Brand equity has been a very much misunderstood topic of discussion. But, it is a very important concept to grasp to really elevate your business to the next level.
What is brand equity? Brand equity is trying to understand how much value the brand name gives the consumer. It is a set of measures we use to find the actual commercial value and find the monetary amount.
In this article, I will discuss what brand equity is. Moreover, the three main perspectives people have.
1. What Is Brand Equity?
Brand equity is the attempt to understand a brands worth in a market. More simply, brand equity represents the benefits your business gives to your customer, and how much of those benefits come from your brand. Brand equity describes why the brand is worth that amount of money. It means you have a brand image that people are willing to pay extra for.
A brand has many parts (this includes, image, personality, identity, awareness, knowledge, recognition, reputation and loyalty). More generally, these parts capture the benefits your business delivers. However, some companies (let us take Apple for example) are able to build a desirable brand that people are more willing to pay extra for, by leveraging these parts.
Apple has spent a lot of energy ensuring a premium brand, which has reputable to ensure brand loyalty. As a result, they are able to charge more for their products. This is because a brand is an asset of a business. By which you are able to define how much of the business the brand alone is worth. For example, in 2017 Apple as a business with all its assets is worth 750 Billion dollars. Apples brand alone values (Remember: as an asset) at 150 Billion dollars.
The equity is measured is three different ways: in the eyes of the customer, the business and the stakeholders.
2. Why Is Brand Equity Important?
According to the RBT, brands are firm assets that are valuable, rare, and imperfectly imitable (Kozlenkova et al., 2014). A brand constitutes a source of competitive advantage, because branding enables a firm to create economic value that it otherwise would not be able to create (Barney, 2014). Thus, branding creates equity, as a form of competitive advantage.
This means branding can increase profitability in large, medium and small businesses. Being able to measure the equity can fill gaps in customer’s knowledge and compensate in other ways if competing against businesses with higher brand equity. Samsung offers assurances, and higher spec technology than apple to compensate for the weaker brand equity.
It can also determine Competitive advantage. It can effectively allocation your resources in the marketing department.This can include allocating both financial and human resources on elements of the business that deliver higher value to the customer and increased ROI. This is because a firm obtains a competitive advantage when they can manage stakeholder knowledge, process and routines better than competitors can.
Overall, brand equity occurs when people respond more strongly to your brand actions, relative to competing brands’ actions (Capon, 2013).
3. Consumer Based Brand Equity (CBBE)
Firstly, let us look at the customer-based view of brand equity. This view is understanding the world around us from the eyes of the customer. This is by far the most popular approach as it highlights the qualitative reasons why people are willing to spend that amount of money. By qualitative we mean information gathered from speaking to consumers directly.
The customer-based view is a way of assessing the value of a brand in customers’ minds. This is highly accurate as it suggests what the benefits of the products and services are, in the heart of the customer. More so, it outlines why you are willing to pay a £1000 for the latest iPhone.
Components Of CBBE
This includes perceptions, attitudes, knowledge, and behaviour.
In more marketing terms this translates to concepts such as brand awareness, brand identity, brand personality, brand image, brand reputation, brand luxury and brand loyalty.
- Samsung – What makes them so valuable in the eyes of consumers?
- Tesla – What makes a Tesla so admired with fans?
- Disney – What makes Disney Theme Parks timelessly enduring?
- Apple – What made the iPhone a must-have?
- What made Cristiano Ronaldo a valuable football player?
- What makes Nandos so desirable?
Everything has equity such as, restaurants, chefs, shopping malls, hotels, venues, cities and even actors of artists.
Brand Resonance Model
The brand resonance model capitalizes on normal psychological tendencies, such as longer memory. Moreover, this includes negative experiences or the cognitive laziness. It is understanding loyalty through a customer’s unwillingness to choose unfamiliar products over familiar brand products and what knowledge they have.
Brand equity is a multidimensional concept (Aaker, 1991). Research has shown many ways to measure its dimensions.Altogether, these include, brand loyalty, brand association, brand knowledge, brand awareness and brand image, perceived quality and brand loyalty.
Brand loyalty is especially important when estimating the value of a brand. This is because loyalty can translate into profit (Aaker, 1991). In addition, brand loyalty is a barrier for new competitors and forms the basis for a price premium (Aaker, 1996).
Brand loyalty also encourages repeated purchase behavior from consumers, and discourages them from switching to competitor brands (Yoo et al., 2000). Therefore, the greater the customer loyalty, the higher the brand equity will be.
Perceived quality is another dimension of brand value that can encourage customers to choose a product or service (Zeithaml,1988). “Perceived quality can be defined as the customer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives” (Aaker, 1991).
Customers’ product experiences, expenditure situations and unique needs might influence their judgment of product quality (Yooet al., 2000). Since customers make their choices based on product attributes and compare these to other products, perceived quality is not an objective measure.
Perceived quality can increase customer satisfaction, provided the customer has had some previous experience with the product or service (Aaker, 1996a). Hence, perceived quality is generally associated with brand equity (Motameni and Shahrokhi, 1998), and the better the perceived quality, the greater the brand equity (Yoo et al., 2000).
It is very difficult to manipulate a consumer’s perception of brand association in an experiment (Pappu et al.,2006).
From a brand association perspective, Aaker (1991) felt that brand equity is closely related to brand association. “A brand association is anything linked in memory to a brand” (Aaker, 1996a).
Keller (1998) suggested that brand association can be divided into three major categories: attributes (including product-related attributes and non-product-related attributes such as price, brand personality, emotions and experience), benefits (what customers think the product or service can do for them, including functional benefits, symbolic benefits and experiential benefits) and attitudes (customers’ overall evaluations of the brand).
The most powerful brand associations are those that deal with the intangible or abstract traits of a product.
Brand association can assist with spontaneous information recall (van Osselaer and Janiszewski, 2001) and this information can become the basis of differentiation and extension (Aaker, 1996b).
Strong association can help strengthen brand and equity. Similar to perceived quality, brand association can also increase customer satisfaction with the customer experience (Aaker, 1991).
4. Firm Based Brand Equity (FBBE)
Secondly, let us look at the firm based view of brand equity (or the sales view).
The firm’s point of view instead concentrates on firm-level outputs.
By this, we mean the outputs of the product markets and financial markets (Keller & Lehmann, 2006).
These are factors such as price, market share, revenues, and cash flows (Ailawadi et al., 2003)
- Product markets – we mean the brand’s performance in a product marketplace.
- Financial – we mean the brand’s future ability to attract profits or cash flows to the company (Ailawadi et al., 2003).
- Analysing your company’s financial situation, you can gain a better understanding of the monetary value of your brand.
This is both the internal financial performance and competition.
Financial Metrics Include
- Market share:This means the overall percentage of sales in your industry.
- Transaction value:This is the price of your product or service.
- Price premium:The amount you are able to charge higher price got for your product or service.
- Revenue:The amount of money your company has made by selling products or services.
- Growth rate:This can include the potential revenue if trends continue.
You can measure these in isolation and they will give you an idea of the success of your company as a whole.
However, this can make it hard to predict how much the brand is worth.
By assessing them in relation to knowledge and preference of the consumer metrics, you will get a better understanding of the value of the brand.
5. Stakeholder Brand Equity
The stakeholder perspective or contemporary perspective is more or less a combination of both the firm and customer perspective. This view argues that brand value arises continuously through interactions among the firm, its brands, and all stakeholders.
This is the idea that by addressing how firms, consumers and other groups co-create brand value simultaneously — encompasses both firm- and consumer-based perspectives.
This means highlighting
- What are the stakeholders?
- Why are stakeholders important?
- What are the most important (prioritise importance)?
- What is their interest?
- How do we measure to advise their interest?
Stakeholder Based Brand Equity Model
The stakeholder constitutes of both the firm and customer view because it takes into account of the investors, managers, customers, competitors and even shareholders. This analysis you get an all-round view.
More so, stakeholder’s effects reconcile all aspects of the brand such as, corporate identity, image, and reputation. As well as, from a managerial and shareholder the ROI and growth prospects are important to these.
in summery, we have learned today that brand equity can be measured in three ways. In summery these are in the eyes of the customer, the firms resources or in the eyes of the stakeholders.
Due to the complexities of measuring a brand you can choose one of these or all of these. However, you may get slightly different end result. Furthermore, you should evaluate which method best suits your business.
Overall, I suspect the most accurate way would be in the eyes of the consumers. This is because it captures a broader landscape of analysis.
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