A Guide To Brand Equity (With Definition And Benefits)

Indeed Editorial Team

Updated 20 September 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Companies try to discover ways that they can outperform their competitors. One of these ways is by establishing brand equity, which is the theoretical value that the recognition of a brand name generates. Understanding how to build this aspect of a brand can help it succeed in its industry and increase its profit margins.

In this article, we define what brand equity is, what an example of it is, what its major components are and how a company can establish it.

What Is Brand Equity?

Brand equity is when a company generates a value premium from the recognition of a product or brand name. The idea is that when a product is highly recognisable and has positive associations, consumers attribute more value to the corresponding brand. This kind of exemplary branding creates value for the product because it creates an organic channel for exposure, which means the brand has a high mental recall with consumers.

Related: What Is A Brand? (With Components, Benefits And Types)

Benefits Of Developing Equity For A Brand

Here are a few benefits a company can experience when it develops equity for its brand:

It can charge higher prices

A company without strong equity for its brand may need to charge consumers the benchmark, or market average, price for its products. When a brand has strong equity, it can charge higher prices than its competitors. Consumers are more willing to pay a higher price for a product if it comes from a brand they trust.

Related: What Is Competitor Analysis? (Plus How To Perform One)

It can acquire a greater market share

A company with strong equity for its brand can acquire a greater market share than its competitors. This benefit is especially useful in oversaturated industries that have hundreds of businesses that offer the same or similar products. When a brand acquires a greater market share, it can have a more meaningful impact on its target audience. It may also invite more investing opportunities from interested parties and allow for lucrative collaboration possibilities.

Related: What Is Market Share And How To Increase It In Business

It can expand its product line

Once a brand has strong equity, it can consider expanding its product line. Consumers may be more willing to try a company's latest offerings if they already have strong faith in its current offerings. By expanding its product line, a company can appeal to a more diverse audience and increase its profit margins.

Types Of Metrics To Measure Equity For A Brand

Here are three types of metrics you can use to measure a company's equity:

  • Consumer metrics: You can track consumers' sentiments and purchasing behaviours through the results of social media monitoring and customer surveys.

  • Strength metrics: You can measure the strength of a brand by monitoring the brand's licensing potential, retention, accessibility and the customer loyalty it garners.

  • Financial metrics: Financial metrics like customer acquisition costs, customer retaining costs, revenue and profitability can also help measure a company's equity.

Related: What Is A Key Performance Indicator? Importance And Types

How To Build Equity For A Brand

Here is a list of steps on how to build equity for a brand:

1. Create better brand awareness

One of the easiest ways you can build equity for a brand is to create better brand awareness. Ensure that the brand's target audience is familiar with the brand and does not forget about its offerings. One way to create brand awareness is to keep a brand's use of logos and images consistent. When audiences see the same colours, font and images for a brand, they can more easily associate the visuals with the correct company.

Another way to create better brand awareness is to provide great customer service. Establish a team that has the sole responsibility of answering customers' questions and addressing their concerns. You may also create better brand awareness by providing ongoing value, maintaining customer communication via newsletters and writing an uplifting story for the brand and sharing it accordingly.

2. Relay the brand's meaning and purpose

Another way to build equity for a brand is to communicate the brand's meaning and purpose. Understand what physical needs the brand is trying to meet for its customers. For example, a company that sells vacuums may want to help customers clean their carpeted floors more efficiently. You can also attempt to understand and convey the psychological and social needs that a brand is trying to fulfil. The same company might be trying to reduce stress in their customers' busy lives and create more free time for them to spend with their families.

Related: What Is Brand Positioning? (With Benefits And Tips)

3. Encourage positive feelings and judgments among customers

Customers often have feelings and judgments about the products they consume and the brands with which they interact. As you are trying to build equity for a brand, you can make efforts to encourage positive feelings and judgments. You can facilitate feelings and judgments with the marketing materials that the brand releases to the public. Positive feelings you can foster include those of security, self-respect, trust, excitement and contentment. Judgments you can attempt to facilitate include those that relate to the brand's capability, quality, credibility and superiority in comparison to its competitors.

4. Establish loyalty with the brand's customers

You can establish loyalty with a brand's customers by encouraging repeat purchases. Focus on communicating the product's quality and long-term relevance so that customers show loyalty to the brand. As a result, repeat customers may act as ambassadors for the brand, sharing its benefits with their friends and family. The brand may not need to spend as much to gain new customers, as existing ones may complete some of the advertising on its behalf.

Related: How To Manage Customer Relationships: A Complete Guide

Example Of Positive Equity For A Brand

Here is an example of positive equity for a brand:

Revolution Juice is a company that produces fruit juices. Its most common offerings are apple, orange and grape juices. They are popular among consumers because of their low sugar content and inclusion of fibre and nutrients. Revolution Juice initiates a global marketing campaign to emphasise the importance of healthy living, and it centres the campaign on its apple juice. The campaign features emotionally-driven advertisements that show parents including the juice boxes in their children's school lunch boxes.

Revolution Juice also initiates a worldwide wellness campaign that encourages people to get active for at least thirty minutes a day. Due to its marketing efforts and attempts to connect with its audience, customers begin to choose Revolution Juice's products over generic brands from grocery stores. They are willing to pay a higher price because of the positive associations that the brand has created. When the creators of Revolution Juice develop new vegetable-based juices, they release the products under the same brand name because of the pre-established positive associations.

Example Of Negative Equity For A Brand

A company may experience challenges when it attempts to establish equity for its brand. Here is an example of negative equity for a brand and how it overcame it to once again become popular with the public:

Eureka Chicken is a fast-food restaurant that sells chicken-based menu items, including chicken tenders and chicken sandwiches. Since its opening several decades ago, Eureka Chicken has gained popularity among consumers all over the world. It has established equity for its brand by providing ongoing value, offering great customer service, engaging in consistent communication and reminding consumers of its heart-warming origins. Recently, Eureka Chicken has received negative press because a restaurant had reported the presence of the bacteria E. coli in some of its food.

Eureka Chicken works quickly to overcome the negative associations that this news has created for a lot of its customers. It issues a press release to apologise for the issue and assure customers that this instance was an isolated case. Eureka Chicken also releases a one-minute video on its social media accounts. The video features a family enjoying Eureka Chicken's video on the screen and has a voiceover of a spokesperson detailing the restaurant's commitment to using fresh, high-quality ingredients. The video resonates well with the restaurant's audience, and the brand once again gains respect.

Please note that none of the companies, institutions or organisations mentioned in this article are associated with Indeed.

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