Brand equity is one of those concepts that are often used in branding, although not always in the most appropriate way.

Brand equity is a term used to describe the value of a well-known brand, based on the idea that well-established brands with positive reputations achieve greater success. More specifically, it is a set of brand assets and liabilities linked to a name and symbol, which add to or subtract from the value provided by a product or service.

This concept was first introduced by David Aaker in the 1980s. His input changed the perspective for brand specialists, shifting a tactical vision to a more strategic one. The assets and liabilities Aaker was referring to are: loyalty, awareness, partnerships, perceived quality, and proprietary assets.

It is important to note that brand equity is not the same as brand equity, that is, the financial value of a brand. The two are closely related, but positive brand value doesn’t automatically result in positive brand value, for example. Nor is it the same as the concept of brand health, which is shaped by a set of metrics that show how the brand contributes to the achievement of its objectives. Brand health includes Brand Equity and circumscribes it in the environment in which its audiences interact with the brand, it also takes into account the degree and way in which it translates into a certain behavior with respect to the brand.

To simplify the concept, I could say that brand equity is the simple difference between the value of a branded product and the value of that product without that brand associated with it.

Why is Brand Equity important?

Brand Equity directly affects economic value, which means that strong brands are worth more to investors. Several studies show that organizations that leverage the power of the brand get a higher return on investment than their competitors. For example, positive brand capital allows for higher selling prices. Or consider that when consumers believe in and identify with the values represented by a brand, they will be willing to pay higher prices to acquire it. In addition, if an organization wants to add new product ranges, marketing them under the same brand name will help the new product take off faster, as the necessary trust will have already been established. Today this is essential since about 80% of consumers refuse to buy from a brand they do not trust.

Components of Brand Equity

As I mentioned at the beginning, the Aaker model is based on a configuration based on 5 areas:

  1. Brand loyalty. High brand loyalty ensures that the business is stable and consistent, and allows the organization to capture a larger market share. A consumer who believes in the value of a brand’s offerings will often make frequent, repeat purchases instead of switching brands.
  2. Brand awareness. It represents the degree of familiarity of a customer with the brand, from ignorance, to recognition, consideration and preference.
  3. Perceived quality. It focuses on the brand’s reputation achieved by the quality of its products and the customer experience. It affects the degree to which customers perceive the brand as superior. As I already mentioned, customers are always willing to pay more for a brand they perceive as superior. That’s the value of perceived quality.
  4. Brand Association. It involves any aspect related to the brand that evokes feelings, positive or negative. For example, the functional, social, or emotional benefits of a product. For example, while Apple would be associated with creativity and excellent design, IBM would be associated with trust and reliability.
  5. Proprietary assets. This includes patents, trademarks, intellectual property rights, and channel relationships that give the brand a strong competitive advantage within the market.

But, after more than 30 years since the postulation of this model, technology and the rise of social networks could be changing the way Brand Equity is approached. We are facing a new framework that has radically transformed the relationship between brand and people. Now that social media has flattened communication between individuals and businesses, it’s much easier for anyone to make their opinions about the brand known on a large scale. Whether they’re good or bad. Whether they are fundamental or not. With a single post, a person now has the power to improve or demolish a brand’s reputation. And this directly affects the brand’s equity.

It’s already proven that social media accessibility creates unique considerations for brand equity. This is because communication with brands becomes immediate, personal and transferable, able to spread quickly around the world. The brand’s presence on social media has turned brand equity into a constant exchange. Compared to the previous model of one-way brand messaging, maintaining brand equity is now a 24/7/365 responsibility, where disengagement is not allowed.

Right now, it is necessary to broaden the vision of brand equity to include these conversations. Companies are also called upon to pursue social media engagement as part of maintaining their brand equity.

How to Measure Brand Equity

There is no one-size-fits-all formula and there are multiple methods based on brand tracking techniques, which not only provide an understanding of the ROI of a given campaign, but can also help measure awareness or association. These analyses focus on business impact metrics (retention, conversions, price) or consumer impact metrics such as consumer research, sentiment analysis, etc.

From a brand perspective we can consider:

  1. Financial impact. Protected by:
    • Enterprise Value: Considering the company as an asset, subtracting tangible assets from the overall value of the enterprise would yield brand equity.
    • Market share: What is the company’s market share? Leaders in the market tend to have higher brand equity.
    • Revenue potential: What is the revenue potential for your product? How does this compare to the company’s current revenue?
  1. Value of the product. A good way to measure product value is to compare a generic product to the branded product.
  2. Brand audit. This is a detailed analysis that shows how the brand is currently performing compared to its objectives, and contrasts it with the rest of the competitors to verify its performance and positioning in the market. As we have seen, it is convenient to incorporate Sentiment Analysis, obtained by identifying and extracting subjective information by monitoring online conversations.

Final Consideration

What sets the world’s strongest brands apart from their competitors is brand equity. It’s not just an indicator, it’s valuable for both businesses and customers. It is a key factor for the business as it is proven that brands are assets that drive business performance over time. Building, maintaining and growing Brand Equity is not only a tactical aid to generate short-term sales, but also a strategic support to create long-term value and secure the future of the business.

 

Carlos Puig Falcó
CEO of Branward