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.
So, 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 the highest performing brands from the also-rans of the world.
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 strong brand equity 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.
Positive customer perceptions, experiences, and associations create positive brand equity, while negative customer perceptions, experiences, and associations lead to negative brand equity.
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.
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 of brand equity 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.
Why is Brand Equity Important?
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 brand equity is important.
But for business owners, the true importance of brand equity lies in its reflexive value. 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.”
The reflexive value of brand equity boils down to the perceived quality that is one of its defining attributes. 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.
How to Measure Brand Equity
So, how much brand equity does your company have? The best way to measure brand equity is to objectively assess your brand in the following 5 areas, each of which is a critical component to the classic definition of brand equity:
1. Brand Loyalty
According to one survey, no fewer than 90 percent of customers report being brand loyal. But that doesn’t mean businesses can take brand loyalty for granted.
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 is at the core of brand equity. A customer’s brand awareness evolves from them 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. Customers are always willing to pay more for a brand they perceive to be superior. That’s the value of perceived quality and why it is so integral to brand equity.
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 memorable value proposition).
- 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.
How to Build Brand Equity
As you can see, brand equity has many layers. More than just a measurement of the value of a brand, brand equity is an asset that can benefit both businesses and customers.
Once you’ve assessed your own company’s brand equity against the 5 metrics above, you may be wondering what you can do to build upon that brand equity 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.
1. Be Brave – Don’t be afraid to take risks and try new things. Aversion to risk has been the downfall to many iconic brands over the years, especially in the “disruption” era of the past decade or so.
One need look no further than Kodak for an example of a brand whose lack of courage in the face of a changing market was its ultimate demise. Kodak was so content with its existing brand equity that it failed to anticipate the tectonic industry shifts that digital photography would bring.
Ultimately, Kodak’s failure can be chalked up to complacency and a lack of courage. The moral is if you want to build brand equity, you should never be afraid to take few risks.
2. Build on Your Strengths – What has made you successful so far? What unique value do customers get from your offerings? The answers to these questions got you to where you are today, and it is critical to build on them to get to where you want to be tomorrow.
If customer service is key to your positioning, think about how tomorrow’s customers will need to be served. If you’ve differentiated yourself through innovation, think about the challenges of tomorrow that will require newer innovative solutions.
By amplifying your current strengths with an eye toward the future, you can build brand equity on a rock-solid foundation.
3. Think Long-Term – While marketing is often concerned with short-term, tactical initiatives, branding is a long-term endeavor. This includes brand equity. Trendiness and buzz have short shelf lives, brand equity is built on cumulative reputation over the course of many years and many different facets.
How you treat employees, serve your customers, maintain quality products and services, and scale over time are all important keys to building brand equity for the long term.
4. Know Who You Are – Brands that try to be everything to everyone wind up being nothing to no one. Knowing who you are as a brand starts by understanding what it is you do best, and then doing that one thing better than anyone else.
The other part of knowing who you are is knowing who you serve. Understanding who your ideal customer is enables you to focus intently on that customer—with precisely targeted solutions, service, and messaging.
Understanding what you do best and who your ideal customer is makes every aspect of your business more efficient and effective, from operations to marketing. And efficient, effective businesses build more brand equity quicker and with fewer resources invested.
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, brand equity is in itself valuable to businesses as well as consumers.
For businesses, brand equity enhances:
- the efficiency and effectiveness of their marketing,
- their overall brand loyalty,
- their price points and margins,
- their brand extensions,
- their trade leverage,
- and their competitive advantage.
For customers, brand equity enhances:
- their ability to process information,
- their confidence in purchase decision,
- and their overall satisfaction with a brand.
Measure 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 brand equity will make sure your brand equity continues to grow, well into the future.