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What Is Brand Equity? Components, Importance, Building It

• By Eric
• February 6, 2023
• 9 minute read

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. 

I. Understanding 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. 

Example: Apples Brand Equity

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 world’s largest tech companies 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 technology and how 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 creating a high-quality product and 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 its 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. Apple’s efforts have been so successful that even if people aren’t customers, they will admit that the company offers high-quality products. 

Today, Apple has a market cap of three trillion dollars!

A. The Components of Brand Equity

Brand equity is a multifaceted concept that can be broken down into several key components. These components work synergistically to shape consumer perception and drive brand value.

1. Brand Awareness: The first step in building brand equity is creating brand awareness. It is the level of familiarity and recognition that consumers have with a brand. Effective marketing and advertising campaigns are crucial in increasing brand awareness and ensuring that the brand remains top-of-mind for consumers.

2. Brand Loyalty: Brand loyalty is the ultimate goal of brand equity. It is the extent to which consumers consistently choose a particular brand over its competitors. Brand loyalty is built over time through positive experiences, quality products, and exceptional customer service. Loyal customers become brand advocates, spreading positive word-of-mouth and driving organic growth.

3. Customer Perception: How customers perceive a brand is a critical component of brand equity. It encompasses their beliefs, attitudes, and associations with the brand. Positive customer perception increases trust, preference, and willingness to pay a premium for the brand’s products or services.

4. Brand Positioning: Effective brand positioning is essential for creating a distinct identity in the market. It involves defining the unique value proposition and target audience of the brand. A well-positioned brand stands out from competitors and resonates with its target market.

5. Brand Reputation: A brand’s reputation is the collective perception of its performance, quality, and trustworthiness. A positive brand reputation enhances brand equity by instilling confidence in consumers and influencing their purchasing decisions. Reputation management is crucial for maintaining and enhancing brand equity.

B. The Importance of Brand Equity

Brand equity plays a pivotal role in a company’s success and growth. Let’s explore some of the key reasons why brand equity is essential:

1. Market Influence: Brands with high equity hold significant influence in the market. They can shape consumer preferences, drive trends, and even impact industry dynamics. A strong brand can dominate the market and set the standard for competitors.

2. Customer Engagement: Brand equity fosters strong customer engagement. Loyal customers not only make repeat purchases but also become brand advocates, promoting the brand to their networks. This organic word-of-mouth marketing is invaluable for brand growth and expansion.

3. Brand Differentiation: In a crowded marketplace, brand equity enables differentiation. A strong brand identity sets a company apart from competitors, making it easier for consumers to recognize and choose the brand. Brand differentiation leads to a competitive advantage and increased market share.

4. Brand Value: Brand equity enhances the overall value of a brand. Companies with strong brand equity can charge a premium for their products or services, leading to higher profit margins and increased revenue. Brand value is a valuable asset that can contribute significantly to a company’s bottom line.

5. Consumer Trust: Trust is a fundamental element of brand equity. Consumers trust brands with a strong reputation and positive customer experiences. This trust leads to increased customer loyalty, repeat business, and long-term customer relationships.

II. Building Brand Equity

Building brand equity requires a strategic and holistic approach. Let’s explore some key strategies and tactics that can help your company build and maintain brand equity:

A. Developing a Compelling Brand Identity

A compelling brand identity is the foundation of brand equity. It starts with clearly understanding your target audience, their needs, and their aspirations. Define your brand’s core values, mission, and vision. Craft a brand story that resonates with your audience and communicates your unique value proposition. A well-defined brand identity creates a strong emotional connection with consumers, driving loyalty and advocacy.

B. Delivering Exceptional Customer Experiences

You’re a customer; what do you like? Others are the same. Customer experience is a driver of brand equity. Every interaction with your brand should exceed customer expectations and leave a lasting positive impression – this is how you turn customers into evangelists. From the initial touchpoint to post-purchase support, every step of the customer journey should be seamless, personalized, and memorable. Invest in training your employees to deliver exceptional customer service and prioritize customer feedback to continuously improve the customer experience.

C. Investing in Brand Awareness and Visibility

Brand awareness is the first step in building brand equity. Develop comprehensive marketing and advertising strategies to increase brand visibility and reach your target audience. Leverage both traditional and digital channels to create brand awareness and engage with consumers. Invest in search engine optimization (SEO), content marketing, social media marketing, and influencer partnerships to amplify your brand’s reach and visibility.

D. Building Brand Associations and Reputation

Brand equity also comes from brand associations with customers. A prime example is Coca-Cola, which has developed a worldwide following and support for its products to the point that they have expanded 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 today 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 consider other aspects, such as value and quality in marketing. 

But you don’t have to be a huge company to enjoy brand equity. Actively manage your brand’s reputation by monitoring online reviews, engaging with customers on social media, and promptly addressing any negative feedback or concerns. 

E. Creating Brand Loyalty and Advocacy

Brand loyalty is a big driver of brand equity. Foster customer loyalty by consistently delivering value, exceeding expectations, and building emotional connections with your customers (Like, for example, Apple Computer does most of the time).

Implement loyalty programs, personalized marketing campaigns, and exclusive offers to reward and incentivize repeat purchases. Encourage customers to become brand advocates by providing exceptional experiences, engaging with them on social media, and actively seeking their feedback and recommendations.

F. Differentiating Your Brand

We love the book Zero to One because it emphasizes that successful companies must create something new, moving from 0 to 1, instead of copying what already exists (going from 1 to n). It advocates for unique innovation over mere competition, stressing the importance of creating value through singular ideas that distinguish a company from others.

Brand differentiation is essential for standing out in a competitive market, and though we prefer a “blue ocean” business experience, most markets are competitive red ocean scenarios.

Identify your unique selling points and communicate them effectively to your target audience. Highlight what sets your brand apart from competitors: product quality, innovation, sustainability, or exceptional customer service. Develop a strong brand positioning strategy that resonates with your audience and differentiates your brand from the competition.

G. Monitoring and Measuring Brand Equity

Regularly monitor and measure brand equity to track progress and identify areas for improvement. Use key performance indicators (KPIs) such as brand awareness, customer loyalty, market share, and customer satisfaction to assess the health of your brand equity. Conduct regular brand audits, customer surveys, and market research to gather insights and make data-driven decisions to enhance brand equity.

III. Protecting and Enhancing Brand Equity

Brand equity is not static; it requires continuous effort and strategic management to protect and enhance its value. Here are some key considerations for protecting and enhancing brand equity:

A. Consistency and Coherence

Have you ever eaten at a McDonalds in another country? The experience is pretty much the same anywhere you go. Maintaining consistency in brand messaging across all platforms and formats, visual identity, and customer experience across all touchpoints strengthens perceptions of your brand. A cohesive brand experience builds trust, reinforces brand associations, and (you guessed it) strengthens brand equity. Develop brand guidelines and ensure that all internal and external stakeholders adhere to them. 

B. Innovation and Adaptability

“If you don’t innovate, You die”

– Robert Iger

Continuously innovate and adapt to ever-changing market dynamics and consumer needs. Stay ahead of trends, embrace new technologies (A.I !), and do your best to anticipate customer expectations. Launch new products or services that align with your brand identity and provide value to your business’ audience. 

C. Engaging in Social Responsibility

Engaging in social responsibility initiatives (CSR) can promote brand equity. Align your brand with causes and initiatives that matter to your audience. Demonstrating a commitment to sustainability, diversity and inclusion, and ethical business practices has become a baseline for many companies today. Engaging in social responsibility builds trust, enhances brand reputation, and strengthens associations with your brand. 

D. Managing Brand Crises

Brand crises can significantly impact brand equity. Develop a crisis management plan to effectively handle any negative events or incidents that may arise. Respond promptly, transparently, and authentically to address concerns and mitigate any damage to your brand’s reputation. Swift and effective crisis management can help maintain customer trust and limit the impact on brand equity.

E. Evolving with Customer Needs

Stay attuned to evolving customer needs and preferences. Regularly gather customer feedback, conduct market research, and monitor industry trends. Use these insights to adapt your brand strategy, products, and services to meet changing customer expectations. By evolving with your customers, you can maintain relevance, drive loyalty, and enhance brand equity.

IV. Citations and Further Reading

1. Aaker, D. A. (1991). Managing brand equity: Capitalizing on the value of a brand name. Free Press.
2. Keller, K. L. (1993). Conceptualizing, measuring, and managing customer-based brand equity. Journal of Marketing, 57(1), 1-22.
3. Kapferer, J. N. (2012). The new strategic brand management: Advanced insights and strategic thinking. Kogan Page Publishers.
4. Keller, K. L. (2013). Strategic brand management: Building, measuring, and managing brand equity. Pearson Education.
5. Yoo, B., & Donthu, N. (2001). Developing and validating a multidimensional consumer‐based brand equity scale. Journal of Business Research, 52(1), 1-14.