The Complete Guide to Brand Equity

The Complete Guide to Brand Equity

You know Warren Buffet — he of Berkshire-Hathaway and a 110-billion dollar fortune? When he imparts wealth advice, all within earshot would be wise to listen up (oh, what we’d give to know what Powerball numbers he plays). He once said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” He also said, “Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.” 

Now ask yourself, when consumers see your brand associated with a product, does it increase or decrease the product’s value? Will people pay more for something that comes from your brand than they would for a generic product?

That all depends on your reputation, or brand equity. As Buffet understands good and well, brand equity is the value of your brand. This can be positive or negative, and it involves a combination of tangible and intangible components. If you have a lot of positive brand equity, consumers will seek out your brand by name and gladly pay more for your products. But when your brand equity is negative, they’ll avoid your brand like the plague and try to get their hands on anything else they can find.

Obviously, positive brand equity is extremely valuable, and negative brand equity makes every sale harder to earn. While creating excellent products certainly helps, brand equity goes beyond product quality, and your marketing has a significant impact on how much value consumers place on your brand.

In this guide to brand equity, we examine: 

  • The components of brand equity
  • How to build brand equity
  • How to maintain brand equity

We’ll look at examples of brand equity as well. But first, let’s dig a little deeper into what brand equity really means.

What is brand equity?

Your brand awareness, customer experience, product quality, and market penetration all affect whether consumers will pay more or less for your brand. Brand equity is how much more or less consumers are willing to pay for your products in relation to a generic one. It’s essentially the opposite of brand commoditization, where consumers don’t see a difference between brands in a product category and treat them as interchangeable. 

While your products contribute to your brand equity, your equity carries over into new endeavors as well. As you launch new products, they all inherit (and affect) your brand equity, for better or worse.

Technically, brand equity is different from one consumer to the next, as every person has different experiences with your brand. Broadly speaking, however, brand equity refers to your brand’s value to consumers in general. The stronger your brand integrity, the more consistent your brand equity is across consumers.

Components of brand equity

Brand equity has three main components: 

  1. Consumer perception (or brand perception)
  2. Positive or negative effects
  3. Resulting value

Consumer perception is the key component, and the effects and value are the ripples of that perception. The effects are what consumers do in response to their perception, and the resulting value is how those effects impact your business. Together, these three pieces form your brand equity.

1. Consumer perception

Ultimately, your brand equity depends on what people think of you. It will always be based on their experience with your brand, both before and after they buy from you. You can’t control your brand perception. No matter how much you invest in marketing what you want consumers to think of your brand, their reaction to that marketing, your products, and your organization is what counts.

That said, you can influence consumer perception with excellent marketing.

Before someone ever buys one of your products, they’re forming ideas about your brand based on what they learn in the discovery and awareness stages of their customer journey. Your marketing sets expectations for the kind of experience consumers will have, the capabilities of your product, and the value of choosing your brand over another.

Marketing usually shapes their first impression. Every email, social post, ad, and asset you distribute helps shape consumer perceptions of your brand. If your marketing engages your audience well and reaches them through multiple touchpoints, it should consistently reinforce the perception you’d like consumers to have. Bad ecommerce marketing can undermine that perception, too.

There’s another element that affects what people think of your brand before they buy: word of mouth. Consumers learn from the experiences of their friends, family, colleagues, and others, whether they actively seek out opinions or simply hear them in passing. Their relationships to these people determines how much influence those experiences have on their perception of you.

Whether a result of your marketing or not, media coverage can have a major impact on brand perception, too. Positive press helps more consumers develop favorable impressions, and it can trigger more word-of-mouth brand awareness. It doesn’t matter if the press is about your company, your products, your employees, your leadership, or even your marketing: good press helps grow your brand equity by increasing positive impressions of your brand. Bad press, on the other hand, such as announcements about recalls, stories about customer injuries, or revelations of company scandals, can seriously detract from your brand equity.

Your product has to deliver on consumer expectations as well. If your product breaks, doesn’t work as well as someone thought it would, looks different than the picture, or otherwise fails to satisfy your customers, they’ll have a much lower view of your brand, and their perception will inevitably ripple to other consumers.

Customer service also affects consumer perception. If you treat your customers right, give them the support they need, resolve problems quickly, and prove to be responsive, consumers will have a more positive perception of your brand, and they’ll trust you to provide similar service in the future. Since they can’t guarantee a similar experience with another brand, they’ll be more willing to choose you again and to pay more, if necessary.

That’s what brand perception all comes down to, really: how much more or less will they pay for your products based on past experiences and knowledge of your brand?

2. Positive or negative effects

What consumers think of your brand influences their shopping behavior and how they respond to your brand in various settings. 

They may buy your products, recommend them, and actively seek out your brand by name. If you have a stronger positive brand perception than your competitors, consumers will naturally develop a preference for your brand.

Negative consumer perceptions have the opposite effects. Consumers will actively seek out alternatives to your brand, they’ll be much less likely to buy from you, and they may even recommend others avoid you. Depending on the severity of your negative brand perception, consumers may even boycott your company.

Another effect of your brand perception: consumers will pay more for your products than a generic brand, or they’ll pay more for the generic brand to avoid you.

3. Resulting value

These effects result in positive or negative values. Some of these are tangible, like an increase or decrease in sales. Your stock prices may fluctuate in response to public perception. If the effect of your brand perception is an increase or decrease in price, it will impact your profit margins.

Other values are intangible, such as an increase in brand awareness. People like your brand, so they talk about and recommend you, and as a result, more consumers discover you. Alternatively, your brand perception and its effects could result in a negative reputation for making low quality products, treating employees poorly, having poor ethics, or being bad for the environment. Maybe nobody wants to work for you. Or everyone does.

Another intangible value (which, confusingly, has a monetary component) is goodwill. If your company gets acquired by another, the “goodwill” is the part of the purchase price that exceeds the “net fair value” of your assets. Your brand equity is a big piece of that goodwill.

Examples of brand equity

How often do you buy generic drugs — or even seek them out — because you don’t want to pay 10 times the price for a name-brand drug with the exact same ingredients? This doesn’t mean these companies have negative brand equity. It just means that they don’t have enough brand equity for consumers to perceive the price difference as worth it. 

However, some name brand drugs, such as Tylenol, Pepto Bismol, and Nyquil, have so much brand awareness and consumer trust that people seek them out by name and don’t mind paying more. They may even refer to the product category by the brand’s name (a classic example is Kleenex, which has become synonymous with tissue paper).

In consumer electronics, it’s common for a single company to produce a wide range of products. Here, the company’s brand equity can have a tremendous impact on the success or failure of future products, and it carries over throughout its entire catalog. Sony, for example, has been building brand equity for 75 years, developing a reputation for excellence that makes them a contender in every new product category they pursue.

How to build positive brand equity

Positive brand equity takes time to grow. Hopefully, you’re not starting in a hole with negative brand equity, where you have to begin with unlearning bad habits and taking care of damage control. But if you want consumers to see the value in your brand, there are several areas you should focus on. 

Create high-quality products

Most brands already strive to produce the best products they can. If your products are noticeably better than generic brands, building brand equity is a whole lot easier. While consumers may think generic brands are “good enough,” you want them to believe your brand goes above and beyond when it comes to form and function. High-quality products constantly reinforce the value of your brand when customers use them. You don’t have to work as hard to remind them of your brand’s appeal because they experience it on a regular basis.

Turn customers into brand advocates

When someone buys your product, that’s not the end of your relationship with them. Some people will naturally share their positive or negative experiences with friends, family, and followers, but most need a little nudge. Developing a customer loyalty program helps you ensure that your best customers are motivated to advocate for your brand in the ways that are most valuable to you.

Public reviews can significantly affect your brand equity prior to purchase as consumers evaluate your product. Simply posting pictures, videos, or stories about how they’ve used your products can help grow your brand awareness. Referral programs incentivize your customers to persuade others to try you out. Your customer loyalty program gives you a clear channel for directing more people to take the actions that most benefit your brand.

Partner with influencers

Influencers have established loyal audiences who care what they have to say. When they recommend products, a percentage of their audience buys them. In terms of brand equity, an influencer’s main contribution comes in the form of brand awareness and their impact on consumer perceptions. If an influencer has special expertise or experience related to your product category, that gives their recommendation additional authority, which reflects even better on your brand.

Provide consistently excellent experiences

Every aspect of the customer experience can contribute to or detract from your brand equity. If you want to build that equity, you need to make an effort to improve the experience everywhere you can. It might mean working with retailers who have more infrastructure or investing in that infrastructure yourself. Whichever way you do it, you need to ensure that every customer has a first-class checkout experience, all the support they need, and exceptional customer service. Wherever consumers encounter your brand, they should be pleasantly surprised by your brand.

How to maintain brand equity

Once consumers perceive your brand as valuable, all that’s left is to ensure that it’s consistent. Every representation of your brand can potentially decrease your equity. In ecommerce, there could be hundreds of thousands of product pages spread across thousands of websites, many of which you don’t have direct control over.

It’s all about brand integrity and maintaining your brand. Brand monitoring software, such as PriceSpider’s aptly named Brand Monitor, automatically tracks everywhere your brand appears, collecting digital shelf metrics that help you maintain your brand integrity. For example, Brand Monitor gives every seller a content compliance score based on how well it follows your guidelines. You can also see your share of search with every retailer, so you’ll always know if you’re still on top.

Build and protect your brand equity with Brand Monitor

Brand Monitor is a purpose-built solution to help ecommerce brands analyze and optimize their position on the digital shelf. Whether you’re trying to build brand equity or maintain what you already have, Brand Monitor equips you with the information and insights you need to be a brand consumers value.
Want to see what Brand Monitor can do for you?

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