When it comes to business, a company builds value in many different ways. The most obvious is from profits and physical holdings. These can be in the form of stock, inventory, assets such as buildings and manufacturing ability, and even the value of a workforce. There is also a company's reputation, which can lead to success or failure depending on how a business monitors and develops it.
However, there is another kind of value a company can acquire that is a bit more intangible but no less important. Welcome to the world of brand equity.
What is brand equity?
Brand equity is the value that a company builds from trust, recognition, and reputation. While it doesn't hold actual monetary value, brand equity can do something just as important by opening the door for a company to reap greater profits and expand in size and offerings.
Brand equity can be attached to a company or a specific product. The value is created by not only making the brand recognizable but also valued due to trust and reputation.
Some companies have developed their brand equity by concentrating on smaller, tight-knit circles. An example of this is Columbia Sportswear, which grew from a small company founded in the Pacific Northwest in 1938 to an internationally known and beloved brand. Columbia developed a devoted following in the activewear and outdoor community due to a commitment to quality and lifestyle. Customers are loyal to the company and their products, turning first to Columbia for their outdoor clothing needs.
Within the outdoors community, another example of a company with successful brand equity is REI. While they sell various products, the REI brand has grown because of not only their community and store practices but because of the way they approach business. Through buy-back programs, its co-op organization, and a sense of community, the REI brand has used this equity to grow exponentially to $3.7 billion in sales in 2021.
What can a company gain from brand equity?
Brand equity goes hand-in-hand with developing customer loyalty. The bottom line is that if a company's brand equity is high, customers will pay a premium for a product. However, they have to feel that the brand is worth their money, and if they see a downgrade in quality or trust, they will definitely jump ship.
Brand equity can bring value in other ways because when customers trust the quality and consistency of a company, they are also more willing to try offshoots of the brand. This allows a company to expand into other product lines or areas, using the equity they have developed.
Apple is famous for starting out in a garage with a simple home computer. Over time, they built their following to become one of the largest tech companies on the planet with near-unrivaled brand equity. Many experts trace this back to one moment. While only airing once during the Super Bowl in 1984, their "Think Different" commercial forever changed not only technology but the way people look at branding and advertising. Apple continued this approach, creating a community of customers who saw themselves as innovators and developed a personal connection to Apple, its products, and its brand.
Apple's brand equity grew from not only creating a high-quality product but a sense of community. People love their iPhones at near cult-like levels to the point that if someone uses a rival brand, such as Android, they are often the target of scorn.
Apple's almost seamless connections between their products and technology have been instrumental in this. The company prides itself on unifying its technology which helped develop a massive scale of a unified community. The efforts Apple has made have been so successful that even if people aren't customers, they will admit that the company offers high-quality products.
Can a company lose brand equity?
Just as they gained a solid level of brand equity, a company can see it disappear through an erosion of trust or the appearance of a loss of quality.
There was a time that JC Penny was one of the most successful department stores in America and saw a steady profit stream for generations since its founding in 1902.
However, as shopping habits changed in the 21st century, the store made the decision to alter how it sold clothes. In the 2010s, JC Penny eliminated sales and began to offer products at set discount prices. Public opinion shifted, and people started to view the brand in the same light as discount stores such as TJ Maxx or Marshalls. This quickly led to an erasure in the value of the brand, and customers left in droves. Eventually, JC Penney filed for bankruptcy, closed stores, and watched as brand equity developed over a century and nearly disappeared. Even after reorganizing under new ownership, they continue to struggle to re-establish the brand to this day.
Other companies have seen their brand equity disappear due to the actions of employees and executives. Clothing store Abercrombie and Fitch was doing well and did nothing to change the quality or marketing of their clothing, for which customers were paying a premium. Yet, when an executive put his foot in his mouth, public sentiment turned on them. The executive was quoted as saying the brand's clothes were only for "the good-looking, cool kids." Even though the executive walked back his words, the statement continued to haunt the company for years and was tied directly to a drop in brand equity.
Companies can also see an erosion of brand equity from associations. In 2019, Soul Cycle faced such a problem. Soul Cycle had a large following in the LGBTQ+ community, but when it was discovered that one of its investors was a supporter of conservative political policies that didn't align with many of its customers, the company was boycotted and saw a drop in memberships and a public outcry that it wasn't being truthful to its community. The CEO of Soul Cycle eventually stepped down and the company faced an uphill battle to restore the trust of its customers and overall brand equity.
How to create brand equity
Quality & value
First and foremost, one of the best ways to create brand equity is to offer a quality product that people know they can rely on. Consistency is also important. Have you ever bought a food product and it tasted a little bit different each time? Customers want to know that when they buy the product, whether it’s a drink, food, or clothing, they will receive the same high quality, value, and level of consistency. Coca-Cola is a prime example. Every time you open a can, you know exactly how the drink is going to taste.
Coca-Cola did learn the hard way in the 1980s when they changed the flavor and saw an unprecedented backlash from consumers. While some believed the entire thing was a massive marketing ploy, it showed that even a large company could make missteps and risk the brand equity they had built up with customers.
Value is also an important part of creating brand equity. If people believe that the brand has value because of its quality, they will pay for it. But they need to believe that their money is well spent. Value can mean different things to different people, but it's up to a company to figure out what it means to its specific customer base.
Brand equity also comes from marketing and making a connection with customers. Again, a prime example is Coca-Cola which has developed a worldwide following and support for its products to the point that they have been able to expand into other flavors, drinks, and even merchandise. Coca-Cola did this by connecting to things such as fun times, family, and patriotism. The famous “I’d like to buy the world a Coke” advertising campaign created an emotional resonance that remains to this day and is considered one of the greatest marketing campaigns in history.
Authenticity is also important. Companies need to market in ways where customers don't feel like they are being sold. That's why it's very important to understand what customers want in a product and take into consideration other aspects, such as value and quality in marketing.
In addition to the already mentioned REI, Starbucks is another example of a company that created a massive swell of brand equity through community and connection to a simple product: coffee.
For a long time, most people simply got their coffee at a local store or donut shop, just drank it at home before they left for work, or poured a cup from the commissary or break room. Starbucks was able to create a community that loved coffee and catered to that group. While other coffee stores followed in their footsteps, Starbucks developed brand awareness by becoming an event. Suddenly everyone was saying, "Let's go get Starbucks."
The chain developed a full menu of different flavors and offered customers the ability to get their drinks made the way they wanted by expert baristas. This created a true sense of community around what had been a simple drink and propelled the company to mega-success. The brand equity they developed allowed them to charge a premium price and spin off new drinks as well as other products and merchandise.
- Brand equity comes from the recognition and value that is given to your product or company.
- Having brand equity allows a company to charge a premium and expand with new products using the trust they have developed.
- Brand equity can be lost through the erosion of trust from customers due to a lack of quality or bad choices made by the company.
- A company can create brand equity through quality products, great service, and creating a sense of community.
- Advertising and promotion also play an important part in brand equity by putting a narrative out to the public that resonates with customers, but it should be authentic.