Brand Equity

You go to a Gucci store and find that the price of t-shirt averages $500. However, at H&M, you can find t-shirts averaging $15. Why does Gucci charge higher prices than H&M? Is there any difference in products? Or is it because they have different brand equity? 

Brand Equity Brand Equity

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    You'll find out the answers to these questions and much more by reading through this explanation!

    Brand Equity Definition

    Brand equity is significant for businesses as it is one of the main factors that can help companies drive sales and expand their profit margins.

    Brand equity refers to the value consumer derive from a brand. It is based on consumer perceptions and experiences with the brand.

    Anything from a simple logo to the brand name is considered brand equity as long as it has value for the business. Businesses usually find out how much their branding is worth when they try to sell their company.

    Brand Equity Apple Logo, Wikimedia CommonsApple Logo, Wikimedia Commons

    Think of Apple and what the value of Apple's brand would be. The Apple logo is recognised everywhere, and the company is building an increasingly loyal customer base. You can see how everyone lines up in front of the Apple store when the new iPhone is released.

    The concept of customer loyalty lies at the heart of brand equity.

    Customer loyalty refers to the extent to which customers are content with the product, have a favourable opinion of the brand, and are willing to make repeat purchases.

    Higher customer loyalty would also increase a brand's equity. The reason is that whenever a company launches a new product, it knows customers will buy its product. This helps drive sales and increase profits.

    There are many branding practices companies use to increase their customer loyalty. Focusing on environmentally responsible practices is one strategy companies use to improve customer loyalty to their brands. IKEA is one such example. IKEA has been dedicated to turning its entire business operations into more environmentally friendly.

    Nowadays, businesses are becoming more aware of the importance of brand equity. As a result, they are making more efforts to evaluate the potential earnings of influential brand names.

    When a specific product category is mentioned, a person's level of brand awareness indicates how readily or effortlessly a particular brand name is brought to mind. Public awareness of a brand may be significantly increased by advertising.

    Brand recall refers to how likely customers are to remember the brand or its products.

    There are two main types of brand recall: aided brand recall and unaided brand recall. An aided brand recall occurs when an individual can remember a brand when exposed to a symbol or logo of the brand. On the other hand, unaided brand recall happens when the individual does not need the logo or character of the brand to recall it.

    Brand awareness is one of the key metrics that companies can use to measure brand equity. Substantial brand equity means that a lot of consumers recognise the brand. Think of Coca-Cola; there are probably only a few consumers around the world unaware of Coca-Cola.

    Brand Equity Examples

    A typical example of brand equity can be observed when a business wishes to expand its product line or mix. Under such circumstances, a company greatly benefits from having positive brand equity.

    Suppose the equity of the brand is positive. The firm may want to extend one of its brands by linking the new product with an established brand that has been successful in the past. This is known as brand extension.

    For instance, if Apple were to become a car manufacturer to expand its product offering, the company would likely continue to sell its new product under the same brand name - rather than developing a new brand name for cars.

    Customers already have favourable impressions of Apple, which makes the new product more appealing than if the cars were sold under a brand name they were unfamiliar with.

    You've probably had Tylenol before when you were sick, or you might know someone in your family who did. Tylenol has established strong brand equity. As a result, it ranks higher than many other competitors in the market for pain treatment products.2 In the past, Tylenol has provided consumers with high-quality options, like Tylenol Extra Strength.

    As Tylenol's first line of products has proven efficient in delivering what it promised, Tylenol has managed to build trust and increase its customer base. For this reason, customers still purchase new medicines offered by Tylenol.

    It is not always that brands have positive brand equity. Brands can also have negative brand equity; in such a case, the brand loses customers' trust, which decreases brand value.

    Volkswagen's brand equity took a hit when the company was forced to recall as many as 11 million diesel cars because manufacturers had installed flawed emissions tests in those vehicles. It was projected that they suffered a loss in brand value equivalent to $10 billion due to the emissions issue.3

    Importance of Brand Equity in Marketing

    The importance of brand equity in marketing is as follows; when consumers associate a certain degree of quality or prestige with a brand, they see the items produced by that brand as having more value than those produced by rivals. As a result, they are prepared to pay a higher price for them. This makes brand equity very important in marketing.

    Consumers are willing to pay a premium for products with significant brand equity when it comes down to it.

    The cost of producing a polo shirt and getting it to market is not much more for Gucci than it is for a less recognised brand. At least not to the extent that it would be considered significant. However, as Gucci comes with high brand equity and perceived value, customers are willing to spend more on a Gucci shirt than spend less money on a less-known brand.

    As customers are ready to pay a higher price, the company does charge a higher price for the product and thus generates higher revenues, signifying the importance of brand equity.

    A company that builds positive brand equity can charge a higher price for a product than its rivals, even if costs are the same. This increases the profit margin per customer.

    Because customers are drawn to purchase products with solid reputations, the level of a company's brand equity directly impacts the number of its sales.

    Brand Equity Model

    Kevin Lane Keller, a professor of marketing, established the brand equity model. Keller's Brand Equity Model is also known as the Customer-Based Brand Equity (CBBE) Model.

    The reasoning that Keller used to develop this model is straightforward: to have a powerful brand, one has to generate the appropriate brand image. A positive brand image can be achieved by engineering perfect brand encounters or experiences for customers or potential customers.

    Customers and potential customers should walk away from their interactions with the brand having had bright ideas, feelings, and attitudes. Constructing the appropriate kinds of experiences around the brand is necessary to elicit favourable emotions, beliefs, attitudes, and perceptions of the brand.

    Companies deliver positive feelings through various marketing experiences - they may include fun, warmth, excitement, and security.

    According to the Brand Equity model, when you have demonstrated that your brand is capable of providing value, you will have successfully developed brand equity, and the convictions of your customers will be shared with others.

    To build a successful brand, Keller's Brand Equity Model consists of four steps: brand identity, brand meaning, brand response, and brand resonance. These four combined form the Brand Equity Pyramid.

    There is also Aaker's Model of Brand Equity. According to David Aaker's definition, brand equity is a collection of assets and liabilities associated with a brand that either increases or decreases the value of the product or service sold under that brand.

    Brand Equity Pyramid

    The brand Equity pyramid is based on Keller's Model. The Brand Equity pyramid consists of four critical factors: brand identity, brand meaning, brand response, and brand resonance.

    Brand equity: Brand identity

    Each company's primary goal in building valuable brand equity is to build brand awareness. Companies must ensure that the target segment is familiar with their brand.

    During this phase, companies pursue brand identification and awareness. Additionally, they work on guaranteeing that positive impressions of the brand characterise the crucial phases of the purchasing process.

    A company must clearly define and convey its brand values and identity. This helps the target market understand and recall the brand.

    Having a clear brand identity also works towards increasing the brand salience of a company. Brand salience shows how much a brand is noticed or thought of. Companies with strong brands have a higher brand salience than others. Having a high brand salience contributes to being chosen over competitors.

    Brand equity: brand meaning

    This step involves identifying what the brand stands for and what it means to customers.

    Brand meaning consists of two critical things: performance and imagery.

    Performance is measured by how successfully a product can fulfil its target market's requirements.

    There are five different elements of performance include:

    • the essential qualities and features;

    • the product's dependability, durability, and serviceability;

    • the service's efficacy, efficiency, and empathy;

    • the style and design; and

    • the cost.

    All these features help shape positive brand equity.

    Imagery refers to how the brand addresses consumer needs on a social and psychological level.

    For instance, businesses dedicated to "becoming green" generate customer loyalty by appealing to consumers who share the company's beliefs and support those ideals.

    Brand equity: brand response

    Brand response concerns consumers' reactions to a brand, including their judgements and feelings.

    The criteria that customers use to evaluate a brand (judgement) may be broken down into the following four categories:

    • Quality - refers to the appearance and the actual quality of a product.

    • Credibility - refers to a brand's trustworthiness, likability, and competence (innovation).

    • Consideration - is the ability of a product or service to meet the requirements of a consumer.

    • Superiority - refers to where the brand stands compared to other brands (from the customer's point of view).

    Some of the emotions a brand may convey include happiness, contempt, amazement, melancholy, anxiety, etc.

    Brand equity: brand resonance

    In its most basic form, brand resonance refers to consumers' emotional connection with a specific brand. Brand resonance is a company's ultimate goal. Brand resonance refers to building deep relationships with customers.

    It is perhaps the most challenging element to achieve, as it indicates that the consumer has developed a profound relationship with the brand.

    Customers show brand resonance through repeat purchases, an emotional connection to the brand or product, active participation as brand ambassadors, event attendance, or frequent social media engagement with the brand.


    Brand equity - Key takeaways

    • Brand equity refers to the value consumer derive from a brand. It is based on consumer perceptions and experiences with the brand.
    • Customer loyalty refers to the extent to which customers are content with the product, have a favourable opinion of the brand, and are willing to make repeat purchases.
    • The importance of brand equity in marketing is as follows; when consumers associate a certain degree of quality or prestige with a brand, they see the items produced by that brand as having more value than those produced by rivals.
    • The Brand Equity Pyramid consists of four critical steps: Brand Identity, Brand Meaning, Brand Response, and Brand Resonance.

    References

    1. 1. Retaildetail. VW calls back all 11 million "suspicious" diesel-powered cars. https://www.retaildetail.eu/news/automotive/vw-calls-back-all-11-million-suspicious-diesel-powered-cars/
    2. Magazine.amstat. Does Name Brand Make a Difference in OTC Pain Medications?. https://magazine.amstat.org/wp-content/uploads/2019/07/FirstPlace2019Project.pdf
    3. CMO.com. VW scandal knocks $10bn off auto company's brand value and threatens German reputation. https://www.cmo.com.au/article/585400/vw-scandal-knocks-10bn-off-auto-company-brand-value-threatens-german-reputation/.
    Frequently Asked Questions about Brand Equity

    What is brand equity?

    Brand equity refers to the value consumer derive from a brand. It is based on consumer perceptions and experiences with the brand.

    How to measure brand equity?

    Brand awareness is one of the key metrics that companies can use to measure brand equity.

    What is the importance of brand equity?

    The importance of brand equity in marketing is as follows; when consumers associate a certain degree of quality or prestige with a brand, they see the items produced by that brand as having more value than those produced by rivals. 

    What is consumer based brand equity?

    Consumer-based brand equity shows how a brand's success depends on its customers' attitude towards the brand.

    What are the 4 elements of brand equity?

    The 4 elements of brand equity are brand identity, brand meaning, brand response, and brand resonance. Together they made up the brand equity pyramid.

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