Brand equity

You might be familiar with the word “equity” from the finance world, but what does brand equity mean?

What is Brand Equity?

The Oxford dictionary tells us that brand equity is, “The commercial value that derives from consumer perception of the brand name of a particular product or service, rather than from the product or service itself.” Brand equity is the reason we prefer one brand to another, even when the two products they sell might be virtually the same — for example, when you choose the branded medication instead of the equivalent pharmacy version. According to researcher Richard Rosenbaum-Elliot, “It is the simple difference between the value of a branded product and the value of that product without that brand name attached to it.”*

Brand equity refers to the additional value a well-known brand name adds to a product or service beyond its functional benefits. Think about it this way: a generic t-shirt and a similar t-shirt from a recognised brand might be made with the same materials, but the branded one will likely command a higher price. This difference in perceived value is largely due to brand equity.

Three core components contribute to brand equity: 

Customer perception, which covers how customers view your brand in terms of quality, reliability, trustworthiness, and any emotional connections they have with it

Brand awareness, or the extent to which your brand is top-of-mind and easily recognisable by consumers

Brand associations encompass the specific ideas, attributes, and feelings that come to mind when customers think about your brand.

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Brand equity is tied to your identity

In other words, brand equity is the value that comes from a strong, positive brand identity. It comprises the way that consumers feel about and interact with your brand — including whether they recognise and trust you, how loyal they are and how much they’re willing to pay for your product or service. If your brand equity is strong, consumers will pay a premium for your products and endorse them to others. Poor (or “negative”) brand equity means people are unlikely to recommend your brand. Apple, with its millions of ardently loyal followers, is frequently cited as an example of great brand equity. This is thanks to the consistently and reliably high standard of Apple’s products and services, as well as the time the company has spent cultivating their image and Unique Selling Proposition (USP).

Brand equity is the value that comes from a strong, positive brand identity.

To demonstrate the power of brand equity, imagine that you are a low-cost airline that frequently offers sales of discounted flights. Suddenly, a competitor comes along offering similar or cheaper deals. Whether or not your customer base stays with you or defects to your competitor depends heavily on your brand equity. If you’ve invested in your brand perception and cultivated positive customer relationships, your customers are likely to remain loyal. If you’re known for having poor customer service or unreliable communication, on the other hand, your customers may go running into the arms of the competition. Having strong brand equity means having a customer base that will weather storms with you.

Why is brand equity more important than ever?

Brand equity becomes especially valuable during times of economic uncertainty and crisis. It’s important to spend time working on the awareness and identity of your company when business is stable so that you’ll have the brand equity to carry you through when the chips are down. And while it can be tempting to pull back on marketing spend during times of economic instability, it’s actually during these times that brand awareness becomes crucial: even if consumer buying habits become more conservative, you’ll remain on your customers’ radar. “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 organisation,” writes Professor David Aaker, who’s sometimes called “the father of modern branding.”

It’s also during economic downturns that consumers become more discerning about who they hand over their business to, and pay closer attention to factors such as brand values. Even prior to COVID-19 there was a growing trend among buyers towards conscious consumerism and choosing brands for their authenticity and sustainability practices, and the pandemic has only intensified this change in behaviour.* According to research, 78 percent of Australians report that they are likely to support the retailers that provided them with optimal service during the pandemic.* COVID-19 has also made consumers much more comfortable shopping online than before, meaning there’s a greater need (and opportunity) than ever to bolster your brand identity, awareness and equity through digital advertising and communication.

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As the digital landscape continues to evolve and consumer preferences shift towards online interactions, the importance of your brand fortifying it’s digital presence cannot be overstated. A strong brand not only sets you apart in a crowded market but also builds a foundation of trust and credibility in the virtual world, which is paramount in nurturing a loyal customer base and ensuring a sustainable competitive advantage in the long run.

Why is Brand Equity Important?

Strong brand equity offers businesses numerous benefits. When customers trust and have a positive connection with a brand, they’re more likely to become repeat customers, reducing the need to compete solely based on price. Brands with strong equity can often charge more for their products or services because customers recognise and are willing to pay for the added value of the brand name. 

Established brands with high awareness may need to spend less on marketing and promotional activities, saving costs over time. Finally, brand equity acts as a barrier to entry. It makes it harder for new competitors to gain market share, as they must overcome the loyalty and trust established by strong brands.

Components of brand identity

Brand equity is a notoriously slippery topic, and several people have tried to break it down into various key components — including, of course, David Aaker. According to Aaker’s model, there are three main “dimensions” that make up brand equity, and if businesses can tick off these criteria then they’re well on their way to brand success.*

1. Brand loyalty

Brand loyalty is essentially defined as how many repeat customers you have, how frequently they make a purchase and how fervently they’ll recommend you to friends. In Aaker’s view, the benefits of brand loyalty are that it reduces marketing costs, provides trade leverage, helps attract new customers (who are directly or indirectly referred by others), and allows businesses time to respond to the threat of competitors due to their customers’ reluctance to simply jump ship.

2. Brand awareness

This refers to how recognisable and front-of-mind your brand is amongst your target audience. It’s where your brand starts to become visible and familiar to your audience, which hopefully results in your audience developing positive feelings towards your brand and making a purchase.

3. Brand association and perceived quality

These are the things that consumers associate with your brand’s image — for example luxury or sustainability. Aaker says that brand association helps engender positive feelings in your target audience, defines your USP and gives your audience a reason to choose your brand over the competition.

The perceived quality of your brand determines how much value your customers place on your product or service, and whether they’re willing to pay a higher price for it.

Building strong brand equity

So, how do we accumulate more of this illusive, intangible item? Building brand equity doesn’t happen overnight and requires patience, but there are some key actions you can take to start strengthening your equity now.

Consistent branding

As we’ve highlighted in previous blog posts, it’s essential that your branding looks and feels the same across various mediums and platforms, as this helps create trust and alleviate confusion in the consumer. This means ensuring that your logo, colour choices, stationery and tone of voice, for example, are all carefully considered, consistent and complementary — and also that your origin story is successfully woven through your branding elements.

Good communication and positive interaction with consumers

Each time you communicate with potential or existing customers is an opportunity to strengthen your brand equity. This includes email correspondence; social media posts, comments and messages; face-to-face or over-the-phone conversations; e-newsletters and more.

Frequent and consistent communication through social media, blogs and e-newsletters in particular increases brand awareness, helps hone your brand identity and encourages brand loyalty by helping your audience feel as if they’re part of a community. You can further promote brand loyalty through memberships or loyalty programs, offering “sneak peeks” or early sales access to email subscribers; repeat customer discounts; value-adding free content and even small touches like handwritten notes with packaging.

Quality control ensures strong brand equity

Having a good quality control system builds strong brand equity by demonstrating to customers that you care about their experience and it gives you the opportunity to redeem your brand if a customer is disappointed. As well as the quality control measures that you undertake to ensure products are in good condition before customers receive them, this also encompasses activities such as surveys or invitations to review the brand after a purchase has been made or service rendered

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Quality is also conveyed through elements such as packaging, branding, website design and copywriting.

Awareness campaigns

As we mentioned above, brand awareness is the thing that will keep your business afloat even if the economy takes a downturn. Brand awareness campaigns — which might comprise activities such as digital and print ads, events and PR — ensure that you remain on your target customers’ radars whether they’re in the active purchasing phase or not.

Building brand equity involves several key strategies. The foundation of brand equity lies in delivering exceptional products or services that consistently meet customer expectations. Promote your brand in a way that highlights its unique value proposition and reinforces the positive associations you want customers to have. Align your brand with values, lifestyles, or aspirations that resonate with your target audience. Ensure positive interactions with your brand at every touchpoint to drive positive customer perception.

To measure brand equity, consider the following approaches:

  1. Conduct surveys to measure brand awareness and how customers perceive your brand in relation to competitors.
  2. Track repeat purchase rates, customer churn, and net promoter scores to assess loyalty.
  3. Determine how much more customers will pay for your brand than generic alternatives.
  4. Monitor your market share relative to competitors to see how your brand equity impacts your overall position.

Let’s chat about your brand equity.

It pays to think about your brand equity — especially during uncertain times. To find out how you can strengthen your brand through targeted marketing activities, get in touch with PIER.