What Is Brand Equity and Why is it Valuable?

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.

In 1991 I published a book, Managing Brand Equitythat defines brand equity and describes how it generates value. This model provided one perspective on brand equity that is worth another look now over twenty years later since brand equity emerged as an important idea in the late 1980s.

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. Marketing was reframed by an avalanche of researchers, authors and executives who provided substance and momentum to this idea

My model posited that 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 a brand equity roadmap to manage that potential value.

The Brand Equity Outline

  • 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.

Another aspect of the definition of brand equity that I presented in my book was the argument that brand equity 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.

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Read it in Chinese: 品牌资产及其价值

4 thoughts on “What Is Brand Equity and Why is it Valuable?

  1. For my dissertation; I am researching the idea of personal branding (CEO’s) influencing brand equity- would love to hear your opinions…

  2. The more I know about the CEO the more it will affect the brand or my opinion of the brand as far as buying. The CEO leads the Company and has great influence in what charities the Company invests in. If the CEO is not morally correct in my eyes than I don’t want to do business with that Company. I imagine if I am hearing about a CEO it’s because of some decision they are making for their Company. If it was a personal thing I learned about them that is not work related it may still influence where I shop around.

  3. Now on his ninth book, marketing and branding expert David Aaker (@DavidAaker) hardly needs any introduction. Indeed, Aaker has contributed so much so often to the topic of branding that, by his own admission, getting through it all can be “a bit overwhelming.” Enter Aaker on Branding: 20 Principles That Drive Success, a book designed to be both a standalone guide to the current branding landscape and a consolidation of ideas forwarded in his previous works.

    The result is a compelling, easy-to-read work that can either be read piece-by-piece or from cover to cover. With a wealth of sage advice and real-world examples on every page, you’re sure to learn something no matter how you approach it. Aside from Aaker’s sure, confident writing style, the book also benefits from having a compelling subject buoyed by sharp organization. As Aaker puts it in his introduction, “Brands and brand strategy are simply fun and interesting. Many a time has a CEO allocated half an hour to a brand strategy session and end up staying for hours affirming on their way out that the session was the most fun time working in months.”

    Indeed, branding is interesting, and as Aaker on Branding demonstrates, it has become the central most important consideration for businesses in any industry. But how do you make your brand shine?
    What is a brand, and why does it matter?

    Aaker wastes no time establishing the importance of branding, leading the book off with the statement, “Far more than a name and logo, [a brand] is an organization’s promise to a customer to deliver what the brand stands for not only in terms of functional benefits but also emotional, self-expressive, and social benefits.”

    And as Aaker explains in the book’s opening chapter, this knowledge turns brands into assets that drive strategy. The result of this understanding is that branding efforts over the past 25 years have been shifting from “tactical and reactive to strategic and visionary.”

    Such a shift has had a profound shift on both organizational and marketing strategy. More recently, this shift has corresponded with the rise of social technologies, a process which we detail in our book The Social Employee (McGraw-Hill, 2013). In order to accomplish this, marketers must be guaranteed a seat at the strategy table, as internal branding becomes just as essential as external branding.

    Says Aaker, “The brand will only deliver on the brand promise if the employees ‘believe’ and live the brand in all the customer touchpoints.”

    A visionary branding strategy involves widespread buy-in to an organization’s mission, vision, and values. Without a brand vision, one fundamentally established in how your organization operates, your brand either won’t be able to distinguish itself or it will be making promises and projecting an image that it can’t live up to. Says Aaker,

    When the brand vision clicks—is spot on—it will reflect and support the business strategy, differentiate from competitors, resonate with customers, energize and inspire the employees and partners, and precipitate a gush of ideas for marketing programs. When absent or superficial, the brand will drift aimlessly, and marketing programs are likely to be inconsistent and ineffective.

    Aaker lays out a process for creating a compelling, actionable brand vision that is memorable and actionable, inspirational and practical. While the essence of a brand vision can be summed up in a brief statement, Aaker recommends creating between six and twelve vision elements and then organizing them into a core tier and a secondary, extended tier.

    Building a brand vision, a set of organizational values that Aaker says “implies a promise to customers and a commitment by the organization,” brings with it a strategic imperative. An organization has to be able to deliver on whatever promise is being made to its stakeholders. If it is not positioned to do so, it is all but guaranteed to alienate those stakeholders as it fails to live up to its promise. And once this has happened, once customers, employees, or both have lost faith in a brand, building that trust back can be nothing less than a Sisyphean task.
    Brand Energy and Sweet Spots

    By establishing core brand values, brands will have a better idea of what they need to do in order to create “brand energy.” This energy is how a brand connects with its customers. In B2C organizations, this often involves the development of a distinct brand personality, an identity that speaks not just to what that company does, but also to how it shares values, passion, and concerns with its target community.

    To illustrate how powerful this can be, Aaker discusses the brand-as-personality. If you were talking to your brand as a person, what would they say to you? As Aaker explains, “Exploring what a brand-as-person might say to you can be a good way to uncover emotional response to brands.” Almost certainly, some of the answers are likely to surprise you, and as Aaker explains through the story of a well-known credit card company, sometimes the same brand personality traits can lead to very differing perceptions.

    Another way to build brand energy and cement a positive, activated personality is to find customer “sweet spots.” How can your brand connect with your stakeholders in areas such as self-identity, lifestyle, or other cultural values? As Aaker explains, sometimes finding these sweet spots is a natural extension of your brand, such as the “Pampers Village” set up by Pampers in order to provide the go-to resource for childcare questions for parents.

    For other brands, the connection might not be as obvious in relation to a brand’s product offerings, though it will still be able to resonate with consumers along key elements of your brand’s vision. Such is the case with RedBull, a beverage brand that actively sponsors events and activities centered around an active, no-holds-barred lifestyle. Aaker’s example of Dove’s “Real Beauty” campaign was also especially eye-opening.

    The key is that having good perception of your brand isn’t always enough. Being able to define what you do and actively seek opportunities to engage others is where the real energy comes from. So while each of Aaker’s 20 tips is a wealth of sound advice in its own, it’s the synergy of these tips, the idea that each builds off the other, that can produce magic for a brand.

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