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What is Brand Equity and How is it Built?

  • Vrinda Mathur
  • Apr 02, 2022
What is Brand Equity and How is it Built? title banner

In an increasingly competitive economy, brands face greater challenges than ever before in obtaining and sustaining market share while also keeping customers loyal.

 

In marketing, brand equity refers to a brand's worth, which is defined by consumers' perceptions of the brand. Positive or negative brand equity can exist. Positive brand equity exists when consumers regard a brand favorably.


 

What is Brand Equity?

 

When compared to a generic version, brand equity refers to the value premium that a company generates from a product with a distinctive name. Companies can build brand equity for their products by making them distinctive, easily recognisable, and superior in terms of quality and dependability. 

 

Brand equity can also be built through mass marketing initiatives. Customers happily pay a high price for a company's products when it has favorable brand equity, even if they could buy the same thing from a competitor for less.

 

Customers effectively pay a pricing premium to do business with a company they are familiar with and trust. Because the company with brand equity does not pay a higher cost to make and sell the items than its competitors, the price difference goes to their profit. Because of the firm's brand equity, each transaction may result in a bigger profit.

 

Brand equity is a marketing phrase that describes the worth of a brand. That value is defined by the brand's perception and encounters with consumers. Positive brand equity exists when people think positively of a brand. Negative brand equity occurs when a brand regularly under-delivers and disappoints to the point where consumers advise others to avoid it.

 

Positive brand equity has monetary value:

 

  • Companies can charge more for a product that has a strong brand equity.

 

  • That equity can be transferred to line extensions — products connected to the brand that feature the brand name – allowing a company to profit more from the brand.

 

  • It can help to increase the value of a company's shares.

 

Consumer perception, negative or positive consequences, and the consequent value are the three essential components of brand equity. First and foremost, consumer perception, which comprises both knowledge and experience with a brand and its products, contributes to the development of brand equity. 

 

The perception that a consumer group has of a brand has an immediate favorable or negative impact. If the organization's brand equity is positive, its products and financials will benefit. If the brand equity is low, the inverse is true. 

 

Also Read | Factors Influencing Customer Behavior 

 

Importance of Brand Equity

 

According to marketing specialists, brands are a company's crown jewels. Companies benefit much from brand equity:

 

  1. Companies might charge a premium for products that have a high level of positive brand equity (think of designer brands).

 

  1. Positive brand equity can be transferred to a different product line, increasing the company's sales and income.

 

  1. Positive brand equity boosts market share since the brand is well-known, recognised, and chosen by customers.


 

How to build Brand Equity

 

The foundation for an organization's long-term success is the development of significant brand equity. Marketers can strengthen brand equity by actively investing in its components.

 

You can accomplish this in a variety of ways, including:


How to Build Brand Equity:- 1. Increasing Brand Awareness 2. Branding positioning continually in the market 3. Emphasizing positive brand relationship 4. Emphasis on relationship development

How to Build Brand Equity


 

  1. Increasing Brand Awareness

 

This can be accomplished by developing good, strong, and distinctive brand features that consumers will remember, such as:

 

  • Using various media to promote your brand

 

  • Participating in numerous social media communities

 

  • Developing viral content (videos, campaigns)

 

 

  1. Branding Positioning Continually in the Market

 

The total culture of a brand (including its beliefs, values, and USPs) should be consistent so that consumers are not confused or unsure about what the brand stands for. 

 

This is not to suggest that managers cannot undertake tactical strategic changes, such as introducing new packaging or rewriting slogans, if they are required to re-align with changing consumer wants or external economic and social forces.

 

Following are some examples:

 

  • Conscious and consistent communication of the brand's underlying principles and meaning
  • Relaying to customers what your products stand for and the primary benefits they provide
  • Defining what your brand is and isn't in comparison to the competitors

 

 

  1. Emphasizing Positive Brand Relationships

 

Strong brand connections are essential for increasing brand loyalty. Among the ways to improve how customers perceive your brand are:

 

  • Using unique and eye-catching advertising methods to showcase your product's main functional, social, or emotional aspects
  • Assuring that the company behind the brand is socially responsible and follows ethical business practices
  • Celebrity support

 

 

  1. Emphasis on Relationship Development

 

Consumers are primarily responsible for determining the strength of your brand's equity; it is therefore critical to develop and maintain favorable relationships with your target segments. Managers can accomplish this in a variety of ways, including:

 

  • Using social media to stay in touch with customers

  • At all times, providing great customer service

  • Keeping track of any bad news or feedback, as well as hearing and responding

 

Also Read | Customer Relationship Management 

 

 

Effect on Profit Margin

 

When people associate a level of quality or prestige with a brand, they view the brand's products to be more valuable than competitors' products, and they are prepared to pay more for them. In effect, brands with high levels of brand equity command higher prices in the market. 

 

The cost of producing a golf shirt and bringing it to market is not significantly more for Lacoste than it is for a less famous brand. However, because its clients are prepared to pay more, it can charge a greater price for that shirt and profit the difference.

 

Positive brand equity boosts profit margins per customer by allowing a corporation to charge more for a product than competitors, even if it was obtained at the same price.

 

Because consumers gravitate toward products with stellar reputations, brand equity has a direct impact  on sales volume. For example, when Apple introduces a new product, buyers line up around the block to purchase it, despite the fact that it is usually more expensive than comparable products from competitors.

 

One of the key reasons that Apple's goods sell so well is that  the business has collected an incredible quantity of favorable brand value. Larger sales volumes correlate to higher profit margins because a certain percentage of a company's costs to sell products is set.

 

The third area in which brand equity influences profit margins is customer retention. Returning to the Apple example, the majority of the company's customers possess multiple Apple products. Furthermore, they eagerly await the release of the next one. Apple's client base is incredibly loyal, bordering on evangelical at times.

 

Apple has a high customer retention rate, which is a byproduct of its brand equity. Retaining existing customers boosts profit margins by reducing the amount of money a company must spend on marketing to attain the same sales volume. It is less expensive to keep an existing customer than to attract a new one.

 

Also Read | How Apple uses AI and Big Data 

 

 

Keller’s Brand Equity Model

 

Kevin Lane Keller established Keller's Brand Equity Model (also known as the Customer-Based Brand Equity (CBBE) Model) in his widely used textbook, "Strategic Brand Management."

 

The Brand Equity Model is based on a basic idea: in order to establish a successful brand, you must affect how buyers think and feel about your product. You must create the correct experiences around your brand so that customers have specific, positive thoughts, feelings, beliefs, opinions, and impressions of it. 

 

Customers who have significant brand equity will buy more from you, promote you to others, are more loyal, and you are less likely to lose them to competition. Keller's pyramid is divided into four levels. The levels of the Brand Equity Pyramid (from bottom to top) are as follows:

 

  1. Identification

 

  1. Meaning

 

  1. Reaction 

 

  1. Relationships

 

It will be critical to cultivate customer relationships from the ground up in order to construct a strong brand.

 

How to use Keller’s Model

 

  1. Begin with your brand's identity.

 

First, you must establish "brand salience" or awareness - that is, you must ensure that your brand stands out and that customers recognise and are aware of it.

 

You're not just seeking to establish brand identity and awareness here; you're also attempting to ensure that brand perceptions are "right" during important phases of the purchasing process.

 

Begin by learning about your customers. Investigate your market to acquire a comprehensive picture of how your customers see your brand, and determine whether there are different market segments with varied demands and relationships with your brand.

 

  1. Understand and communicate the meaning of your brand

 

Determine and explain to your customers what your brand means to them and what it stands for. Consider your brand's "performance" and "imagery" in this manner:

 

The performance of your product determines how well it fits the needs of your customers. Performance is divided into five categories, according to Keller's model: primary characteristics and features; product reliability, durability, and serviceability; service effectiveness, efficiency, and empathy; style and design; and price.

 

Imagery relates to how successfully your brand fits the social and psychological needs of your clients. Your brand can address these demands directly, through a customer's own product experiences, or indirectly, through targeted marketing or word of mouth.

 

Your clients' interactions with your brand are a direct effect of the performance of your goods. If you want to establish loyalty, your offering must match, if not surpass, their expectations.

 

Also Read | Customer Experience Trends

 

  1. What sort of response does your brand evoke from customers?

 

Customers' reactions to your brand are often divided into two categories: "judgments" and "feelings."

 

They tend to base their decisions on the four criteria listed below.

 

  • Customers evaluate a product or brand based on its real and perceived quality. Consider what you can do to increase these two types of quality in your product or brand.

 

  • Customers assess credibility on three dimensions: expertise (including innovation), trustworthiness, and likability. Consider how you can boost your credibility in these three areas. 

 

Could you, for example, employ research to back up your main themes and advertise it on your brand packaging or in a marketing campaign?

 

  • Customers evaluate how relevant your product is to their specific needs. Use the consumer research you conducted in step one to help you determine the specific demands of your clients. Then, explain how you are meeting their needs and what you are doing to express how you are assisting them.

 

  • Customers evaluate your brand's superiority by comparing it to competitors' brands. Ask yourself, honestly, how well your brand compares to those of your competitors. 

 

Is there anything extra or unique that your competitors provide that you do not, or vice versa? What else could you possibly do?

 

  1. Understand the relationship you’ve built with your customers

 

Brand "resonance" sits at the top of the brand equity pyramid because it's the most difficult – and the most desirable – level to reach. When your customers form a profound, psychological relationship with your brand, you have created brand resonance. 

 

Keller divides resonance into four categories:

 

  • Behavioral Loyalty - This entails recurrent purchases on a regular basis.

 

  • Attitudinal attachment — Your buyers adore your brand or product and regard it as a one-of-a-kind purchase.

 

  • Sense of community — Your customers have a sense of community with people affiliated with the brand, such as other customers and corporate representatives.

 

  • Active Involvement - The most powerful evidence of brand loyalty is active involvement. Even when they are not purchasing or consuming your brand, they are actively engaged with it. 

 

Joining a brand-related club, participating in online conversations, marketing rallies, or events, following your brand on social media, or participating in other brand-related activities are all examples of this.

 

Also Read | Customer Journey Analytics

 

In the final step of the pyramid, your goal is to strengthen your brand resonance in each of the four areas listed above.

 

Brand equity is the worth of a brand and includes a consumer's awareness of the brand, the associations they have with it, how they view the quality of its products, and the amount to which consumers demonstrate loyalty to it.

 

Brand equity is an important component of marketing strategy because of its long-term impact on a brand's ability to maintain a competitive edge.

 

Brands must continuously assess their brand equity using quantitative or qualitative indicators so that their brand strategy may be adapted to strengthen brand equity in response to changing economic trends.

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