Unlock Your Understanding of Brand Equity (Check this Out!)

 31 Dec, 2021

Introduction on Brand Equity

top 5 valuable brands

Wondering What these numbers are? These are the top 5 valuable brands and their worth (Fresh Updates), according to various credible sources. Also known as Brand Equity!

It takes 7 seconds! Yes, that's the average time a consumer takes to decide between Brands. 

So, the question arises: What is brand equity? measuring brand equity? How do marketers build brand equity? How to calculate brand equity? How to build brand equity? measure brand equity with ROI And many more...

Let's try to figure this out and a lot more about Brand Equity. 

With the shifting norms, 74% of today's customers want more from brands in terms of how they treat their customers, staff, and the environment. Thus, with the change of Status Quo from product to consumer. The perception of Brand has become more crucial than ever.

Thus, it is clear! Organizations must analyze how their various marketing strategies contribute to brand awareness to stay ahead in this era of transition.

The worth of a brand is determined by its Brand Equity. And many brands have a significant amount of brand equity these days, as we have already seen at the beginning of the write-up. But, the Question is How valuable are they?

The method of calculating a brand's value is known as measuring brand equity. In other terms, it is the monetary equivalent of what a person or company is willing to pay for a brand.

Let's take a look at some of the techniques that we might use to effectively establish and strengthen overall brand equity, or even calculate the same. Before that, we will talk about Brand equity definition and understand what is brand equity?  

So let’s dive into it straight!

What is Brand Equity?

what is brand equity

“The investments you make into a brand makes its name worth it”-Bernard Kelvin Clive

In marketing, brand equity refers to the amount of power a brand name has in the minds of consumers, as well as the benefit of having a well-known and well-recognized brand.

Organizations build brand equity by providing great experiences that encourage customers to choose them over competitors that sell identical goods. This is accomplished by raising brand awareness through marketing that relates to target-consumer values, following through on promises and qualifications when customers use the product, and focusing on loyalty as well as retention.

Customers are more likely to stick with your brand instead of switching to a competitor if you give loyalty incentives like points that can be traded for discounts or a free product on their birthday/ anniversary and much more. Before we dive into details let’s talk about two important terms here: 

1. Brand Recognition

Brand Recognition

“Your brand is what other people say about you when you are not in the room.”- Jeff Bezos

Even for a new product, the messaging and graphics surrounding your brand should be consistent so that consumers can always recognize it. What values do customers associate with the company? Perhaps they consider issues like sustainability, quality, or family-friendliness. Your brand needs to figure them out. In short, how quickly you identify a product or logo as brand-owned. Now, this is where brand equity plays a major role.

2. Brand Experience

Brand Experience

Today a “Brand” is not what we tell what it is! but what a customer feels after experiencing it.

This could indicate that the product worked as expected or not, that interactions with brand representatives and customer service staff were pleasant and helpful or otherwise, and that loyalty programs were beneficial or not.

After talking some details on brand equity definition, it is time to understand the 3 key components that help build Brand Equity.

The three components which constitute Brand Equity:

three components of Brand Equity

  1. Brand Perception: Customers' perceptions of a product or service are different from what the corporation that owns the brand claims it represents. In fact, the consumer, not the firm, owns brand perception.
  2. Positive or negative effects: Positive consumer reactions boost a company's reputation, products, and bottom line, nonetheless negative consumer reactions have the reverse effect/ impact.
  3. Brand Value: Positive effects generate both tangible and intangible value; tangibles include increased profit or revenue; intangibles include increased brand awareness and goodwill. Both tangibles and intangibles can be harmed by negative consequences. In late 2016, for example, Uber was on the rise, but a series of scandals ranging from sexism to espionage harmed its reputation, bottom line, and brand value.

Well, now the question arises is Brand equity going to have any impact on my company’s ROI or not?

Let us dive deeper into the topic to understand it: 

How to Build Brand Equity?

Brands with poor company branding pay 10% higher salaries. Lose 20-40% of expected profit annually and fail to make an impression on customers. But when you establish a deep psychological bond with your customers then your brand equity is valuable indeed.

Here are 3 best ways to Build Brand Equity:

1. Call For Strong Brand Awareness

If the customer doesn't know what you are? What's your brand's identity? What’s your Logo? What good & service do you provide? then they will never perceive what you intend.

But, there are a few ways to build your presence

  • Be consistent with your Logo & image.
  • Pitch your Brand's motivation & story.
  • Keep in touch with the customers through e-mail & social media.
  • Let your customer know what you stand for!

2. Encourage Customers to share their views, feelings & criticism 

    Allow customers to try a few features early on, let them share their honest views. This will make them feel welcome and help in refining the process. Positive feelings can be excitement, fun & increased self-respect of consumers.

    3. Build Loyalty with your customer

    More than 70% of brand directors find it more important to create a loyal audience than to convert sales. It's simple! More the customers, the better the brand equity & higher the sales. 

    Here are a few sure shot ways:

    • Make your fellow consumers and act as your brand ambassadors.
    • Engage with them in social media (i.e. Twitter, Facebook and Instagram, online forums etc.)

    Impact of Brand Equity on ROI (Return of Investment)

    Many business leaders think investing in Brand equity is an unnecessary cost. But, The benefits reaped after building brand equity is an uber-luxury if invested by a company properly.

    The following are some of the ways that brand equity can help the bottom line:

    1. Per Customer Order Value

    People are more likely to spend more money on things if your business has positive brand equity. As a result, profit margins will be increased. It's possible that a product will cost the same as its competitors to produce. Consumers, on the other hand, are willing to pay a premium for a brand name. For example, a pair of designer shoes may be worth more to consumers than those of a lesser-known or generic brand.

    2. Less Ad Expenditure And A Better Reputation

    People will seek you out as their go-to brand if your products have a strong reputation. As a result of the established trust, less money is spent on advertising, and more sales are generated when a new product is launched.

    • Customer Lifetime Value: Customers that are loyal to your brand will buy more from you in the future. Apple is consistently ranked as one of the most valuable brands in the world. Its  users are more likely to own other Apple devices, whereas Android users are less likely to be devoted to a single PC technology vendor.
    • Customer Loyalty: Customers that are loyal to a brand are seven times more inclined to forgive them if they make a mistake. Furthermore, consumers who are devoted to a brand are 9 times more inclined to try new items from that brand.
    • Stock Price: Organizations with strong brand equity can have their stock market process rise as a result of the belief that it will continue to perform well.

    Benefit My Business! How Does Brand Equity Help?

    How Does Brand Equity Help?

    According to a large study by Millward Brown strong brands commanded a 13% price premium over weak brands. The same study showed that strong brands generated 3 times more sales volume than weak brands.

    Of course, it's all well and good to point out that brand equity is a powerful natural force. However, you have a right to know why brand equity is so essential – and how it affects your bottom line.

    1.You have a competitive advantage because of your brand equity

    Customers select your company over a competitor's time and time again, indicating that you have strong brand equity. 

    • Consider the purchasing decisions and customer journeys that the majority of your customers take in the modern era. 
    • Consider which parts or departments of your company your consumers interact with the most.

    Sure, you'll come across clients that base their ultimate selections on the fiduciary quality of various organizations, but that's not what your customers are searching for the majority of the time.

    What most consumers care about is how they feel about a brand – what emotions does your content or collateral elicit in them? Is it a source of annoyance for them? Are you able to respond to questions? What can you say to make them feel better?

    Consider brands for whom you have high regard. As an example, consider Apple. As a result, Apple has a tremendous amount of brand equity and market share. Because of Apple's ability to optimize brand recognition, customer loyalty, and opinion, it dominates the tech industry.

    Naturally, competitors want to break into Apple's domains, but they will always face the major hurdle that comes with attempting to unseat a well-established brand.

    2. Customer loyalty is boosted by brand equity

    Customer loyalty and brand equity are inextricably linked. Some businesses consider the chicken or the egg, or, in this case, customer loyalty or brand equity, as a conundrum.

    While it may be tempting to believe that improving the quality of your products is the greatest approach to developing consumer loyalty, you must first establish yourself as a trustworthy brand through smart branding and brand management.

    Trust must be earned rather than asked. Customers should seek you out, not the other way around because of your brand equity. It can lead to more recurring customers and make you appear less reliant on outreach attempts to get new clients.

    Although outbound sales will still be necessary, customers who have an emotional connection to your brand are considerably more inclined to suggest your business to others.

    3. Brand equity aids in the expansion of your company

    The drain on resources experienced by seeking to improve your brand's market visibility is one of the most difficult factors to overcome when trying to grow any firm. After all, promoting a company may be a lengthy and resource-intensive process. 

    When it comes to growing your firm, you'll face a lot less pushback if you have high brand equity, which will make the process a lot easier.

    This is especially true if you decide to branch out into other markets. Customers who are familiar with your brand's reputation are more inclined to buy from you again if you already have a well-established brand. Customers who may not have otherwise had a cause to interact with your company are instead encouraged to do so by your reputation.

    4. Your negotiation power rises as your brand equity rises

    Supplier negotiations are unavoidable. And it'll almost certainly be difficult. When your brand has power, such as a strong brand reputation and equity, the negotiation process becomes much easier. Your suppliers are similar to your customers in the sense they too require a reliable, valid reason (i.e., brand reputation) to collaborate with you. As a result, the larger your demand, the more power you have. And the more power you have, the better (or at least theoretically) your products will be.

    So are you now convinced that brand equity is going to have some impact on your business? Are you willing to measure brand equity?  Or do you wish to know more about how to measure brand equity? Let us read about it.

    How to measure brand equity: Measuring brand equity

    How to measure brand equity

    To various people, brand value means different things. It's an objective term and many of them face a tough time measuring the qualitative worth. Though the process of determining brand equity is complicated and complex, it is not impossible. The value of a brand can be quantified in a variety of ways.

    The following are the most common approaches:

    1. Valuation Based on Cost

    a) Historical Cost Method for Brand Valuation

    This approach to calculating brand equity is really simple and straightforward. It is the entire money spent on establishing a brand from the beginning to the present. It is the sum of all individual costs associated with the creation of a brand, such as advertising, marketing, promotion, registration, and licensing. A brand's total value is the highest price at which it may be sold. This method of calculating brand equity will require you to assign a value to the brand's cost and determine the current cost's actual expenses.

    b) Method of Replacement Costs

    The worth of a brand is determined using this approach of brand equity measurement after taking into account the overall expenses and investment required to replace it with a new brand of equivalent value.

    c) Method of Calculating Recreational Costs

    The current cost of replicating a brand is calculated using current prices in this manner. This method aims to solve the issues that plagued the historical cost method.

    d) Method of Conversion

    Brand equity can be quantified using the conversion approach by determining the degree of awareness that must be developed to reach the current sales level.

    This strategy is based on the conversion model, which examines the level of customer awareness that will lead to additional purchases. The outcome will be used to calculate the cost of acquiring new customers, which is essentially the cost of brand equity.

    e) Method of Obtaining Customer Preferences

    To calculate brand equity, this method employs brand awareness.

    When there is a rise in brand awareness, brand equity is evaluated by analyzing the change in market share.

    2. Brand Valuation Based on the Market 

    a) Comparable Method

    The brand equity is calculated using this method based on previous transactions that occurred in companies in the same industry.

    The measurement takes into account the premium paid by similar companies and applies it to their own brand.

    b) Methodology for determining the value of a company's stock

    The brand value is computed using two parameters in the Equity valuation method of measuring brand equity.

    The first parameter is the profit earned through investments that increase demand for the product, such as profit-generating advertising. The second criterion is the cost savings associated with marketing their branded products. This can include the money saved during the launch of a new product because of a well-known brand.

    c) Residual Method: The residual method of calculating brand equity considers the value that remains after deleting any of the brand's physical characteristics. After removing the net asset value from the market capitalization, the residual value is what remains.Brand equity is quantified in financial terms using this method, which is useful during mergers and acquisitions.

    3. Brand Valuation Based on Income

    a) Price Premium Method

    In this method of calculating brand equity, the price difference between a branded product and a generic product is first computed, then the difference is multiplied by the total branded sales volume. This strategy is based on the notion that a branded product provides consumers with an added benefit for which they are willing to pay a higher price.

    b) Royalty Reimbursement Method

    The royalty relief method of estimating brand equity is a widely employed method by many businesses. Brand equity is calculated using this method based on the royalty payments that an organization would have to pay if it did not own the trademark.

    c) Unused Earnings Method

    The intangible returns are used to calculate brand equity in this methodology. The returns on all tangible assets as well as all financial assets are computed and deducted from the company's overall returns. The brand is then given a percentage of the surplus returns.

    d) Equilibria of Competition

    The brand earnings from the branded firm's market share are compared to those of an unbranded peer company that is not specified by criteria like price, distribution, investment, or marketing in this method of brand equity measurement. The brand equity value is then calculated by discounting the resultant value.

    4. Brand Value Based on Formulary Approach

    a) Interbrand Approach for commercial valuation

    It’s a brand consultancy firm that determines earning of brands to make suitable brand strategy, brand analytics, brand valuation, etc. The firm determines the brand earnings utilizing using a brand index which is based on 7 factors in the descending order of weightage namely –leadership, internationalization/geography, stability, market, trend, support, and protection 

    b) Finance World Method for Valuation

    This method utilizes the "brand index" again taking the same 7 factors taken by Intraband but the premium profit attributable is calculated differently. This bonus is determined by estimating the operating profit attributable to a brand and then deducting the profit of a comparable company without a brand.

    c) Brand Equity Ten Method For Valuation

    This includes 10 parameters and weighs them accordingly to evaluate brand equity. They are loyalty, leadership measures, other customers oriented association or differentiation measure like brand personality, awareness measures, and market behavior measures like market share, market price, and distribution coverage, etc.

    d) A Valuation Approach by Brand Finance Ltd.

    They determine the position of the business on the competitive market, the total profits of the undertaking business, added value of total earnings, and the beta risk associated with it. On the value it gets, it reduces the value-added of the after-tax of the brand to a rate that reflects the risk profile of the business.

    Brand Equity: Which Customer Brand Equity Model to Use?

    Consumer Based Brand Equity (CBBE) is commonly used to identify the outlook of consumers towards the Brand. There are two basic models, one by Keller which focuses on consumer emotions, and another by Aaker which focuses on recognition(i.e split-second decision). But the Keller Pyramid Model is Considered the Best Overall to build brand equity.

    Keller Pyramid Model:

    In layman’s terms, this model asks the brand to ask these 4 questions to understand the consumer behavior to evaluate itself.

    Level 1:Who are you?

    To establish brand identity. how your brand is distinguished from others by customers.

    Level 2: What are you?

    To establish your brand meaning, brand performance & reliability.

    Level 3:What are the feelings of customers for the brand?

    To understand the Brand response. How customers are feeling after the product are they advocating or feeling disappointed?

    Level 4: How strong of a relationship the customer has?

    To increase Brand resonance after recognizing and capitalizing on its customers’ loyalties and attitudes.

    How To Build Brand Equity? Personalize Brand Equity

    1. Develop a national brand

    Develop a national brand

    59% of consumers prefer to purchase new products from brands they have confidence in. Although distributed brand managers have little direct authority over local marketing execution, they do have control over national campaigns. Here are some pointers for ensuring that your national or global brand activities are amplified and reinforced locally to win the trust of consumers.

    • From the start, think about local legs for national or global efforts. Challenge your agency partner or in-house agency to come up with simple and cost-effective strategies for your channel partners to become more involved in your overall efforts
    • Before launching a new promotion or campaign, get input from key local partners. Franchise and dealer councils can be extremely helpful in this area. Make an attempt to engage them on a regular basis throughout the year if you have one, so that marketing initiatives don't catch them off guard.
    • Celebrate the success of national efforts that have spread to the local level. Make use of your extranet, as well as your yearly convention, to thank and recognize channel partners who are helping to strengthen your brand.
    • Improve your brand consistency tools on a regular basis. Local marketers have come to expect that brand-level solutions will be as simple to use as the top eCommerce sites.
    • Check to see if your systems match this requirement. Is it simple to locate, customize, download, and deploy materials? Is as much access as feasible automated?
    • Allow plenty of opportunities for consumers and local marketers to provide feedback, and show that you're willing to listen and respond.

    Read more: To uplift social branding  

    2. Increase the effectiveness of local marketing

    The consistency and quality of client encounter influence brand equity at the local level. If your customers see a product advertised nationally, buy it, and have a positive experience, you're on your path to establishing long-term brand equity.

    Poor local execution can undo all of your profits just as easily as good execution can build equity.

    To consistently deliver exceptional experiences at local storefronts, brand management teams must explicitly define expectations and implement processes, typically through the use of technology, that allows two-way communication between local marketers and brand management teams easier.

    3. Encourage and support local innovation

    How boring would it be if your company sent out the same direct mail flier every summer with no changes? It's pretty dull, isn’t it!? To keep their customers intrigued and engaged, brands must recast ideas in fresh and fascinating ways. In order to attain balance, brand managers must first comprehend the two types of brand consistency:

    • Repetition: It is defined as doing the same thing over and over again.
    • Innovation: It is the repeated expression of the same idea in a new way.

    The difference between semantic and rote consistency is that semantic consistency keeps your brand fresh, whilst rote consistency creates customer trust. It's critical to strike a balance between these two criteria if you want to increase your current equity.

    Balancing the two types of consistency for distributed firms entails encouraging the proper kind of innovation at the local level, making it easy for locals to follow brand requirements, and employing a mix of tools and strategic techniques such as:

    • Brand guidelines

    • Brand voice and tone guidelines

    • Digital Asset Management technologies

    • Two-way communications

    4. Increase the Value of Your Distributed Brand

    Brand equity is earned over time and can be quickly lost. A long-term, devoted customer may be turned off by just one unpleasant experience at their favorite store. It's difficult to build on the trust you've already established by continuously providing a positive experience. 

    When you're in charge of a network of thousands of affiliates, it can feel impossible. Customers' knowledge, preferences, and financial metrics have traditionally been used to assess brand equity. Brand equity can also be determined by assessing output, local marketing indicators, and rivals for distributed brands. 

    89% of shoppers stay loyal to brands that share their values. Your company will be better positioned to build equity through national efforts, improved local marketing effectiveness, and support for local innovation if you have a firm knowledge of distributed brand equity. The key to evaluating how your business is delivering on its promise is to realize that your customers aren't the only thing to keep an eye on. The perceptions of your local marketers are linked to their actions, thus trying to enhance their equity metrics will have a direct impact on your local execution and equity.

    Also, your brand equity depends on Brand identity. Learn more to create a brand identity that is impactful to have an impact on your Brand equity…

    How to sustain a brand’s value?

    64% of women and 68% of men experienced an emotional bond to a brand. A strong Brand Equity ensures you are in a trustworthy position. A strong brand image triggers emotions, and no one is immune to that effect. Reliability is a function of perception and perceptions are shaped through branding. 

    But sustainability isn't easy. Here are the few things which keep you ahead of your competition constantly.

    • Make Premium a Norm: Just like Starbucks priced a cup of coffee at $5 and made it a norm. Strengthen your current brand with Premium.
    • Reposition your Brand: Refine your process and re-shift focus to meet the currently unmet needs of consumers.
    • Disrupt Brand Category: Just like Apple created a technological revolution by introducing products like iPhone & iPod. 

    This is the impact of strong, well-developed brands who invest in Brand Equity and reap benefits for the long term. So, if someday their product fails to perform even then they will be able to bounce back strong.

    Companies with Strong Brand Equity (Examples)

    There are a handful of brands that stand out as having perfectly positive brand equity. These brands have attained unaided awareness, consistent, recognizable design, and, in many cases, consumer preference over competitors.

    1. Apple:

    apple logo

    In 1997, John Sculley, a former Pepsico executive who later joined Apple, told the Guardian, "People talk about technology, but Apple was first and foremost a marketing firm. It was the decade's most successful marketing firm." Apple was on the verge of going out of business in the 1990s. “It goes beyond commerce,” said Marc Gobe, author of Emotional Branding. This enterprise should have died ten years ago, but people insisted that we must continue to support it.” This support stems from Apple product users' loyalty, ensuring that when Steve Jobs returned to Apple, he had a solid foundation to build-on.

    “People don't buy what you do,” stated Simon Sinek. They understand why you do it.” Many companies attempted but failed to make the transition from computers to other products. They had spent most of their time emphasizing particular characteristics (for example Gateway was certainly qualified to make flat-screen TVs, but their new products never caught on with the public.) 

    Apple, on the other hand, was more concerned with the brand and its relationship with customers. They dared customers to question the current status quo alongside them, so when new devices like the iPod or iPhone were launched, customers were ecstatic rather than bewildered. Focusing on the brand builds consumer relationships and separates a company from its competitors.

    2. Coca-Cola

    coca-cola logo

    94% of the world population recognizes the Coca-cola logo & Brand. Now, that’s the impact of Brand Equity and Brand Positioning we are talking about!

    The continual argument between Pepsi and Coca-Cola exemplifies the importance of brand. While Pepsi's stock may be higher due to its wide portfolio, Coke still outperforms Pepsi in the major product lines of both firms. In the 1980s, the Pepsi Challenge campaign prompted the Coca-Cola company to examine their product line as part of one of their marketing initiatives (The Pepsi Challenge).

     To accommodate consumer demand, Coke even sweetened their drink, but this was met with resentment. Coca-Cola began to place a greater emphasis on its brand than on its product. They underline how Coca-Cola brings families together via nostalgia and relationships (i.e. Share a Coke campaign). 

    The brand is instantly recognizable thanks to its logo, typography, and color palette. Today, we continue to witness instances of brand trump's products. In fact, Adidas recently announced plans to focus on overall brand health rather than short-term data. In order to meet quarterly earnings projections, the brand's Global Media Director emphasized the importance of short-term and conversion-focused ads, which are currently popular. They intend to abandon this paradigm in favor of a 60/40 split between long-term brand building and short-term conversion tactics.

    As these and other brands have shown, building strong brand equity may have a significant impact on the bottom line. With this in mind, businesses should spend resources to develop these campaigns based on the values and experiences of their customers.

    Final Takeaway: What is Brand Equity and Why Businesses Should Focus!

    13% of consumers would pay 31-50% more for your products or services if they find your Brand represents transparency and aligns with their vision to perfect a world's cause.

    Because the focus has shifted to the consumer, businesses must actively consider the brand image they are cultivating, as well as how each activity and initiative contributes to overall brand awareness and perception. Organizations can obtain insight into what makes their brand resonate with customers with tools like Marketing Evolution's brand optimization. Marketing teams may use this data to make smart, data-driven decisions on how to improve future tactics aimed at increasing brand equity and driving ROI.

    Okay, what else! We have covered every little detail on brand equity, brand equity definition, building brand equity, brand equity calculation, and much more.

    Still, If Are you willing to upscale your journey too? Want to know more about any of these points? Do you have questions about Brand Equity or how to build it? Feel free to reach out to us.

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