesel vehicles. Such instances often hurt the brands’ reputation, credibility, and safety.
II. Measuring Brand Equity
Measuring brand equity is important for evaluating a brand's strength in the market and two approaches can be used to measure it: economical (or the operational data) and emotional (or the experience data). Operational data, such as sales and finance data, can be measured quantitatively and provide insights into current performance, but it can't predict the future. The experience data, on the other hand, seeks to find qualitative reasons to explain emotional decisions and how brands are perceived. Brands with strong equity can have a "mental advantage" and inspire customer loyalty. For an accurate measurement of brand equity, it's recommended to choose metrics that account for both operational and experience data.
Here are some key points that you need to consider while measuring brand equity.
#1. Brand awareness
Brand awareness is an important component of brand equity because it refers to the degree to which consumers are familiar with and recognize a specific brand. Measuring brand awareness can assist a company in determining how well its brand is known in the market and how likely consumers are to choose it over competitors.
Here are three ways to measure brand awareness:
- Web traffic: Measuring web traffic can assist in determining the level of interest in a brand. A company can gain insight into how well its brand is resonating with consumers by tracking the number of visitors to its website, as well as the time they spend on the site and the pages they visit. Monitoring the bounce rate (the percentage of visitors who leave the site after only viewing one page) can also aid in identifying areas for improvement in the design or content of the site.
- Social media followers: Companies can use social media platforms to engage with customers and raise brand awareness. A company can gauge the level of interest in its brand and identify which social media channels are most effective for reaching its target audience by tracking the number of followers, likes, and shares on social media platforms such as Facebook, Twitter, and Instagram.
- Search engine rankings: Monitor search engine rankings to see how visible a brand is to consumers. Tracking the keywords that consumers use to search for products or services related to a brand allows a company to identify areas where its search engine optimization (SEO) strategy needs to be improved to increase its visibility in search results.
#2. Brand associations
Brand associations are the attributes or qualities that consumers associate with a particular brand. These associations can help to shape a brand's image and reputation and ultimately contribute to its overall equity. Different brands have different approaches when it comes to creating brand associations. Here are a few examples:
- Building brand identity: Brand associations can help to build a brand's identity by creating a unique and recognizable image. For example, Nike has built a strong brand identity around its "Just Do It" slogan, which is associated with a message of motivation, inspiration, and empowerment.
- Creating emotional connections: Brand associations can help to create emotional connections with consumers by tapping into their values, beliefs, and aspirations. For example, Coca-Cola has built a strong emotional connection with consumers through its association with happiness, family, and togetherness.
- Enhancing brand loyalty: Brand associations can help to enhance brand loyalty by reinforcing positive experiences and associations with the brand. For example, Apple has built a loyal customer base by associating its brand with innovation, design, and quality.
- Differentiating from competitors: Brand associations can help to differentiate a brand from its competitors by highlighting unique attributes and qualities. For example, Volvo has built a strong brand association around safety, which sets it apart from other car brands.
#3. Brand loyalty
Brand loyalty has an impressive and positive impact on brand equity. It is an essential component to determine the net worth of businesses. When customers are loyal to a brand, they are more likely to purchase from it repeatedly, recommend it to others, and defend it against criticism or competition.
Apple is at the top of every brand loyalty list and for good reason. A recent survey discovered that more than 90% of iPhone users were planning on buying another iPhone when the time comes for an upgrade. Some other companies with high brand loyalty that have improved their brand equity include Nike, Chick-Fil-A, Coca-Cola, Starbucks, Amazon Prime, Sephora, and Lululemon. These companies have built strong relationships with their customers based on common values and have created a positive brand identity through various strategies like promotional events and high-quality products.
#4. Perceived quality
Perceived quality is a key driver of brand equity. When customers perceive a brand's products or services as high quality, they are more likely to have a positive image of the brand and develop a strong emotional connection with it. This results in several benefits that can help improve a brand's equity. Here are four ways in which perceived quality helps increase brand equity.
- Premium pricing: High-value brands can charge a premium price for their products, resulting in increased revenue and profitability. Rolex is a luxury watch brand known for producing high-quality products. Rolex watches are seen as a status symbol, associated with luxury and sophistication. As a result, Rolex can charge a premium for its watches, which range in price from a few thousand to hundreds of thousands of dollars. Despite the high price, customers are willing to pay for the brand's perceived quality and prestige.
- Customer loyalty: Customers are more likely to develop a strong emotional connection with a brand and become loyal customers when they perceive its products or services to be of high quality. Nike has amassed a devoted following over the years by consistently delivering high-quality products that meet the needs of athletes and fitness enthusiasts. Nike customers identify with the brand's values, such as innovation and performance, and as a result, they are loyal to the brand.
- Positive word-of-mouth: Customers who perceive the quality of a brand's products or services are more likely to recommend it to others, resulting in positive word-of-mouth marketing and increased brand awareness. The Ritz-Carlton is a luxury hotel brand known for its outstanding customer service and high-quality accommodation. The brand is known for going above and beyond to meet the needs of its customers, which results in positive word-of-mouth marketing. Guests who have a positive experience at a Ritz-Carlton hotel are more likely to recommend the brand to others, increasing brand awareness and equity.
- Brand extensions: Brands with higher perceived quality can expand their product line or service offerings, generating additional revenue streams and increasing brand equity. Apple has successfully expanded its product line to include other high-quality products, such as the AirPods, even though Apple has never catered to the audiophile community in the past. The brand leveraged its reputation for quality and innovation, thereby enhancing its brand equity.
What are some other ways to measure brand equity?
Brand equity is a comprehensive measure of brand strength that includes three sets of metrics: knowledge, preference, and finance. Here are some additional metrics that allow you to measure these elements of your brand:
Cost value: The cost value of a brand, also known as the cost approach to brand valuation, is a method of determining the value of a brand based on the cost of creating a similar brand from scratch.
Market value: The market value of a brand is a method of determining the value of a brand based on the market demand and the financial performance of the brand. This approach considers the amount that a buyer would pay to acquire the brand in an open market, considering the brand's financial performance, market share, growth potential, and other factors that contribute to its overall value.
Income value: The income value of a brand is a method of determining its value based on the future income that it is expected to generate. This approach considers the net present value of the expected future cash flow that will be generated by the brand over a certain period.
Customer satisfaction (CSAT): Customers' levels of satisfaction with various aspects of the brand, such as product quality, customer service, and overall experience, are typically measured through customer surveys or feedback forms.
Net Promoter Score (NPS): NPS can be used by brands to identify areas for improvement as well as track changes in customer loyalty over time. A high NPS is also a strong indicator of brand equity, indicating that customers have a positive perception of the brand and are likely to remain loyal customers and recommend the brand to others.
Acquisition rate: A higher acquisition rate typically means that a brand is doing well in terms of marketing, customer targeting, and product or service offerings.
Market Share: Measuring market share can provide valuable insights into a brand's competitive position and overall success in the marketplace.
Why should you measure brand equity?
Measuring brand equity can be challenging, and there are no direct metrics or KPIs to help you understand your brand equity. Measuring brand equity, on the other hand, is important because it allows businesses to understand the strength and value of their brand in the market, identify areas for improvement, and make informed decisions about marketing, product development, and pricing strategies. It can also assist businesses in attracting and retaining customers, increasing sales and profitability, and overall business performance.
III. Improving Brand Equity
Improving brand equity is a continuous effort that involves a variety of strategies and tactics. Here are some key factors that can help improve brand equity:
#1. Consistency in branding
Brand recognition and trust can be increased by using consistent branding across all touchpoints, such as the website, social media, packaging, and advertising. A consistent visual identity and messaging that is consistent with the brand's values and personality can help to reinforce the brand's image and build a stronger connection with customers. Using a brand asset management solution can help brands offer a consistent customer experience.
#2. Quality of products and services
Offering high-quality products or services is essential for building a strong brand reputation. Customers are more likely to associate a brand with positive attributes like reliability, durability, and performance if they have a positive experience with the product
#3. Unique value proposition
A clear and compelling value proposition that differentiates the brand from competitors can help attract and retain customers. Brands that offer unique features, benefits, or experiences that solve customer pain points or meet their needs can build a loyal following.
#4. Emotional connection with customers
Brands that create an emotional connection with their customers can foster brand loyalty and advocacy. Emotional connections can be made through various means, such as storytelling, personalized experiences, or social responsibility initiatives.
#5. Brand storytelling
Telling a compelling brand story can help humanize the brand and make it more relatable to customers. By sharing the brand's history, mission, and values through storytelling, brands can build a more authentic and meaningful relationship with their audience.
Why is it important to constantly improve brand equity?
Brands should strive to improve brand equity to survive in a competitive landscape. Improved brand equity has multiple benefits.
- Brand equity can lead to increased customer loyalty and a willingness to pay premium prices.
- It can help a company differentiate itself from competitors and establish a unique position in the market.
- High brand equity can result in increased market share and revenue.
- Strong brand equity can provide a buffer against negative events such as a product recall or negative publicity.
- A positive brand image can attract top talent and create a positive company culture.
However, declining brand equity can also destroy businesses. Several brands have failed because of declining brand equity.
Blockbuster was a well-known video rental store chain that failed to adapt to changing technology and consumer preferences. They were slow to embrace online streaming services, which ultimately led to their demise.
Similarly, Sears was once a household name in retail, but it failed to adapt to changing consumer preferences and increased competition from online retailers such as Amazon. The company declared bankruptcy in 2018 and closed many of its stores.
Another brand, Kodak, was a photography industry leader, but it failed to adapt to the digital age. Even though they invented the digital camera in the 1970s, they were slow to bring it to market and thus lost out to competitors. The company declared bankruptcy in 2012.
IV. Brand Equity Case Studies
Nike has built strong brand equity through its strategic marketing messages and quality products. The company has successfully fulfilled the pillars of brand equity, including brand loyalty, brand awareness, brand associations, and perceived quality.
Nike’s brand value has continued to grow over the years, reaching more than 33 billion U.S. dollars in 2022. This strong brand equity has allowed Nike to excel in the competitive sports industry and maintain its position as a leading sports brand. Here’s how they did it.
- Consistency in branding: Nike has consistently used its iconic “swoosh” logo and its “Just Do It” slogan in its branding efforts for decades.
- Quality products: Nike has focused on creating high-quality products that perform well and meet the needs and wants of its target customers.
- Emotional connection: Nike has successfully created an emotional connection with its customers through its marketing efforts that focus on inspiring people to achieve their goals and push their limits.
- Innovation: Nike has invested heavily in research and development to create innovative products and technologies that set it apart from its competitors.
- Brand storytelling: Nike has effectively used brand storytelling to engage and connect with its customers, highlighting the stories of real athletes and their personal journeys to success.
Coca-Cola has maintained a consistent brand image throughout its history, which has helped it establish a solid emotional connection with its customers. Its marketing campaigns focus on creating an emotional bond with its customers and reinforcing its brand values of happiness, togetherness, and fun.
Their strategies include:
- Consistent branding with regional content: Coca-Cola has maintained its iconic red and white branding, font, and logo since its inception, which has helped it establish a strong brand identity and recognition. Coca-Cola has also launched regional campaigns to connect with local audiences. For example, Coca-Cola launched the “Real Magic” brand platform in 2021, which included a refreshed visual identity and global campaign. The platform was rooted in the insight that magic lives in unexpected moments of connection that elevate the everyday into the extraordinary.
- Sponsorship and partnerships: Coca-Cola has sponsored several global events such as the Olympics and partnered with popular sports teams and celebrities to increase brand awareness and reach.
- Personalization: Coca-Cola has implemented personalized marketing strategies such as the 'Share a Coke' campaign where customers could personalize their coke bottles, which helped build an emotional connection with its customers.
LEGO has built strong brand equity through its focus on quality products and strategic marketing. The company enjoys strong brand loyalty, popularity, and recognition. LEGO’s appeal spans generations, and its products are known for their creative freedom and ability to tap into nostalgia. LEGO was named the world’s 7th strongest brand in 2021 by Brand Finance. Here’s how they did it.
- Strong research: LEGO has focused on its core values of creativity, imagination, and learning through play. The brand has also invested heavily in research to understand what underpins its brand strength, allowing it to pursue commercial opportunities without compromising its brand.
- Partnerships: Developing partnerships with popular franchises like Star Wars and Harry Potter to expand their product line and appeal to a wider audience.
- Staying on the cutting edge: LEGO has incorporated technology into its products, such as the LEGO Boost robotics kit, to stay relevant and engaging for today's children.
- Social engagement: Creating an active online community for fans to share ideas and creations, further promoting the brand, and building a sense of belonging among its customers.
- Consistent customer experience: Consistently delivering high-quality products that are durable and enjoyable for all ages and building trust and loyalty among their customer base.
Brand equity is crucial for keeping a brand up and running. With the right tools, you can easily improve your brand equity. Consistency is one of the most important pillars of brand equity. Brand asset management solutions help with improving brand equity by ensuring that all brand elements are consistently applied across all touchpoints, protecting the brand from any misuse or misrepresentation, and maximizing the value of brand assets. To see how you can improve brand equity using brand asset management solutions, try out Artwork Flow.