Why Brand Equity is So Important and How to Measure It

October 25, 2017

Do you buy the generic painkillers or the branded ones? And why does it matter?

When asked whether they would prefer to buy from a product I know, or the cheapest product, 69% of consumers would choose the trusted brand over a cheaper alternative.

 

As consumers, our purchasing decisions come from exposure to marketing messages that ultimately lead us to conclude if one is better than the other.

The effect is cumulative; built through advertising, PR and “social proof”, and it’s vital to brands if they want to be consistently selected in a crowded marketplace. This pulling power is known in the marketing industry as “brand equity”.

If you’re trying to build a brand or promote a new product, understanding brand equity is key. In this article we will examine brand equity in detail - from what it means and why it’s important, to how you build it and measure it.

What is “Brand Equity?” - A Definition

“Brand equity” describes the value of having a well-known and loved brand name.

Wikipedia explains this as:
“the idea that the owner of a well-known brand name can generate more revenue simply from brand recognition.” 

Investopidia adds:

“Brand equity refers to a value premium that a company generates from a product with a recognisable name, when compared to a generic equivalent.”

The basic idea is that companies can earn more money from their products if consumers believe them to be superior to those by lesser-known brands, and they can do this without having to rely purely on price or promotions. This helps them avoid the ‘race to the bottom’ and lifts them above commodity status.

Considered as an asset in itself, a business with high brand equity will therefore be more valuable than one with low brand equity.

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Why Does Brand Equity Matter?

Whether you simply want to sell more products, at higher prices, or hope to attract investors with the eventual aim of filing for an IPO, brand equity matters. It even plays a role in the quality of employees you’ll be able to secure for your company.

Here are three key areas brand equity influences:

1. Increased Sales

The purpose of a brand is to give the consumer something they can trust - it’s a seal of quality, a promise of what to expect, a statement of values and ideals that a consumer can align with their own.

These values are important to most consumers - at least in certain categories. For example, one study found 74% of women prefer to buy brand name health and beauty products, while 69% of shoppers think it’s important for washing detergent to come from a well-known name.

A second study by Nielsen, found 69% of consumers prefer to buy new products from a brand they are already familiar with, rather than buy from an unknown. Building brand equity is therefore central not only to achieving initial cut through and repeat custom, but also to future business development and the ability to stay ahead of new market entrants.

Risk when introducing a new product is dramatically reduced for companies with a recognised brand (though success is never assured). An established brand is also at an advantage when it comes to distribution - you’re more likely to get stocked if your brand is in demand, thus leading to even higher sales.

2. Higher Profits

Consumers are willing to pay more for brands they like - you only have to wander through any supermarket to see the price differential between branded and generic products. For example, Tesco own-label Italian chopped tomatoes cost 35p for 400g, while Napolina's same-sized chopped tomatoes tin cost 95p - that’s 171% more!

Our research shows how much more consumers are willing to tolerate price rises when it comes to their favourite brands too, with 28% reporting they would pay up to 10% more in order to continue buying the brands they love.

Recently, FMCG giants Proctor & Gamble, Unilever and Mondelez have all refocused on their brand building efforts and away from promotions, in order to shore up profit margins.

Research shows brand equity plays an important role in price structure, with companies able to charge a premium for products even when physical superiority over competitors can’t be demonstrated.

The ability to charge more results in higher profit margins and, as such, brand equity is a major indicator of company strength and performance, specifically in the public markets. The top 5 most valuable brands globally are Google, Apple, Microsoft, Amazon and Facebook, with a staggering combined brand value of $893 billion.

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3. More Influence

Just as being good looking reportedly gives people an advantage in life, brands experience perks from having high levels of brand equity. Essentially, it becomes much easier to open doors. When it comes to making strategic partnerships, companies are naturally keener to team up with influential allies. In turn, such collaborations result in further enhanced brand equity for both partners.

What’s more, studies show that companies with high brand equity find it easier to recruit talent. That’s because job seekers use reputation perception as a signal about job attributes, and reputation affects the pride that individuals expect from organisational membership.

Plus they know that working for a well known, well respected brand will help them when searching for their next role. Individuals will even accept lower wages to join firms with positive reputations.

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How Do You Build Brand Equity?

Brand equity results from a combination of two factors; consumer awareness and consumer perception. This means consumers are not only aware of your product/brand and its features, but also have associated (positive) views on what your brand stands for.

Brand equity is created through investment in marketing and communications and is amplified by economic growth, word-of-mouth and strategic partnerships. If it’s not something you’ve actively considered before, Keller's Brand Equity Model provides a structure to help you work out your current position and devise a strategy for moving forward.

The model (also known as the Customer-Based Brand Equity (CBBE) Model) was developed by Kevin Lane Keller, a marketing professor at the Tuck School of Business at Dartmouth College, and is widely used by marketing professionals.

The Brand Equity Model

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Usually designed as a pyramid, Keller’s Brand Equity Model shows businesses how to lay the foundation that creates a positive attitude toward a brand. Shaping how customers think and feel about your product is critical to its success. You have to build the right type of experiences around your brand, so that customers have specific, positive beliefs, feelings and opinions, about it.

The ability to do this is underpinned by a thorough understanding of your target consumers’ wants and needs. Answering those wants and needs, and speaking to your audience in a way that resonates with them all help to build brand equity.

In turn, this means customers will buy more from you, they'll recommend you to other people (often measured as Net-Promoter-Score or NPS for short), they’ll be more loyal, and you'll be less likely to lose them to competitors.

Level One: Salience (Who are you?)

This stage is designed to get you thinking about the depth and breadth of customer awareness. What words would consumers associate with your brand name? How are customers classifying your brand? Do they perceive you as you want them to?

Level Two: Performance and Imagery (What are you?)

Stage two is to identify and communicate how your brand meets customers’ needs. This is broken down into two areas - "performance" and "imagery."

"Performance" means meeting practical needs, including product functionality and reliability, style and design, price and customer service. Meanwhile, "imagery" refers to how well your brand meets customers' needs on a social and psychological level - do your brand values chime with those of your customers?

Level Three: Judgement and Feelings (What about you?)

Consumers' response to your brand fall into two categories: "judgments" and "feelings" and you must think about the ways you can influence them. The judgements your customers make include judgements about brand quality, brand credibility, relevancy to their unique needs and superiority in comparison to competitors.

Customers also respond to your brand according to how it makes them feel - both about the product and about themselves. According to the model, there are six positive brand feelings: warmth, fun, excitement, security, social approval, and self-respect.

Level Four: Resonance (What about you and me?)

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Brand "resonance" sits at the top of the pyramid because it's considered the pinnacle of brand equity. It means your customers feel a deep, psychological bond with your brand and, consequently, will remain loyal to it.

Keller breaks resonance down into four categories:

  • Behavioral loyalty: Customers purchase from you repeatedly
  • Attitudinal attachment: Customers feel love for your brand
  • Sense of community: Camaraderie exists between customers, as well as brand representatives
  • Active engagement: Customers engage with your brand even when they are not purchasing it or consuming it i.e. on social media or at live events

The goal in the final stage is to find ways to strengthen each resonance category, recognising and rewarding those customers who are loyal to your brand.

One great example of a relatively young company building such strong brand equity - and a $100 million business off the back of it - is Tough Mudder, which has hundreds of fans so loyal, they even get tattoo’s declaring their love for the brand.

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How Do You Measure Brand Equity?

Brand equity has both tangible and intangible value; the tangible is evident in things like your profit margin and market share, while the intangible manifests as awareness or goodwill. It is therefore necessary to use a mixture of quantitative (data-based) and qualitative (anecdotal) research methods to measure it.

However, if you only track one thing, make that your brand’s Net Promoter Score (NPS). Why? Because NPS measures people’s likeliness to recommend you to family and friends, and this is a cornerstone of building brand equity.

A brand with high equity is one which is not only well-known, but has wooed consumers to the point of falling in love. Its customers stay loyal, embrace new products it launches and - crucially - encourage others to switch.

If you have a high percentage of “brand promoters” - consumers willing to recommend you - it’s clear your brand has equity. Your NPS score can’t tell you everything, and should be used in conjunction with other research that puts it into context, but it does provide an easily measurable baseline that can be benchmarked against.

Meanwhile, a survey question that can offer insight into the levels of awareness your brand enjoys includes asking consumers to name brands in your market, category or niche.

Or, to get a handle on how people think or feel about your brand, ask them to suggest words they associate with your brand. By allowing free text responses you can test unprompted recall and better understand if your brand messages are filtering through.

Other tools often used to measure how much consumers are talking about your brand include social listening tools. These tool will show you all of the mentions a brand has received, updated in real-time, including on Twitter or Facebook.

While levels of online chat are one indicator of brand equity, they are not necessarily the best. According to RadiumOne, 84% of all sharing is now on “dark social” - the term given to private platforms like WhatsApp or Messenger- so online brand mentions don’t provide a complete picture.

In fact, there are many reasons to indicate that using social media to measure brand equity is not a good idea.

Checking out your web analytics can also give you a good idea of brand power - how many people actually search for you by name? So-called “branded keywords” are used by searchers that have already heard of your brand through other marketing efforts and are looking for a website for more information.

However Google increasingly restricts the data on keywords, making this a more and more difficult way to measure brand equity.

A better way to measure Brand Equity

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The world is complicated, so using any one channel (social media, online mentions, search traffic) to measure the strength of your brand equity just doesn’t work. It introduces too much bias, and could lead to misleading conclusions about your brand’s strength or weakness.

Instead, you need to take a platform-agnostic measure that helps provide you with a neutral perspective on your brand’s strength in your particular market.

And the only way to do that is by talking directly to consumers.

Just a few key questions can provide you with an incredible level of rich information on your brand equity, and the actionable intelligence you need to grow it.

  • What’s your unprompted brand recall?
  • How many people have bought or used your brand recently (and how does that compared with your competitors’ market share)?
  • What is your brand’s NPS, and again, how does it compare to key competitors?
  • Why are consumers willing (or not) to promote your brand (and your competitors)? What is it about their brand experience that makes them a promoter or detractor?
  • How would consumers describe your brand? Do they use positive or negative words? Do they align with brand messaging you’ve designed?
  • And what persuades them to choose one brand over another? What core features or benefits can sway their decision?

As you can see, you can then map these answers back to the Brand Equity Model described above, providing you with a consistent, valid and rich measure of your brand versus competitors.

We call this Brand Intelligence. 

Conclusion

With the rise of increasingly connected and “switched on” consumers, brand equity is more important than ever. Garnering fans both online and offline actively affects your bottom line - according to Thomson Reuters and Interbrand 75% of an average corporation’s value is now intangible (three decades ago it consisted of 95% tangible assets).

This means, if you don’t have brand recognition among consumers and you don’t have customers willing to recommend you, your company won’t be able to maximise its value.

Taking steps to building brand equity, and consistently measuring your progress, will increase sales and prestige - both needed to become truly successful and remain a leader in your market.

 

Attest can help you measure, manage and maximise your brand equity. Call us on 0330 808 4746 or request a consultation with one of our brand and market intelligence experts.

 

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