What is Brand Equity? Examples & How to Build it?

The competitiveness of the market has changed customers’ behaviors and decisions to make a purchase. Businesses have been focusing more on brand equity rather than just on product quality. This has made brand equity one of each business’s most significant assets. Companies are trying to find the best strategies to build positive and powerful brand equity.

So What is Brand Equity? How important is it? Let’s dig into this below article and figure it out.

What is brand equity?

Brand equity is a marketing term that shows the value of a brand. That value is identified by customer perception of and experience with the brand. The natural relationship between customers with the brand opens a predictable model:

• Awareness - Introduce the brand to its target customers - typically with advertising - in a way that makes it noticeable. Recognition - The brand becomes familiar to the audience and can be recognized in a store or elsewhere.
• Trial - Now they see the brand and understand what it is or stand for, they give it a try.
• Preference - When the brand provides a good experience to the customer, it becomes the preferred option.
• Loyalty - After a range of good brand experiences, consumers not only suggest it to others, it becomes the only one they will purchase and use in that category. They think much of it that any item within the brand benefits from its positive glow.

Basic components of brand equity

Brand equity includes three basic components: consumer perception, negative or positive effects, and the resulting value. First, consumer perception, which consists of both knowledge and experience with a brand and its goods, improves brand equity. The perception that a customer group has about a brand directly leads to positive or negative effects. If the brand equity is positive, the company, its goods, and its financials can get benefits. If the brand equity is negative, the reverse is true.

Lastly, these effects can convert into tangible or intangible value. In case the effect is positive, tangible value is recognized as rises in revenue or profits, and intangible value is known as awareness or goodwill. When the effects are negative, the tangible or intangible value is negative too. For instance, if customers are willing to spend more for a generic item than for a branded one, the brand is claimed to have negative brand equity. It may occur if an organization has a signigicant product recall or triggers a widely publicized environmental disaster.

Importance of brand equity

When consumers give a level of quality or prestige to a brand, they think that the brand’s goods are more valuable than products from its competitors. Hence, they are willing to spend more money. In reality, the market bears higher prices for brands that gain high levels of brand equity. The cost of producing a golf shirt and introducing it to the market is not higher, at least to a considerable extent, for Lacoste than it is for a less famous brand.

Nevertheless, as its consumers are willing to spend more, it can require a higher price for that shirt, with the difference bringing in a profit. Positive brand equity grows profit margins per consumer as it enables a company to charge more for an item than competitors, although it was obtained at one price.

Brand equity makes a direct impact on sales volume as customers would buy products with good reputations. For instance, when Apple launches a new item, consumers queue up around the block to purchase it, although it often has a higher price than similar items from competitors. One of the main reasons why Apple’s items sell in such huge numbers is that it has collected an incredible amount of positive brand equity. This is because a specific percentage of a company’s costs to sell items are fixed, higher sales volumes result in greater profit margins.

Customer retention is another area where brand equity has effects on profit margins. Back to Apple’s example, the majority of Apple’s consumers do not have only one Apple item, they own several, and they expect the next one’s launch. The customer base of Apple is significantly loyal. Apple has high customer retention, which is resulted in its brand equity. Maintaining current customers boosts profit margins by reducing the amount a business has to pay for marketing to gain the same sales volume. It costs less to retain an existing customer than to find a new one.

How to build brand equity?

Step 1. Create greater awareness

You need to ensure that your consumers realize your brand identity when searching for products and services and that they perceive it in the way you intend. There are some ways to do this:

• Using the same logo or photo to make sure your branding is consistent
• Good customer service
• A heartening story behind the brand
• Maintaining the brand in front of your market
• Offering ongoing value
• Staying in touch through email or newsletters
• Connect social media and share - blogs, tweets, Facebook groups, and Instagram pictures.

Step 2. Communicate brand meaning and what it stands for

There are two things to keep in mind: how well your product satisfies consumer requirements and its social and psychological aspects. A company that manufactures a useful item, and takes social or environmental responsibility will appeal to consumers and employees who share those values.

For instance, IKEA has spent money on sustainability throughout its operation: 50% of its wood is from endurable sources, 100% of its cotton as Better Cotton Standard, and 700,00 solar panels provide power to its stores.

Step 3. Foster positive customer feelings and judgments

Consumers tend to become loyal consumers and pass the word on when they have a warm feeling towards your item. There are judgments about a brand’s credibility, quality, relevance to demand, and superiority over the competition. Hence, it’s critical to keep the integrity of all of these. Positive feelings would be self-respect, trust, fun, security, and excitement.

Step 4. Create a strong bond of loyalty with your consumers

This is effective but the most challenging aspect of brand equity to obtain and maintain. Consumers have set a psychological bond and feel connected to your brand and make any purchases. They might feel part of a community with fellow customers and act as your brand ambassadors by joining social media conversations on Facebook, Instagram, and Twitter. Reward people who engage with your community by doing things like getting them more Instagram followers. Brand equity connection bordering on customer evangelism is essential.

How to measure brand equity?

Here are three main brand equity drivers that you should keep track of financial, strength, and consumer metrics:

• Financial metrics: The C-suite will always expect a positive balance sheet to claim that the brand is profitable. You might extrapolate from the data market share, cost, price, revenue and development rate to retain consumers, cost to obtain new clients, and branding investment. You can take advantage of reliable financial metrics data to prove how significant your brand is to the business and ensure marketing budgets to keep developing.

• Strength metrics: Strong brands tend to survive despite change and bring in more brand equity, so it’s crucial that you measure its strength. You’ll necessarily need to keep track of awareness and knowledge of the brand, accessibility, consumer loyalty, and retention, licensing potential, and brand “buzz.” Similarly, surveys that utilize open-text questions and social media supervising will bring you a picture of how your brand is heard and loved (or not).

• Consumer metrics: Companies don’t grow brands; consumers do. Therefore, it’s significant that you monitor customer buying behavior and sentiment towards your brand. Monitor and measure brand relevance, emotional connection, value, and brand perception via surveys and social media tracking. The right text analytics software that can illustrate open text comments is especially helpful in collecting sentiment and suggestions.

Examples of brand equity

Positive examples

Netflix

Now, Netflix is the leading on-demand media brand with nearly 193 million subscribers worldwide. The brand is currently ranked 73rd on Brand Finance’s Global 500, up six places from the 2019 report, and is the fourth most relevant brand in Prophet’s 2019 Brand Relevance Index.

However, few people know that in 1997, it was the DVD-by-mail business. In the early 2000s, the brand offered thousands of DVD options and delivered them directly to customers’ mailboxes.

In 2007, Netflix started its streaming service. It allowed customers to stream up to 1,000 TV shows and movies and then increased the number of subscribers by nearly 20% to 7.5 million.

Since then, the brand has continued to innovate its products to make it easier for customers to watch movies. It collaborated with technology providers to stream content to subscribers’ TVs and phones. Then, it even started creating its own TV shows and movies, which have won both Emmy and Oscar awards.

Netflix is an example of brand value that shows that continuous innovation is key to staying relevant.

Starbucks

Starbucks began its journey in 1971 as a single coffee bean store in Seattle. After a few years, Starbucks grew into the largest coffee chain in the world by providing customers with consistent service. Today, Starbucks is ranked 28th in Brand Finance’s list of the 500 strongest and most valuable brands globally.

From the branding to the taste of the drinks, when customers see the green two-tailed siren logo, they know they’ll get a consistent experience. Their drinks will taste the same and be served in a white branded cup with their name - or something close to their name - on it, whether they’re at their local Starbucks or around the world.

In addition to consistency, the brand also focuses on convenience and making coffee easy to buy. Through its app, customers can pay, order ahead on their mobile device to have their drinks waiting for them when they arrive at the store, and earn free drinks.

Apple

Apple, which was the most popular brand in 2015, is a typical example of a brand with positive equity. The company got its positive reputation with Mac computers before expanding the brand to iPhones, which fulfills the brand promise expected by Apple’s computer users.

Regional supermarket chain Wegmans has gained considerable brand equity. As stores extend into new territories, the brand reputation creates huge crowds that police have to direct traffic inside and outside store parking spaces.

Negative examples

Financial brand Goldman Sachs experienced brand value loss as the public knew about its role in the 2008 financial crisis, auto Toyota lost its brand value in 2009 when it was forced to recall over 8 million vehicles due to unexpected acceleration, and oil and gas company BP lost considerable brand equity after the U.S. Gulf of Mexico oil spill in 2010.

Gaining positive brand equity is half the job; maintaining it is the other half. As Chipotle’s 2015 food poisoning crisis shows, one negative event can mostly destroy years of favorable brand equity.

Summary

We’ve taken you through all the necessary information you need to know about Brand Equity and how to build it. The more positive your brand equity, the more successful your business or company becomes.

If you have any questions about brand equity, please drop a line in the comment section. We’re glad to answer them