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Brand Equity

Revision as of 16:05, 11 June 2020 by User (talk | contribs)

Brand Equity is the additional value a product receives from having a well known brand, or high level of brand awareness. It is the difference in price that a consumer pays when they purchase a recognized brand’s product over a lesser known, generic version of the same product. Brand equity is a competitive advantage that results in higher sales, higher revenues, and lower costs.[1]


The Brand Equity Concept[2]

While most brand equity research has taken place in consumer markets, the concept of brand equity is also important for understanding competitive dynamics and price structures of business-to-business markets. In industrial markets competition is often based on differences in product performance. It has been suggested however that firms may charge premiums that cannot be solely explained in terms of technological superiority and performance-related advantages. Such price premiums reflect the brand equity of reputable manufacturers. Three brand equity drivers were selected by researchers from numerous factors that have impact on a brand: brand awareness, brand perspective, and brand attachment.

Brand equity is strategically crucial, but famously difficult to quantify. Many experts have developed tools to analyze this asset, but there is no agreed way to measure it. As one of the serial challenges that marketing professionals and academics find with the concept of brand equity, the disconnect between quantitative and qualitative equity values is difficult to reconcile. Quantitative brand equity includes numerical values such as profit margins and market share, but fails to capture qualitative elements such as prestige and associations of interest. Overall, most marketing practitioners take a more qualitative approach to brand equity because of this challenge. In a survey of nearly 200 senior marketing managers, only 26 percent responded that they found the "brand equity" metric very useful.

Some marketing researchers have concluded that brands are one of the most valuable assets a company has, as brand equity is one of the factors which can increase the financial value of a brand to the brand owner, although not the only one. Elements that can be included in the valuation of brand equity include (but not limited to): changing market share, profit margins, consumer recognition of logos and other visual elements, brand language associations made by consumers, consumers' perceptions of quality and other relevant brand values.

Consumers' knowledge about a brand also governs how manufacturers and advertisers market the brand. Brand equity is created through strategic investments in communication channels and market education and appreciates through economic growth in profit margins, market share, prestige value, and critical associations. Generally, these strategic investments appreciate over time to deliver a return on investment. This is directly related to marketing ROI. Brand equity can also appreciate without strategic direction. A Stockholm University study in 2011 documents the case of Jerusalem's city brand. The city organically developed a brand, which experienced tremendous brand equity appreciation over the course of centuries through non-strategic activities. A booming tourism industry in Jerusalem has been the most evident indicator of a strong ROI.


The Components of Brand Equity[3]

  • Brand perception: Brand perception is what customers believe a product or service represents, not what the company owning the brand says it does. In effect, the consumer owns brand perception, not the company.
  • Positive or negative effects: When consumers react positively to a brand, the company’s reputation, products and bottom line will benefit, whereas a negative consumer reaction will have the opposite effect.
  • Value: Positive effects return tangible and intangible value – tangibles include profit or revenue increase; intangibles are brand awareness and goodwill. Negative effects can diminish both tangibles and intangibles. Uber, for example, was trending positively in late 2016, but a series of scandals ranging from sexism to spying negatively impacted its reputation, bottom line and brand equity.


Components of Brand Equity
source: Papirfly

  1. Definition - What Does Brand Equity Mean? TrackMaven
  2. The Brand Equity Concept Wikipedia
  3. The three components of brand equity Qualtrics