What is Brand Equity? Components, Importance, Examples

What is Brand Equity?

Brand loyalty is defined as a consumer’s preference to buy a specific brand in a product category. It is a result of consumer’s belief that the particular brand offers better product features, price and quality than other brands which make him or her purchase repeatedly from the brand. Brand loyalty develops over time, due to the trust and appreciation a consumer feels after purchasing and using a particular brand out of a set of such brands.

Brand loyalty is a consequence of the actual usage of a product or service of a company by a customer and deriving satisfaction from it. Consumer loyalty is achieved by offering free gifts, coupons, extended warranties, incentive programs, loyalty programmes, etc. to gratify customers and motivate them to make repeat purchases from them.

The concept of brand equity emerged in the early 1990s. It was not defined precisely, but in practical terms, it meant that brands are financial assets and should be recognised as such by top management and the financial markets.

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Brand Equity Definition

Financial accountants define brand equity as the total value of a brand as a separable asset and often called brand valuation or brand value.

Marketer defines brand equity as measuring the consumers level of attachment to a brand can be called brand strength.

In another way, the description of the associations and beliefs the consumer has about the brand called brand image.

Two general motivations for studying brand equity

1. Financially based motivation to estimate the value of a brand more precisely for accounting purposes in terms of asset valuation for the balance sheet or for merger, acquisition or divestiture purposes.
   
   
2. Strategy based motivation to improve marketing productivity.

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Components of Brand Equity

Brand equity consists of five different components:

1. Brand Loyalty
2. Brand Awareness
3. Perceived Quality
4. Brand Associations
5. Brand Experience

Brand Loyalty

Brand loyalty represents a favourable attitude toward a brand resulting in the consistent purchase of the brand over time prompted by a strong internal disposition. It represents a future revenue stream.

Brand Loyalty has two dimensions:

• Behavioural approach: have defined loyalty by the sequence of purchases and/or the proportion of purchases.
  
  
• Cognitive approach: underlines that behaviour alone does not reflect brand loyalty.

Customer loyalty is of strategic importance to the firm. It is an asset. Brand loyalty is the core of brand equity. It shows how likely a customer will switch to another brand, especially when that brand undergoes a change, be it in price or in product features

Brand Awareness

Brand awareness is the ability of a potential buyer to recognise or recall that a brand is a member of a certain product category.

Brand Awareness has two dimensions:

• Brand recognition: when a consumer is able to confirm prior exposure when given the brand as a cue.
  Example:  when they go to the store, will they be able to recognize the brand as one to which they have already been exposed?
  
  
• Brand recall: consumers ability to retrieve the brand when given the product category, the needs fulfilled by the category, or some other type of probe as a cue.
  Example: recall of Kellogg’s Corn Flakes will depend on their ability to retrieve the brand when they think of the cereal category.

Brand awareness is a crucial determinant of its participation in the consideration or evoked set. Generally, when a brand is not able to get a recall, it is not included in the consideration set. A recall is essential for finding membership in the evoked set. The mind share (top-of-the-mind recall) often leads to market share.

Perceived Quality

Perceived quality can be defined as the customer’s perception of the overall quality or superiority of a product or service relative to alternatives. Perceived quality is customer based.

Perceived quality has two dimensions:

• Objective quality: means the actual superiority of product or service.
  
  
• Perceived quality: perception of superiority of a product or service with respect to its intended function.

Benefits of perceived quality of a brand equity

• Firstly, perceived quality gives a powerful reason for the customer to consider and buy a specific brand.
• Second, perceived quality allows a brand to acquire a position or differentiation.

Brands with higher quality perception can afford to charge price premiums. The premium can be further deployed in brand-building efforts.

Brands with higher perceived quality find greater acceptance from trade partners and they are willing to carry such brands. Finally, it can be the basis to leverage brands into launching extensions.

Brand Associations

A brand association is any mental linkage to the brand. An association can affect the processing and recall of information, provide a point of differentiation, provide a reason to buy, create positive attitudes and feelings and serve as the basis of extensions.

Brand Association has three dimensions:

• Attributes: those descriptive features that characterise a product or service.
• Benefits: are the Personal value and meaning that consumers attach to the product or service.
• Attitudes: are defined in terms of consumers’ overall evaluations of a brand.

Benefits of brand association of a brand equity

• Firstly, Brands are bought for what is associated with them.
• Secondly, associations create value, is by becoming the basis of differentiation.
• Finally, associations provide a basis for extending the brand into new product categories

Brand Experience

Brand Experience is a type of experiential marketing strategy that includes a holistic set of conditions created by a company which is used to influence the feeling of the consumer towards its brand.

Read: Customer Based Brand Equity | Keller’s brand equity model

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Importance of Brand Equity

Importance of Brand Equity is not only to capture market share but it also provides value to the customer, as well as to the firm. The resulting customer value becomes a basis for providing value to the firm.

Importance of Brand Equity are:

1. Information processing
2. Customer confidence
3. Customer satisfaction
4. Marketing programmes
5. Customer Loyalty
6. Price Premium
7. Market Share and Brand Extension
8. Leverage distribution channels

Value to Customers

Information processing

It helps customers in information processing. A brand is useful in aiding customers in interpreting, processing, and storing information about products and brands. It simplifies this process.

Customer confidence

A brand’s assets enhance customer confidence in the purchase decision. One feels more confident in purchasing a brand. A brand’s assets in the purchase decision.

Customer satisfaction

The final value to the customer comes in the form of usage satisfaction.

Value to Marketer

Marketing programmes

The effectiveness and efficiency of marketing programmes are increased by brand equity assets. The expenditure associated with a brand to achieve a goal generally tends to be less than an unbranded product aiming to achieve the same goal.

Customer Loyalty

Brand equity dimensions allow a firm to have greater customer loyalty. The customers can exhibit preference and commitment to a brand only.

Price Premium

Brand equity allows a firm to charge a premium. That is, a customer may willingly support a brand in spite of greater sacrifice that needs to be made.

Market Share and Brand Extension

Brand equity provides great opportunities for growth. In fact, most firms now rely on brand extensions to achieve growth rather than launch new brands.

Leverage distribution channels

Brand equity is a good source of achieving leverage in distribution channels. It is easier to get access to the distribution chain when the brand has equity.

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Examples of Brand Equity

Starbucks Brand Equity

Starbucks is a US-based company has been operating in the coffee shop industry since 1971 and have a global reach of 28,000 outlets. Starbucks distinguished itself from competitors based on the coffee taste and ambience.

Porsche Brand Equity

Porsche has strong brand equity in the automobile industry due to its reliability image through the use of high quality, unique material. It is viewed as a luxury brand and owner pay not only for the product but for a great experience.

Apple Brand Equity

Apple is known among the consumer for its strong brand equity in the mobile industry. The design of the Apple brand is associated with culturally and economically technology power and has been implemented Total quality management.

Read: What is Strategic Management?

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Brand equity measurement

Understanding of brand equity is an important task for an organization, without it they will struggle to set metrics for improvement.

Brand equity measurement is certainly complex and involves many variables, but it’s wholly possible.

Different ways to brand equity measurement

Brand Awareness

Customer knowledge about the product is an important part of brand equity. “conversion share” is a leading indicator for consumer awareness about your company product.

Measuring brand awareness for brand equity among target customers can take many forms:

• Surveys and focus groups
• Web traffic
• Search volume for your brand and products
• Social mentions and reviews

Local Marketer Perception Metrics

Local outlets are directly responsible for the way your customers experience the brand. By monitoring local marketers’ sentiment, we can understand whether your brand equity is increasing or decreasing and improve the quality of your support to local representatives. 

Measuring Local Marketer Perception for brand equity among target customers can take many forms:

• Surveys
• Focus groups
• Software adoption rates
• Campaign deployment rates

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What is Positive Brand Equity?

Positive brand equity means if consumer perception of and experiences with the brand is good and lead to purchase of product then it has positive brand equity. 

Benefits of Positive brand equity helps in the following ways:

• A company can charge a premium price
• Brand Line extension
• It can help boost a company’s stock price.