Brand equity is one of those concepts that’ thrown around quite a lot, but not always understood.
There’s no questioning the value of a strong brand. Strong brands consistently outperform weaker brands in the market, and they are better insulated against market fluctuations.
But, what’s the difference between a strong brand and a weak brand? What makes Apple’s brand so much more valuable than, say, Motorola’s? In a word: brand equity.
Ok, that’s two words, but the point is brand equity is what separates the world’s highest performing brands from the also-rans that are content to pick up market share scraps.
- What is Brand Equity?
- What is the Role of Brand Equity?
- How Do You Measure Brand Equity?
- What are Some Examples of Brand Equity?
- How Do You Build Brand Equity?
- The Takeaway
Let’s take a closer look at what we mean by brand equity, why it is so important, and a few steps you can take to start building some of your own.
What is Brand Equity?
Brand equity is a measurement of the value of a brand as determined by things like loyalty, awareness, associations, and perceived quality.
When it comes to branding, positive customer perceptions, experiences, and associations create positive equity, while negative customer perceptions, experiences, and associations lead to negative equity.
When thinking about a brand equity definition, it’s important to remember that brand equity is not the same as brand value, the financial worth of a brand. The two are closely related, but positive brand value doesn’t automatically result in positive brand equity, for example.
What is the Role of Brand Equity?
The concept of brand equity was first put forth by the renowned brand strategy expert David Aaker in the 1980s. The idea changed the game for branding and marketing specialists, moving their disciplines from the realm of tactics to that of executive-level strategy.
Aaker’s seminal definition is as follows:
“Brand equity is a set of brand assets and liabilities linked to a brand name and symbol, which add to or subtract from the value provided by a product or service.”
The assets and liabilities that Aaker is referring to are those described in our definition above: loyalty, awareness, associations, perceived quality, and proprietary assets.
As a measurement of a brand’s strength, the importance of brand equity might seem obvious. Strong brands are defined as those with positive brand equity, so of course it’s important.
But for business owners, the benefits of brand equity boil down to the fact that it helps businesses:
- Gain market share
- Improve customer loyalty
- Command premium pricing
- Enhance negotiating power
- Build brand awareness
- Generate more revenue
- Increase profit margins
- Differentiate from the competition
- Build instant credibility for new products or services
- Attract top talent
Brand equity affects the economic value of a brand because strong brands are worth more to investors. But as a metric, brand equity is unique because it also influences customer behavior.
As marketing expert Dr. Kenneth Clow puts it, “Brand equity enables your company to charge a higher price and retain a greater market share than would be possible otherwise.”
Customers are simply willing to pay more for brands they perceive as higher quality. One study showed that strong brands can capture, on average, three times the sales volume of weak brands. The same study showed strong brands commanded a 13 percent price premium over weak brands.
The difference between strong and weak brands? You guessed it. Brand equity is the two-word answer to the often asked question, “What is the ROI of branding?”
How Do You Measure Brand Equity?
So, how much brand equity does your company have? The best way to measure it is to objectively assess your brand in the following 5 areas, each of which is a critical component to the classic brand equity model:
1. Brand Loyalty
As the ultimate metric of customer retention, brand loyalty is achieved by effectively communicating your brand promise—and making good on it, every time.
Brand loyalty is measured by a few important factors:
- Lowered Marketing Costs – Keeping loyal customers is more cost-effective than winning new ones.
- Increased Trade Strength – Loyal customers represent a steady source of revenue.
- New Customers Acquired – Loyal customers boost brand awareness and deliver new customers.
- Ability to Respond to Competition – Loyal customers take longer to switch brands, giving you more time to respond to competitive threats.
2. Brand Awareness
Brand awareness evolves from a customer being completely unfamiliar with your brand, to their being able to recognize your brand, to their recalling your brand, to your brand being top of mind in their purchasing decision.
So, brand awareness isn’t just about potential new customers becoming aware of your brand through marketing and promotion. It’s also about fostering existing awareness so that it evolves from recognition to preference.
Brand awareness can be measured with the following parameters:
- Brand Anchors – Assets like your brand name serve as anchors for associations. More positive associations mean more brand awareness.
- Familiarity and Regard – When customers like your brand, they talk about it more and spread brand awareness.
- Commitment – Committed customers are more likely to stick with your brand through the ups and downs, broadcasting trust.
- Consideration – The extent to which your brand is top of mind in the customer’s purchasing process.
3. Perceived Quality
Perceived quality refers to the degree to which customers perceive your brand as superior.
As we already mentioned, customers are always willing to pay more for a brand they perceive to be superior. That’s the value of perceived quality.
Understanding the perceived quality of your brand starts with customer research. Qualitative research including in-depth interviews or focus groups, as well as quantitative research including wide-ranging surveys designed to further assess customer perceptions, are the best way to understand the extent to which your products or services are perceived as superior by customers.
Perceived quality gives customers a reason to buy your brand, differentiates your brand from the competition, attracts channel member interest, and serves as the basis for line extensions.
These five metrics are key to determining perceived quality:
- Reason to Buy – The quality of your product or service is a reason to buy it.
- Positioning – The extent to which your brand is positioned as superior to competitors.
- Price – Higher price is associated with higher perceived quality, especially in complex markets.
- Channel Availability – Perceived quality increases when your brand is available in a wide variety of sales channels.
- Brand Extensions – Multiple brand and/or line extensions are associated with higher perceived quality.
Besides monitoring reviews and online forums to discover how consumers feel about your brand, a customer satisfaction survey (CSAT) can be really effective after a purchase is made.
4. Brand Association
Brand associations are the mental connections audiences make between your brand and other concepts, either positive or negative. Apple, for example, is associated with creativity and great design. IBM is associated with trust and reliability.
Brand associations can be based on functional benefits (John Deere is associated with efficient landscaping), emotional benefits (Ben & Jerry’s is associated with indulgent deliciousness), or social benefits (Gucci is associated with wealth and fashion).
Brand association can be assessed by taking a look at these five indicators:
- Information Retrieval – The extent to which your brand assets (like names, logos, advertising) retrieve associations from customers’ brains.
- Positioning & Differentiation – How well your product or service is differentiated from the competition (often achieved via a competitive advantage).
- Reason to Buy – Similar to perceived quality, the extent to which brand associations play a role in a customer’s purchasing process.
- Positive Attitude & Feelings – The extent to which your brand elicits a positive emotional reaction from customers.
- Brand Extensions – The more extensions your brand has, the more opportunities it has to create positive brand associations.
5. Proprietary Assets
Finally, proprietary assets are things like trademarks, patents & intellectual property rights, and channel relationships that give your brand a strong competitive advantage within the market landscape.
Proprietary assets can be measured by looking specifically at the following:
- Trademarks – Protect brand equity by ensuring it isn’t diluted by competitors confusing customers with similar names or logos.
- Patents & IP Rights – Ensure exclusive access to technology or information that is central to brand positioning and/or differentiation.
- Channel Relationships – As customers come to expect your brand’s availability in a given distribution channel, you can indirectly control that channel.
What are Some Examples of Brand Equity?
So, what does brand equity look like in the wild? One of the best places to see it in action is Interbrand’s annual ranking of the Best Global Brands.
For more than 20 years, Interbrand has released this yearly report outlining the 100 strongest brands in the world. The agency measures the strength of a brand against ten factors—four internal and six external:
As Interbrand puts it, “strong brands influence customer choice and create loyalty; attract, retain, and motivate talent; and lower the cost of financing. Interbrand’s brand valuation methodology has been specifically designed to take all of these factors into account.”
For brand equity examples, one need look no further than the top 20 Best Global Brands alongside their brand valuation in millions. The list shows just how valuable brand equity is—for B2C and B2B brands alike.
- Apple ($408,251m)
- Amazon ($249,249m)
- Microsoft ($210,191m)
- Google ($196,811m)
- Samsung ($74,635m)
- Coca-Cola ($57,488m)
- Toyota ($54,107m)
- Mercedes-Benz ($50,866m)
- McDonald’s ($45,865m)
- Disney ($44,183m)
- Nike ($42,538m)
- BMW ($41,631m)
- Louis Vuitton ($36,766m)
- Tesla ($36,270m)
- Facebook ($36,248m)
- Cisco ($36,228m)
- Intel ($35,761m)
- IBM ($33,257m)
- Instagram ($32,007m)
- SAP ($30,090m)
How Do You Build Brand Equity?
Once you’ve assessed your own company’s brand equity against the 5 metrics above, you may be wondering how to build on it moving forward.
The following are a few ways the world’s strongest brands build lasting equity that leads to exponential returns and bolsters the valuation of their businesses.
Develop a Strong Brand Image
As we’ve seen, two significant components of brand equity are perceived quality and brand association. And both of these critical elements boil down to brand image. If the image your brand portrays is diluted and undefined, its brand equity will be too. The strongest foundation for building brand equity is a bold, relevant, and authentic brand image.
Build Brand Awareness
Of course, even the strongest brand image is useless unless it is effectively broadcasted to the world. Powerful marketing and advertising are essential to building brand equity. That means marketing and advertising that tell a cohesive, compelling brand story aimed specifically at your unique target audience, delivered in the channels where they spend the most time.
Focus on Customer Experience
Customer experience starts with knowing who your customer is, with in-depth research including interviews and surveys. Drawing on the insights from such research, you can build brand equity by delivering on your brand promise, and going the extra mile to make your brand experience frictionless and fun. Brands like Zappos and Apple have used legendary customer experience to build monumental brand equity.
Create Proprietary Assets
As mentioned above, proprietary assets can include everything from names and taglines to patents and trademarks. Creating a well-defined and well-protected ecosystem of proprietary assets extends your brand into multiple channels, broadening its influence and deepening its brand equity.
Implement a Brand Equity Measurement System
Finally, to effectively build brand equity, you need to be able to measure it. This includes everything from periodic brand audits and customer interviews—to take the temperature of your position in the marketplace—to diligent brand management, ensuring all of your brand’s many assets are optimally maintained and consistently executed.
The goal is to regularly measure the above-mentioned four components (brand loyalty, brand awareness, perceived quality, brand association) and make corrections whenever necessary.
If the world’s strongest brands have one thing over their weaker competitors, it is brand equity. More than simply a measurement of a brand’s strength, it is valuable to businesses as well as consumers.
Measuring your own brand equity against the metrics listed above will give you a good sense of where your brand’s value exists today. Using the tips provided to build on that equity will make sure it continues to grow, well into the future.
Editor’s Note: This post was originally published in May 2020 and has been updated with additional insights.