Brand Equity Basics – Part 1: What Is Brand Equity?

Brand equity is a critical part of building a business, and companies that successfully build one understand just how important it is to the bottom line. However, it takes time, patience, and a great deal of effort to build positive brand equity as you’ll learn in my new series, Brand Equity Basics.

brand equity basicsI’ve come across many definitions of brand equity throughout my education and career. Let’s take a look at some good definitions from a couple of great resources.

First, the American Marketing Association offers the following definition of brand equity:

“The value of a brand. From a consumer perspective, brand equity is based on consumer attitudes about positive brand attributes and favorable consequences of brand use.” – American Marketing Association

Branding expert David Aaker defined brand equity back in 1991 as:

“A set of assets and liabilities linked to a brand, its name and symbol, that adds to or subtracts from the value provided by a product or service to a firm and/or to that firm’s customers.” – David Aaker

Brand Equity Definition

Both of the above definitions are excellent, but if you put them together, you get an even better definition of brand equity. With that in mind, I’d define brand equity as follows:

“The tangible and intangible value that a brand provides positively or negatively to an organization, its products, its services, and its bottom-line derived from consumer knowledge, perceptions, and experiences with the brand.” — Susan Gunelius

This definition hits the three main points that define brand equity:

  1. Tangible and intangible value: This can be tangible value such as revenues and price premiums or intangible value such as awareness and goodwill.
  2. Positive or negative effects: The organization, products, services, and bottom line can benefit or suffer from brand equity.
  3. Consumer catalysts: Brands are built by consumers, not companies. Therefore, brand equity is built by consumers too.

Brand Equity Benefits

Positive brand equity can help a company in a variety of ways. The most common is the financial benefit which enables a company to charge a price premium for that brand. For example, the Tiffany’s brand has enough equity that a price premium isn’t just accepted, it’s expected.

tiffanys boxes

Positive brand equity can also help to expand a company through successful brand extensions and expansions. And not only can brand equity help increase sales and revenues, but it can also help reduce costs. For example, there is little need for awareness promotions for a brand that has deep, positive equity. Marketing budgets can be more strategically invested in initiatives that will drive short-term results.

A company with strong brand equity is also positioned for long-term success because consumers are more likely to forgive bumps in the road when they have deep emotional connections and loyalties to a brand. Positive brand equity helps a company navigate through macro-environmental challenges far more easily than brands with little or negative brand equity can.

5 Stages of Brand Experience

Brand equity is typically the result of brand loyalty, and with brand loyalty comes increased market share. In fact, there are 5 stages of brand experience that lead to positive brand equity:

  1. Brand awareness: Consumers are aware of the brand.
  2. Brand recognition: Consumers recognize the brand and know what it offers versus competitors.
  3. Brand trial: Consumers have tried the brand.
  4. Brand preference: Consumers like the brand and become repeat purchasers. They begin to develop emotional connections to the brand.
  5. Brand loyalty: Consumers demand the brand and will travel distances to find it. As loyalty increases so do emotional connections until there is no adequate substitute for the brand in the consumer’s mind.

Once consumers reach the brand loyalty stage, your work isn’t done. The challenge is not only building brand equity to reach widespread loyalty, but also to sustain that loyalty and positive brand equity for years to come. And that’s exactly what the next part of the Brand Equity Basics series will discuss: how to build brand equity. Keep an eye on the AYTM blog on Monday so you don’t miss it!

Image: davdibiase

ABOUT THE AUTHOR: Susan Gunelius
Susan Gunelius brings over 20-year of marketing and branding experience as Contributing Editor for the AYTM.com blog. She is the author of numerous books about marketing, branding and social media, and her marketing-related articles appear on top media websites such as Entrepreneur.com and Forbes.com.
  • Uzair

    Very nice article Susan..thanks alot to you it helps me

  • lanalana

    Hi, Im doing my dissertation and I would really like to find out what are some objectives that can be derived out of brand equity ie.

  • http://www.facebook.com/ritikakanodia Ritika Kanodia

    could you tell me how do jingles , characters
    and URLs help in developing brand equity.

  • Abhinav Sinha

    I would simply say, brand equity is a measure of certainty of cash flows.

  • Bogggg

    lol

  • carl

    hi susan ,do you think that there is a similar relationship with persoal brand and brand equity

    • Chuka

      I suppose you mean personal brand. Organizational, product or service brand equity can be reenforced by a strong personal brand. For instant, the Virgin brand equity is further strengthened by the strong personal brand behind it – Richard Branson. Celebrity brand endorsement and association also hinges on this principle.