What is brand equity and how to build and measure it

It’s the reason we’ll pay more for paracetamol from Tylenol, as opposed to a supermarket owned brand. They are identical pharmaceutical products, the only difference being you pay extra for the branding. The extra money goes into Tylenol’s profit margin and brand equity.

Companies give their products brand equity through advertising and messaging, making them memorable and instantly recognisable, as well as maintaining the reliability and quality expected by their loyal customer base who know and trust the brand. Although it sounds simple, it takes patience, time and a lot of hard work to build brand positive brand equity.

The three components of brand equity

1. 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.
2. 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.
3. 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.

Product expansion

Great brand equity means that a company can add to its product range within the brand, safe in the knowledge that customers will trust the brand enough to try the new products. Heinz, for example, a brand leader in the canned foods market, decided to bring out a new range of world foods based on beans and pulses.

Customer loyalty and retention

It’s well-known in the marketing industry that it’s cheaper to retain an existing customer than attract a new one. When a brand can inspire loyalty and repeat business, this is great for brand equity. Apple is the gold standard example of this – many people who have an iPad also own an iPhone, iPod Touch and an Apple Watch. Apple’s customer loyalty can be little short of evangelical – its temple-like stores and staff whipping up enthusiasm like charismatic preachers whenever a new product is launched demonstrates brand equity at the top of its game.

How to build your brand equity

Brand equity is the value of your brand for your company. It’s based on the idea that a recognised brand that’s firmly established and reputable is more successful than a generic equivalent. It’s based on customer perception: customers will tend to buy a product they recognise and trust. When a brand is recognised and trusted to the point that the customer recognises it and feels a deep psychological bond with it, your brand equity is valuable indeed.

Here are four steps towards building your own brand equity.

1. Build greater awareness

You need to make sure your customers recognise your brand identity when they’re looking for goods or services, and that they perceive it in the way you intend. There are several ways you can do this:

• Using the same logo or image to ensure your branding is consistent
• Great customer service
• A heart-warming story behind the brand
• Keeping the brand in front of your market
• Providing ongoing value
• Keeping in touch via email or newsletters
• Tap into social media and share – blogs, tweets, Facebook groups, Instagram photos

Word of mouth, positive customer experience and targeted marketing all help you develop greater brand awareness.

2. Communicate brand meaning and what it stands for

There are two things to bear in mind here: how well your product meets the needs of customers and its social and psychological aspects. A company that produces a useful product, and genuinely commits to social or environmental responsibility will attract customers and employees who share those values. And who will be sufficiently connected and enthusiastic to be advocates. IKEA, for example, has invested in sustainability throughout its entire business operation: 50% of its wood is from sustainable sources, 100% of its cotton is Better Cotton standard and 700,000 solar panels power its stores. With feel-good eco-credentials like these, spending a Sunday afternoon assembling an IKEA flat pack seems more a pleasure than a chore when the product comes from such a reputable brand.  

3. Foster positive customer feelings and judgments

When customers have a warm feeling towards your product, they’re more likely to become loyal customers and pass the word on. Judgments are made about a brand’s credibility, capability, quality, relevance to need, and superiority over the competition, so it’s important to maintain the integrity of all of these. Positive feelings can be excitement, fun, peer approval, security, trust, self-respect.

A brand that can maintain positive judgments and feelings is onto a winner. For example, the Apple iPad: did you think you needed one before you saw one and appreciated its capabilities? Now, for many of us, it’s our computer, games console, TV, radio, alarm clock, mobile bank, messaging service… we love our iPads.

4. Build a strong bond of loyalty with your customers

This is powerful, yet the most difficult aspect of brand equity to attain and maintain. Customers have formed a psychological bond and feel attached to your brand and make repeat purchases. They may feel part of a community with fellow consumers and act as your brand ambassadors by engaging in social media chats on Twitter, Facebook and Instagram, online forums and even events. Brand equity connection that borders on customer evangelism is valuable.

How to measure brand equity

There are three core brand equity drivers that you need to track: financial, strength and consumer metrics:

1. Financial metrics: The C-suite will always want to see a positive balance sheet to confirm that the brand is profitable and viable. You should be able to extrapolate from the data market share, profitability, revenue, price, growth rate, cost to retain customers, cost to acquire new customers and branding investment. You can use solid financial metrics data to demonstrate how important your brand is to the business and secure higher marketing budgets to continue growing.
2. Strength metrics: Strong brands are more likely to survive despite change and deliver more brand equity, so it’s essential you measure its strength. You’ll need to track awareness and knowledge of the brand, accessibility, customer loyalty and retention, licensing potential and brand ‘buzz’. As well as surveys that use open text questions, social media monitoring will be able to give you a picture of how your brand is known and loved (or not).
3. Consumer metrics: Companies don’t build brands, customers do, so it’s essential that you track consumer purchasing behaviour and sentiment towards your brand. Track and measure brand relevance, emotional connection, value and brand perception through surveys and social media monitoring. The right text analytics software that can interpret open text comments is particularly useful here to gather sentiment and suggestions.

With seven seconds being the average amount of time a consumer takes to decide between brands, it’s more important than ever that your brand and brand values are instantly.

FIND OUT MORE ABOUT BRAND EQUITY:

• Brand equity: Keller vs. Aaker models
• Brand equity research questions

See how you can measure and improve brand equity with Qualtrics. Book a demo