Building brand equity should be the number one priority of any business, big or small. Positive brand equity takes a lot of time and resources to achieve, hence the need to start from day one.
Overwhelmed by daily tasks, brand owners can easily lose sight of this strategic business objective. Moreover, brand equity can be an abstract concept that is difficult to understand and quantify.
This article aims to demystify the concept of brand equity and convince brand owners of its importance.
What is Brand Equity?
When first launched, a brand is just a name tied to a product or service. Slowly (or more rapidly depending on the budget), through voluntary and involuntary actions, reactions, and behaviours, that name surrounds itself with reputation (positive or negative), and a new brand is born.
Brand equity is a fancy name for how strong a brand is, and how much it’s actually worth to the business. Brands that are highly regarded by customers enjoy positive brand equity; those that disappoint to the point of people avoiding them altogeher, have negative brand equity.
Brands can be evaluated as company assets from many angles:
Brand as a financial asset: if people shopped solely on price, there would be no need for branding; the product with the lowest price would always win.
In reality, all of us are often paying a premium for a particular brand, because of the tangible and intangible benefits we associate with that particular brand. The price premium a brand commands translates into incremental revenue for the business; brand equity is directly proportional with the revenue it generates.
A brand’s assessed value could greatly exceed the physical assets (buildings, inventory, infrastructure, logistics) of a business. Let’s look at top five most valuable brands in 2018, published by Forbes:
- Apple ($170 B)
- Google ($102 B)
- Microsoft ($87 B)
- Facebook ($73.5 B)
- Coca-Cola ($56.4 B)
Looking at the list above it’s hard to believe how much equity these brands have managed to accumulate, given that two of them are less than 20 years old.
Brand as a conditional asset: it has been said that behind every successful man is a great woman. Similarly, behind every successful brand is a great product (or service). Branding is not possible without the support of a product or service.
Unfortunately, many great products never become brands.
Investing in product development, but failing to build a brand around it leads to two alternatives: others will build their brand around your product (you essentially being a product supplier), or your product will be eventually copied and launched at a lower price.
A good product is the foundation of positive brand equity; never forget to turn your product into a brand.
Brand as an influencer: we like to believe that our purchases are based on rational decisions; however, neuroscience, psychology and consumer behaviour research has shown that humans are not as rational as we think.
Our behaviours are strongly influenced by brand messages, the tone of those messages, and the interactions of those around us with the same brands. Brands have the power to influence us.
Let’s look again at the number one brand in the list above, Apple. Although the company’s products are sold at a price premium, Apple enjoys one of the most loyal consumer base. The brand has managed to influence its audience through product design, advertising, PR, and other intangibles people associate with it.
Building Brand Equity: The Journey
About 10 years ago, I was involved in launching a new brand, in a mature, highly competitive category. I still remember the presentation made to the management team, specifically their lack of reaction as I was going through the brand name suggestions.
Envisioning a brand behind a new name isn’t easy. My colleagues didn’t know how to react; the name was new, pretty generic, and unlike anything they were familiar with within the category. My strategy involved putting the name in the context, and illustrating how this new brand will be part of people’s life.
A brand’s power of influence is directly related to its assets. These assets include:
Brand awareness-the level of familiarity consumers have with your brand goes a long way to building brand equity. Brand awareness can be of two types: unaided and aided. Unaided brand awareness, that occurs when a consumer names your brand in a specific category without being offered any clues, is more valuable in building brand equity than aided brand awareness. A high level of unaided brand awareness means the brand is top-of-mind in its category.
Brand values and personality-our relationships with brands mirror the ones we have with people. We have brands we love, brands we hate, and brands that don’t mean anything to us. We have brands that express who we are, brands we avoid at all costs, and brands we deal with because we have to.
Brand personality and values are tricky to communicate and consistently deliver on. Building positive brand equity requires constant brand evaluation and reinvention; many established brands go through identity crises and have a hard time keeping their values relevant to the constantly changing audience.
Brand preference-the ultimate sign of brand strength. Brands that are preferred by consumers even if they have to pay a price premium or go through great lengths to acquire it enjoy positive brand equity.
Brand preference translates into customer loyalty, a sign the brand has moved from being known and considered to actually influencing consumer behaviour. Let’s think for a moment of some brands that enjoy strong consumer preference: Apple, Nike, Harley-Davidson, Ferrari. These brands transcend their respective product categories and have become status symbols, and a reflection of our aspirations and how we want to be perceived by our peers.
Measuring Brand Equity
Brand equity can be measured from at least two angles, namely the consumer and brand owner perspective.
The indicators that determine brand strength from the consumer perspective include the levels of brand awareness and preference, customer satisfaction, loyalty rate, brand associations, and emotional connections consumers have with the brand.
From a brand owner perspective, the most accurate assessment of brand strength is reflected in the price a potential buyer is willing to pay to acquire it. Other analytical indicators that are a reflection of brand strength include brand’s ability to generate profits, the price premium the brand is able to command versus the closest competitors, its market share, growth rate and growth potential.
Protecting Brand Equity
Building positive brand equity is only half the battle; protecting it is proving very challenging, even for established brands. The Volkswagen diesel scandal, United Airlines incident, and various harassment accusations that lead to the creation of the #MeToo movement are concrete proofs that the line that separates positive from negative brand equity is very volatile.
On the product front, competitive advantages are short lived. Successful products have to fight less expensive alternatives in a matter of months; sustained the product advantage requires constant innovation, which is time consuming and expensive. To tackle this challenge, brands have to move quickly from functional differentiation to owning space in consumer’s heart.
Which leads to the second challenge, protecting the brand message.
We live in a highly transparent society, where every move, action and behaviour by both people and brands is quickly scrutinised and labelled. Brand messaging is mostly controlled by its community, with the brand manager acting mostly as a moderator, and initiator of new conversations.
Companies must do a great job at controlling the things they can: offering a great product, providing excellent support, building an inspiring brand story and be honest and transparent with their customers, and most importantly adapting to change. The rest should follow into place.
