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  • Writer's pictureSubcult Studio

Brand Equity. All you need to know



Brand Equity is the value premium a company generates with a recognizable product or service, in comparison with generic equivalents. In essence it is a measure of how much more our brand is recognized, loved and respected among the consumers, in comparison to our competitors.


When a company has positive brand equity, consumers willingly pay a high price for its products, even when they could get the same thing from a competitor for less. Customers, in effect, pay a price premium to do business with a firm they know, relate and admire. Brand equity has a direct impact on sales volume and a company's profitability because consumers gravitate toward brands with great reputations.


Brand equity is a summation resulting out of all consumer interactions, experiences and expectations with our brand, the reputation or goodwill attached to our brand and all the brand building activities undertaken.


Why is it essential?

To consumers, Brand equity manifests as legitimacy and trust.


In our modern marketplace, consumers are flooded with choices on every potential purchase, and inundated with advertisements competing to acquire their attention and money. Consumers are not looking to waste money or risk betting on products/ brands they are not familiar with, as it represents risk to them. They are keen to make intelligent decisions.


In this scenario, brand equity helps in making sales easier and loyalty ensured. Consumers are not necessarily biased against unfamiliar products or brands with low equity, but they are biased towards the products they recognize and brand they cherish. Familiarity breeds trust.


Components

The three essential components of measuring brand equity are consumer perception, negative or positive effects and the resulting value.


  • Consumer perception is what the consumers and the market thinks, feels and talks about the brand and its offerings. Not what the brand says about itself. It is an accumulation of what they believe about the brand and their expectations of the brand. Consumer perception is owned by the consumers. The brand can merely strive to shape and guide it in the desirable direction.

  • Positive or negative effects. The perception that a consumer segment holds about a brand directly results in either positive or negative effects. When consumers react positively to a brand, the company’s reputation, products and bottom line will benefit. How do customers experience the brand and its offerings? Do they associate it with attributes they admire? Do they prefer this brand and recommend it to others, or do they criticize or boycott it?

  • Value: Consumer perception and its effects ( positive or negative) can finally turn into either tangible or intangible value. Tangibles include profit or revenue increase; intangibles are brand awareness and goodwill. Negative effects can diminish both tangibles and intangibles.


Effects of Brand Equity


Brands with a positive brand equity are able to generate greater revenue from products, better consumer conversion and retention and find it easier to scale and expand.


Brand equity directly affects sales and revenue. When customers attach a level of quality or prestige to a brand, they perceive its offerings as better and worth more than alternatives, making them willing to pay more. In effect, the market bears higher prices for brands that have high levels of brand equity. This allows such brands to charge more and the price difference directly contributes to profit. Positive brand equity increases profit margin per customer as it allows a company to charge more for a product than competitors, even when it was obtained at the same price.


Brand equity has a direct effect on sales volume because consumers gravitate toward products with great reputations. Greater the brand equity, greater is the demand for the brand offerings, often eagerly waiting for the new products and acquiring them at greater prices than alternatives or on the second hand market. High brand equity is especially desirable for brands looking to increase demand and maintain rarity of products through supply limitation.


Customer retention is the third area in which brand equity affects profit margins. Retaining existing customers increases profit margins by lowering the amount a business has to spend on marketing to achieve the same sales volume. It is always cheaper to retain a customer than to acquire a new one. Higher brand loyalty and repeat business are results of positive and growing brand equity


Higher brand equity makes it easier for the brand to scale, expand and introduce new product offerings. The safety of having a consumer base that trusts and cherishes the brand enough to try its new offerings is a great advantage for all brands. Job seekers see security in companies they recognize. Investors see value in brands they know about and having market goodwill. If and when a crisis hits, your brand can weather the storm better if you’ve built brand equity in your community.


Conclusion


Brand equity is acquired over time as a result of all the activities the brand involves in, both external and internal. From delivering quality products / services and consistent branding and communication to shape the consumer perception, to a holistic work culture and employee fulfillment, all the aspects of a company together contribute to decide its brand equity. All brands must strive to build greater positive brand equity, as not only it boosts revenues and profit margins, but also protects the brand against competitors, targeted campaigns and price wars. Brand equity in essence ensure the long term growth and stability of the brand.



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