What Is Brand Equity?
Brand equity is the additional value that a company derives from a product with a recognizable name compared to its generic counterpart. Creating brand equity involves making products memorable, easily identifiable, and superior in quality and reliability. Mass marketing campaigns also play a crucial role in establishing brand equity.
Positive brand equity means customers are willing to pay a premium for a company’s products, even when cheaper alternatives are available. This premium translates into higher profits for the company without incurring additional production expenses.
Key Takeaways
- Brand equity is the added value a company gains from name recognition.
- It consists of consumer perception, effects, and resulting value.
- Brand equity directly impacts sales volume and profitability.
- Competing companies often focus on brand equity within the same industry.
Investopedia / Yurle Villegas
Elements and Importance of Brand Equity
Brand equity comprises consumer perception, positive or negative effects, and the resulting value. Consumer perception, based on brand knowledge and experience, drives brand equity. Positive perception leads to organizational benefits, while negative perception has adverse effects.
These effects translate into tangible or intangible value. Positive effects result in increased revenue and profits, while negative effects diminish value. Intangible values include awareness and goodwill.
Brand equity goes beyond brand recognition, adding value to a specific name.
Effect on Profit Margins
Brands with high equity can charge premium prices as customers perceive them to be of higher quality. This premium contributes to increased profit margins without higher production costs.
Positive brand equity allows companies to charge more than competitors, resulting in higher profit margins per customer.
Brand equity influences sales volume as consumers prefer reputable brands, leading to higher sales despite premium prices. Additionally, brand loyalty enhances customer retention, further boosting profit margins.
Brand equity concept was introduced by David Aaker, a marketing professor at the University of California, Berkeley, in the 1980s.
Real-World Examples of Brand Equity
Strong brand equity aids in launching new products under an existing successful brand, enhancing customer receptivity. For instance, Campbell’s launch of a new soup under its established brand benefits from positive consumer associations.
Other examples of brands with excellent equity include:
Tylenol
Tylenol, a trusted pain relief brand, has expanded its market with various product lines, showcasing strong brand equity.
Kirkland Signature
Costco’s Kirkland Signature brand, known for its quality and affordability, has gained popularity and market share.
Starbucks
Starbucks, a leader in coffee retail, is revered for its social responsibility, reflecting its strong brand equity.
Coca-Cola
Coca-Cola, a global brand with high profit margins, symbolizes positive experiences, history, and effective marketing, showcasing significant brand equity.
Porsche
Porsche, known for luxury and reliability, holds strong equity in the automobile industry, offering a premium experience to its customers.
Tracking a Company’s Success With Brand Equity
Brand equity reflects a company’s strength and performance, especially in the public markets. Competing companies in the same sector strive for superior brand equity. For instance, home improvement giants Home Depot and Lowe’s compete based on brand equity, impacting consumer perception and e-commerce strength.
High consumer familiarity and strong e-commerce presence contribute to brand equity in competitive industries like hardware retail.
Why Is Brand Equity Important?
Brand equity holds significance due to:
What Are the Elements of Brand Equity?
Brand equity elements include:
What Factors Affect Brand Equity?
Several factors influence brand equity, such as:
The Bottom Line
Brand equity represents the value added to a product or service by a brand. Strong brand equity boosts consumer perception and loyalty, aiding in pricing strategies and market position. Achieving and maintaining brand equity requires consistent marketing efforts and positive consumer interactions.