Brand equity is a term used to describe the value of having a recognized brand, based on the idea that firmly established and reputable brands are more successful. More specifically, it’s 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.

Connecting “brand” to the concepts of “equity” and “assets” radically changed the marketing function, enabling it to expand beyond strategic tactics and get a seat at the executive table.

To help break down brand equity and provide details about how the term is used in the marketing industry, we’ve outlined how it all came into place, why it’s so valuable and a roadmap for success.

How Brand Equity Came Into Place

In the late 1980s, brand equity was just emerging as an important idea. An avalanche of researchers, authors and executives who provided substance and momentum to this idea reframed marketing.

In 1991, I published a book, Managing Brand Equity, which defines brand equity and describes how it generates value. This model provided one perspective on brand equity that is worth another look now more than twenty years later.

Why Is Brand Equity So Valuable?

Another aspect of the definition of brand equity that I presented in my book was the argument that brand equity is that is also provides value to customers. It enhances the customer’s ability to interpret and process information, improves confidence in the purchase decision and affects the quality of the user experience.

The fact that it provides value to customers makes it easier to justify in a brand-building budget. This model provides one perspective of brand equity as one of the major components of modern marketing alongside the marketing concept, segmentation, and several others.

The Roadmap for Building & Managing Brand Equity

Brand equity has four dimensions—brand loyalty, brand awareness, brand associations, and perceived quality, each providing value to a firm in numerous ways. Once a brand identifies the value of brand equity, they can follow this roadmap to build and manage that potential value.

  • Brand Loyalty

    • Reduced marketing costs
    • Trade leverage
    • Attracting new customers via awareness and reassurance
    • Time to respond to competitive threats
  • Brand Awareness

    • Anchor to which other associations can be attached
    • Familiarity which leads to liking
    • Visibility that helps gain consideration
    • Signal of substance/commitment
  • Brand Associations (Including Perceived Quality)

    • Help communicate information
    • Differentiate/Position
    • Reason-to-buy
    • Create positive attitude/feelings
    • Basis for extensions

The introduction of brand loyalty to the model was and is still controversial, as other conceptualizations position brand loyalty as a result of brand equity, which consists of awareness and associations. But when you buy a brand or place a value on it, the loyalty of the customer base is often the asset most prized, so it makes financial sense to include it.

And, when managing a brand, the inclusion of brand loyalty as a part of the brand’s equity allows marketers to justify giving it priority in the brand-building budget. The strongest brands have that priority.

Examples of Brand Equity

Positive Brand Equity

Amazon and Apple are classic examples of brands with positive brand equities. Both Amazon and Apple provide consistent customer experiences, are dependable, innovative, and purposeful, and are integral in people’s day-to-day lives, making them indispensable.

They also deliver on their promises to customers— Amazon provides convenience and industry-leading shipping options, while Apple prioritizes innovation and sleek design. All factors combined, these brands boast positive reputations, or brand equities.

Negative Brand Equity

When it comes to negative brand equity, Volkswagen is an example that can be learned from. In September 2015, the EPA issued a notice of violation stating that the brand had been falsifying emissions numbers. As the news spread, Volkswagen lost brand equity, since the public no longer viewed the brand as trustworthy, nor as adhering to their promises to be environmentally friendly.

Final Thoughts

Brand equity is a key factor in both marketing and business strategy thanks to the idea that brands are assets that drive business performance over time. The equity of a brand is not only a tactical aid to generate short-term sales, but also a strategic support to creating long-term value of an organization.

 

Learn how Prophet helps businesses build and manage brand equity that drives growth.