What is brand equity?
Brand equity is the value a brand derives from its perception amongst consumers. Strong brand name recognition frequently drives higher sales and brand loyalty for the company. Those are both examples of why brand equity is an important component of a business’ marketing strategy and, ultimately, its growth.
Evolution of brand equity
The history of brand equity can be traced back to the early 1900s, when marketers began to realize that the value of a brand could be more than just the sum of its parts. In the 1960s, a number of academics began to develop theories about brand equity, and in the 1980s, the concept began to gain widespread acceptance in the business world.
One of the most influential figures in the development of brand equity was David Aaker, who published a seminal book on the topic in 1991. He defined brand equity as "the differential effect that brand knowledge has on consumer response to the marketing of that brand." He also identified four dimensions of brand equity: brand awareness, brand image, perceived quality, and brand loyalty.
Since the 1990s, there has been a growing body of research on brand equity. This research has helped to refine our understanding of what brand equity is and how it can be measured. It has also shown the significant impact brand equity can have a significant impact on a company's performance and overall goals.
Today, brand equity is recognized as a valuable resource that can be used to attract new customers, retain existing customers, and command a premium price for products and services.
The difference between brand equity and brand value
Both terms measure the value associated with a brand in some way. Brand value is the total overall financial worth of the company’s assets. Brand equity, on the other hand, is the additional value a brand amasses due to its reputation in the market.
Companies often leverage their brand equity to increase their brand value. For instance, brand equity is the mechanism that allows well-known brand names to charge a premium for their products, in comparison to some of the more generic private labels. The result? Higher revenue means a higher overall brand value for the company.
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Benefits of brand equity
Investing in strengthening your brand equity can benefit your business in the following ways:
Charge premium prices. Consumers are often willing to pay more for brand name products whose names they recognize from popular advertisements, or who they perceive as being of a higher quality than the other competitors on the shelf.
Build brand loyalty. The familiarity of a widely known brand name, combined with users being satisfied with its quality, can create customers that come back for a product or service time after time.
Establish brand authority. Once a brand gains significant recognition amongst consumers, it can pave the way for successful launches of future lines or ventures.
Examples of brand equity
Brand equity can be either positive or negative.
An example of positive brand equity is Apple. The company’s reputation for producing the latest ‘must-have’ technology, coupled with their dedication to stellar customer service, means customers are often willing to pay more to join the Apple tribe, even when other brands offer lower price tags for comparable items. In fact, in some circles, having a cell phone has become synonymous with owning an iPhone. That extreme example of cornering the market bodes well for the company’s brand equity.
An example of negative brand equity is an airline after a major flight disaster or service disruption. Plummeting trust in the quality of their service can drive down sales and force them to lower prices. This is an example of the value of a brand decreasing due to its customer perception.