What Is Brand Equity?
One of the Gurus of modern branding, David Aaker, defines brand equity as “a set of brand assets and liabilities linked to a brand name and symbol, which add to or subtract from the value provided by a product or service.”
Brand equity is more of an intangible term associated with a brand. It is the intangible asset that a brand has gathered over a period of time by influencing customers’ perceptions, choices, preferences, experiences and attitudes towards itself. It goes beyond product quality, prices, after sales experience etc. It is the goodwill that a brand has generated in the market and is quantifiable by the premium that a brand commands over its generic product and it’s nearest competitors. For example, Nike and Apple have become iconic brands that command a much higher price as compared to other brands with the same product quality.
Brand Equity is what makes one product preferable over the other when the two have exactly the same physical and functional attributes and utility. It is the aspirational value that customers attach to the brand. For the customers, the brand becomes an entity with a distinctive personality that the customers aspire to be.
It is not easy to build a high brand equity. It takes a long time of being in the market and fulfilling the promises made by the brand to the customers.
The Six Dimensions Of Brand Equity
Brand equity has six dimensions—brand awareness, brand associations, perceived quality, brand experience, brand preference and brand loyalty, each providing value to an organisation in many ways.
1. Brand Awareness
The first dimension of the equity building process is building the awareness of the brand. It means that the customers are aware of the brand and can associate it with the specific product/category. When customers become aware of the brand, it can be leveraged as an anchor to which you can attach other associations.
2. Brand Associations
Just as we associate ourselves with many things, brands are also associated with different things related with them. Interactions with the brand give rise to the associations. These associations could be anything like the brand logo, its color, advertisements, its experience during sale and post sale etc. These help to differentiate the brand from other competitive brands and position the brand properly in the market. Brand association also gives the customers the confidence and positive attitude towards the brand.
3. Perceived Quality
It is a major component of building a strong brand equity. Customers base their views of a brand by its offerings and pricing as compared to its competitors. There is also an intangible value they put on the brand that increases its brand equity. This is a qualitative measure based on the customers’ perception and influences the pricing and positioning strategy of the organisation.
4. Brand Experience
It is the sum total of the experiences of the customer with the brand. This includes pre-sale, sale and post-sale experience. The better the brand experience, the more the repeat sale of the product and more the word of mouth publicity.
5. Brand Preference
If the customers have good experiences and associations with the brand, they will certainly give it preference over other available brands. Thus a preferred brand can charge much more from the market than other similar products.
6. Brand Loyalty
A person who is loyal to a brand will always choose it over other similar brands. This will also lead to word of mouth publicity. Brand Loyalty reduces marketing costs as the customers are already aware of the brand. It attracts new customers via advertising and word of mouth publicity. Since the brand is well ensconced in the market, it gets ample time to respond to threats from competitors.
Summarizing the above, we now know that brand equity increases the market share of a brand in addition to increasing its valuation in the market. It is a highly valuable asset of the organisation and can be sold, licensed and leased to others. It becomes easier to launch new product lines under the brand (or brand extensions) which has a positive brand equity.
For example, Apple was able to lend its brand equity to its Iphones that saw people standing in long queues to lay their hands on the phones.
Maggi was banned in India for about an year when it returned to the market without any loss of equity. Its strong brand equity helped it to cope with the ban.
Positive And Negative Brand Equity
A brand can have either positive or negative brand equity. While positive brand equity helps the company to maintain its market share or maximize it and expand its product lines, a negative brand equity could hurt the goodwill or value the customers associate with the brand, thus negatively affecting the current product lines under the brand and having a long term negative effect on the positioning.
Conclusively, brand equity can be measured by looking at the returns to the shareholders, by evaluating the brand’s long term earning potential, by looking at the increased sales volumes as compared to other brands in the same category and by the price premium charged by the brand over similar products in the market.