What Is Brand Equity All About?
Brand equity is a term used to represent the strength of the hook or the level of sway a brand holds in purchase decisions. To put that into context, it is the reason why one brand is preferred over another when faced with an equally comparable choice.
Brand equity is largely attributed to the public. It is seen as positive when customers display a favorable response to the brand and negative when they avoid the brand due to contrary perceptions and experiences.
How Does A Company Build Brand Equity?
Brand equity stems from the brand core, the soft elements ( i.e. the meaning, associations, and purpose) that make up the brand.
In order to build brand equity, businesses have to shape the way in which their brand is perceived. It gets communicated through advertising, product or service quality, and other experiential interactions. It culminates in how customers ultimately think and feel. This process takes considerable discipline and effort.
The key is to consistently deliver on customer perceptions and matching or exceeding their expectations. Over time, the brand establishes a reputation and goodwill that has an impact on return on investment (ROI).
But, to deliver on that positive ROI, we need to understand how that goodwill gets transmitted through the system. Brand equity works in cycles with 3 components that reinforce each other positively or negatively.
- Consumer Perceptions
- Positive & Negative Effects
- Resulting Value Of Those Effects
In a nutshell, consumer perceptions flow from knowledge and experience with your brand. As mentioned earlier, those perceptions can manifest positively or negatively. As a result of those manifestations, tangible and intangible outcomes ensue.
Tangible outcomes, for example, can be seen in a price premium over comparable choices. Consider brand B (one with higher brand equity) who charges a premium while still maintaining demand, as opposed to brand A who may have difficulty accomplishing the same feat without losing sales. Suffice to say, the better the perception, the better the outcome.
Intangible outcomes take the shape of awareness, emotions, perceptions, experiences, and goodwill, typically qualitative data that is hard to place a precise value on.
Positive ‘intangible’ outcomes eventually contribute to positive tangible results like premium pricing, higher profit margins, better market share, lower CTA, lower marketing costs, etc. Negative intangible outcomes work conversely.
How Does Brand Equity Evolve?
Brand equity is built over time. It will always remain a work-in-progress. It essentially follows the path of the old hierarchical model AIDA (Awareness-Interest-Desire-Action) or newer adaptations like AAARRR (Awareness-Acquisition-Activation-Revenue-Retention-Referral).
Typically, brand equity develops as customers move from being aware of the brand to recognizing its existence to forming a favorable disposition to try it. The trial gives them first-hand experience and the outcome either reinforces their formed perceptions or disappoints them.
Their level of satisfaction thereafter will dictate whether the brand becomes a preferred choice. If the relationship with the brand intensifies, users are more liable to become loyal, ultimately evangelizing the brand and bringing new customers into the funnel.
As is visually evident in the illustration below, brand equity tends to build as we move further down the customer funnel.
It is also worth pointing out that if the experience is negative especially lower in the funnel, the eventual negative impact on tangible outcomes is higher.
Benefits Of Positive Brand Equity
- Evidence shows that customers are willing to pay a premium for a brand they attribute a higher value to.
- Other things being equal, these higher prices contribute to higher profit margins.
- Strong equity impacts sales positively. It helps sales teams get their foot in the door or drives footfall into stores.
- Positive equity improves retention rates. This leads to a higher customer lifetime value and a lower cost of acquisition.
- Positive brand equity increases the propensity of customers to forgive negative experiences.
- Referral rates are shown to be higher for brands that’ve built significant equity.
- Strong equity also helps companies harness that power to negotiate business terms with supply-chain and other vendors.
- The ability to make extensions to product or service lines as well as enter new markets becomes easier.
- Channel partnerships and channel pull is enhanced at higher equity levels.
The need to build, nurture and grow a brand has never been more integral to the long-term business performance of a company. Brand equity, though an intangible asset, has a far-reaching influence that must be harnessed where possible as a competitive advantage.