Updated: Jan 7
Brand Equity is defined as: “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.”
In other words, your brand has this arbitrary value that is not directly tied to your traditional assets, and this equity enables you to charge more for your products. But it doesn’t mean that you will or should, Walmart is one of the highest valued retail brands in North America and they, as we all know, charge less.
Either way the basic idea of brand equity is why Heinz is able to charge more for a bottle of ketchup than the generic store brand. What gets interesting is when we turn this arbitrary value into dollar signs. When we look at brand equity in financial terms, rather than something arbitrary your marketing department does or doesn't do, we begin to see how crucial brand equity can be for the bottom line of a business… Because, your brand is your only asset that, if managed properly, will never depreciate in value.
We need to emphasize the "if managed properly" disclaimer, as your brand equity can easily plummet if mismanaged. Which is why we will beat the dead horse of strategy and customer experience to death. Do NOT underestimate what bad press or missing the mark on customer service can do your brand equity, especially as a small business. So what exactly makes up Brand Equity? Generally we say there are three basic components:
1. Brand Perception: This is what customers think about your company, products and/or services. What they believe you represent and the core values you embody. This is not what you tell your customers you are, which is an important distinction. You can influence perception through marketing and public relations but you don’t own it.
2. Positive and negative effects: This refers to the customer reaction to your brand which is related to both perception and value. Basically when customers react positively to your products, purchase more etc. you will make more money. When they react negatively and their patronage dwindles, your bottom line will decrease.
3. Value: There’s both a tangible and intangible value attached to Brand Equity. The tangible are things we can measure such as profit, revenue, sales etc. The intangible value is brand awareness, perception and so forth. Both the tangible and intangible value is fragile and can be affected by things such as press, customer experience, goodwill, product quality, marketing and so forth.
So how do you build your brand equity? Brand Equity is the long-term game. It is a result of a mix of a number of things ranging from strategy to good timing... But if successful, a strong brand equity translates to customer loyalty, product expansion, diversification and resilience as well as an increase in the bottom line. Either way it is crucial for long-term profitability. Need help figuring out how to grow your brand equity? Give us a call for a complimentary consultation!