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Brand Equity – Why is it important and how to measure it?

Brand Equity – Why is it important and how to measure it?

logo Hadley D’Souza
May 17, 2021 | 11 Min Read

It’s Saturday night, and you have just ordered a pizza. You would also like some cola to go with it. You quickly run to the supermarket downstairs to grab a bottle of chilled cola before the pizza gets to your place. How much time do you spend on choosing a brand? Chances are, you grab a bottle of Coke, go back home, enjoy your pizza when it gets there and call it a day.

The name that immediately comes to mind when you say ‘cola’ is Coke or Coca-Cola. But cola does not necessarily have to be Coca-Cola, does it? Cola is a kind of drink, while Coca-Cola is a brand name. And yet, when you run a google search for cola, you are bombarded with images of the brand.

Why? 

This is just one out of many examples - we say ‘Xerox copies’ instead of photocopies, ‘Band-Aid’ instead of bandages, sometimes even ‘Maggi’ instead of just noodles - especially in India. 

These are classic examples for what we are going to discuss - Brand Equity. These brands have done so well in selling the products they do, that not only are they dominating the market, but have actually become names by which those products are identified today!

Great Brand Equity is the very pinnacle of success that any business can aspire for. It is a point at which their happy customers no more have second thoughts about buying their products - whatever the price, and whatever the features.

What is meant by Brand Equity?

Brand Equity can be defined as the level of positive value that a consumer perceives in a brand name as opposed to another brand. In other words, Brand Equity is what you would feel about a brand when you come across its name. For example, Apple definitely evokes a different set of thoughts and feelings as opposed to Samsung.

When you see the Apple logo on a product, you already know how it is going to be. There is a level of trust to it, a certain level of familiarity even though you yourself may never have actually used an Apple product. This is because Apple enjoys great positive Brand Equity in the market.

As a result, there are a lot of people who swear by Apple, and will buy any product that is released by Apple no matter what the cost - without even giving a second thought to other brands that sell the exact same product. As such, Apple doesn’t have to worry about making its products cheap so that they can be sold faster - the demand will be high anyway. 

Even if other brands release competing products with more features but priced less, Apple will not be too worried. All Apple has to do is maintain certain standards that it has come to be recognized by and that’s it - the rest is pure profit!

What are the Main Components of Brand Equity?

Let us understand Brand Equity in a little more depth by breaking down the meaning of Brand Equity into three keywords as per our definition in the previous section:

Positive: brand image can be negative or positive in the minds of the public. If we go by the example of Apple as discussed above, the profit it enjoys is due to the positive brand image it enjoys. Positive brand perception is the ultimate dream of all companies.

Value: brand value is the ROI that the product brings to the consumers who have (in a way) invested in the product. The more positive the brand value, the better will be the profits registered by the company. 

Perceives: this word shifts the responsibility to the consumer. When we say brand perception, we talk about how the consumer feels about the brand, and not what the brand markets itself as. The aim of any marketing strategy, along with good brand value, is to ultimately tap into this brand perception so that the brand image of the company can be enhanced. 

Best Brand Equity Examples You Should Know

Great brand image, brand value and brand perception together are the three ingredients that make the magical formula for superior brand awareness. However, it is important to note that simply having a lot of brand awareness does not mean your company is going to register profits - you can be famous for all the wrong reasons too.

A good amount of desirable brand awareness is a result of the continual effort you put into making sure your three ingredients are in good health. Sounds hard? Well if they did it, so can you:

Coca-Cola: Let’s begin with our favorite. Today, the word cola is synonymous with Coca-Cola - and that itself stands testimony to how popular the brand is. But if you want to understand its success in numbers, then you should know that we are discussing a company that is valued at a whopping $80 billion! 

Coca-Cola
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Porsche: You either buy a Porsche, or you don’t. Porsche isn’t simply an option for when you are thinking of buying a car. The kind of brand image it enjoys, buying a Porsche is more a goal or statement than simply an automobile purchase.

Amazon: Amazon may not have complete dominance on their market yet, but they are getting there. Amazon’s growth is phenomenal, and it’s impossible to discuss e-commerce without mentioning Amazon. Amazon also has an amazing customer-first approach in doing business.

Apple: Nobody really compares an Apple phone with phones of other brands to make a purchase decision. Just like in the case of Porsche, you either decide to buy an Apple, or simply not. There is no in-between!

Google: When you come across an app or software that is powered by Google, chances are that your feelings towards that particular product automatically turn positive. This is because of the positive brand image that Google has today.

Why is Brand Equity Important?

The simple reason why companies strive to achieve great brand equity is superior profits. Think about it this way - if you run a company that has great brand equity when compared to your competitors, you not only would enjoy the safety net of a large network of loyal customers, but would also be seen as a kind of premium, infallible player in the market.

No matter what you charge your customers, they will still buy from you. Your cost of production remains the same - in fact, it may even be just the same as your competitors. However, your profits are significantly higher.

Needless to say, customer retention will no more be a major concern for you, and nor would you have to worry about what your competitors are doing.

As a result, your cost of customer acquisition is significantly reduced (when was the last time you watched an ad for a Lamborghini?), you are easily accepted into any market, and you can also release your new products with the confidence that they will have takers. 

However, you have to make sure that you keep your quality and standards consistently high without any compromise. As long as you make sure you are delivering on your promises, you will continue to enjoy great brand equity.

What is a Brand Equity Model?

There are two major models that companies rely on to understand Brand Equity in a little more depth. Although there may be more, these two remain the dominant models in today’s business world.

A. Five Assets Model

Five Assets Model
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This model was given by David Aaker. Aaker believes that the value related to the products of any brand depends on a ‘set of assets and liabilities’ that are linked to that brand. Here are the five assets that this model is based on:

1. Brand Loyalty: Aaker believes that Brand Loyalty can be determined through the following five points:

- Lesser Marketing Costs: a company with great Brand Equity has a high customer-retention figure. As a result, the company won’t be spending much on Marketing.

- Trade Leverage: better customer retention simply means our company is a reliable, steady source of income.

- Existing customers attract new customers: your happy customers will themselves market your business to others, thereby increasing your brand awareness.

- Time to respond to competitive threats:  because your customers are loyal, they will not easily switch to competing brands. This buys you some time to respond to competitive threats.

2. Brand Awareness: This is an indicator of how much the public is aware about your brand.

- Anchor Associations: this refers to the set of associations the public makes to your brand. This association depends on your brand strength (discussed later).

- Familiarity: this factor is a measure of how well-known the name of your brand is to everyone. The more people talk about your brand, the better it is for your brand awareness.

- Substantiality: what consumers say about your brand is what lends it some great substantial commitment.

- Brand Consideration: how easily does your brand come up in the minds of your potential customers when they are making purchasing decisions?

3. Perceived Quality: This is a measure of to what extent your brand is thought of as dealing in good quality products.

- Quality: simply, the quality of your product.

- Market Position: the level of differentiation your brand has in comparison to your competitors.

- Price: a higher price can be taken to be an indication of superior quality or of premium services.

- Availability: the wider the availability of your products, the more trusted will be your brand.

- Brand Extensions: obviously, the more brand extensions you have, the more chances you have of your customers making associations with your brand.

4. Brand Associations: This point deals with how well consumers make associations with your brand.

- Brand Retrieval: when a consumer is making a purchase decision, the ease and quickness at which s/he is able to retrieve the associations made with your brand.

- Purchase Drive Influence: the influence that the brand association has to actually drive the consumer to buy from your brand.

- Attitude: This is a measure of how positive an attitude the brand association creates in the minds of the consumers.

- Number of Brand Extensions: as discussed already, the more the number of brand extensions you have the more opportunities to create brand associations you get.

5. Other Proprietary Assets: this refers to all the legal assets that a company owns - such as intellectual properties, trade licenses, copyrights, trademarks and so on. The more the number of proprietary assets a company owns, the more positive will be the brand image of the brand, thereby giving the brand a great edge over competitors.

B.  Customer-Based Brand Equity  (CBBE) model

Customer-Based Brand Equity  (CBBE) model
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In this model, proposed by Kelvin Lane Keller, the responsibility is shifted on to the consumers. Keller believes that a brand’s equity depends on what the consumer feels or learns about a brand over time. This model theorizes that building brand equity manifests when the following four dimensions are examined and answered:

1. Brand Identity - “Who are you?”: This dimension deals with brand awareness. Does your market know about you? How and when do they think about you? How different do they perceive you from your competitors? Answering these questions will help you address this dimension.

2. Brand Meaning - “What are you?”: This more or less deals with the brand image you have created. Your market wants to know what you deal with and what you bring to the table. For example, your features, quality, appearance and so on. There are two approaches to this dimension. One is approaching the product itself - with your features, warranties, durability, etc. The other is the set of emotions and perceptions tied to how you appear to your market - for example, when you hear ‘Apple’ you immediately think of something chic, minimalist and super-stylish.

3. Brand Response - “What do I feel about you?”: Now that you have examined whether or not your consumers know you and what they know about you, you must examine what your consumers actually feel about you. Consumers can have judgments and feelings about you. Judgments can be made on things such as quality, reputation, relevance and so on. Feelings, on the other hand, are simply emotional responses to your brand - positive or negative.

4. Brand Resonance - “Would I like to be associated with you?”: This dimension examines the level of psychological associations consumers are willing to make with your brand. According to Keller, there are four kinds of brand resonance:

- Customer loyalty
- Attachment to the brand
- Sense of kinship with brand representatives (for instance, Apple fans loving Apple products due to a deep sense of respect for Tim Cook)
- Customer engagement (across social media accounts, blogs, chat rooms, etc.)

How to Measure Brand Equity?

Now that we have discussed what brand equity is and the popular model of building brand equity, here are five points of Brand Equity measurement that you must really know about:

1. Brand Awareness

Brand awareness is not just about whether people know your brand or not. It also means how popular your brand is in the market. The more you become an indispensable part of peoples’ conversations, the better that spells for your brand awareness. So, how exactly can you know if you have achieved a desirable amount of brand awareness? Here are a few ideas:

- Mentions over media - especially social media
- Reviews that your customers have left you on various platforms - on Google, for example
- Frequency at which your brand gets searched for
- The classic focus groups and surveys

2. Preference Metrics

As the name suggests, preference metrics are all about understanding what preferences your customers have. It is no surprise that consumers usually have a preference pattern when it comes to purchasing. Think about it - we all have our preferences when it comes to buying things, don’t we? 

When you start analyzing the preference patterns of your consumers, it can prove to be yet another powerful indicator of what your brand equity is like. The methods to analyze preference metrics are the same as we discussed in the previous point.

All you must remember is that when you are in the process of gauging the brand awareness your own brand enjoys, you must also study which other brands enjoy a great amount of brand awareness.

3. Brand Strength

Brand strength, simply speaking, is what your consumers feel about you. This goes beyond the usual questions about quality or features - it has to do with what emotions a consumer associates with your brand. Brand strength is about how strongly a brand feels about your brand mentally in relation to other brands. Think about how people who love Coca-Cola would never settle for any other brand of cola. You can run surveys to evaluate the strength that your brand has in the minds of your consumers.

4. Financial Data

This is a very straightforward measure. Your company’s financial data can be a powerful indicator of the brand equity you enjoy. For instance, if you enjoy a great market share, it is an obvious indication that you enjoy great brand equity. Another metric would be how much higher than your competitors can you comfortably charge?

As discussed earlier, if you can charge much higher without losing your customers, that’s a great sign. Other indicators would be your profit volumes, sustainability and growth and so on. If you analyze your company’s financial data along with the surveys and studies we mentioned above, you would probably get an almost accurate picture of your brand equity.

5. Brand Value

Month on month profits is not everything - you must also understand your company’s value. A company with great brand equity almost always has a high value. Past and present revenues are studied to project future revenues. This can give you an idea of your brand’s value. 

How can you determine your company’s brand value?  

A good starting point would be to calculate where you currently stand financially. To do this, combine the data you have on your Brand Strength Index (BSI) - i.e., your performance in the market, stakeholder equity, investors, etc. with the royalty range for your industry. This will give you your brand’s royalty rate.

Now you must identify how much of this revenue you can attribute to your brand. 

From this point on, you will be able to determine how much value your brand will contribute in the future as well by forecasting your company’s future revenues.

Final Thoughts

If you are simply looking to make quick money, then focusing on your profits alone may suffice. But when you are looking at things in the long term and want to create a big business that makes a historical mark in the world, focusing on your company’s brand equity is very important. Obviously, if you are here it means that you are at least slightly interested in improving your brand equity. We hope that the information we have presented here in this post will help you get started on this amazing journey. 

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