Understanding Brand Equity
According to Harvard Business School Professor Jill Avery, an effective brand resonates with consumers and influences their purchasing decisions. Brand equity is formed as consumers purchase and use a product over time, building personal relationships with the brand. In essence, brand image forms the backbone of brand equity. Brand equity encompasses consumers’ individual and collective levels of brand awareness and knowledge. This includes consumers’ level of recall, salience, familiarity with your brand, and their thoughts, feelings, attitudes, and relationships regarding your brand.
The Importance of Brand Equity
Brand equity can be seen as a sum of consumers’ thoughts, feelings, and attitudes about your brand that influences their willingness to pay for your product. As Chief Marketing Officer of egg producer Pete and Gerry’s Phyllis Rothschild points out, brand equity can go beyond the product itself and include values, attributes, and associations that matter to consumer segments. Positive, strong brand equity can lead to consumers being less price-sensitive, more loyal, and less likely to be swayed by competitors.
Positive and Negative Brand Equity
Positive brand equity is when customers are willing to pay more for your product. Brands like Nike, Apple, and Lego are examples of positive brand equity. On the other hand, negative brand equity occurs when your brand’s reputation decreases in consumers’ minds, leading them to avoid your brand. This could be due to a variety of reasons such as product recalls, poor customer service, inconsistent products, scandals, and price increases without added value.
Building Brand Equity: A 5-Step Process
The process of building brand equity may seem daunting, but breaking it down into steps can make it achievable. These steps include investing in marketing, educating your consumers, developing and communicating customer behaviors, building firm-based equity, and increasing shareholder value. Investing in marketing is the starting point as it affects everything from the customer experience to service and sales. Educating your consumers deepens their understanding of and attachment to your brand. Developing and communicating customer behaviors can help build brand perception and improve the purchase process. Building firm-based equity can lead to growth, profitability, and stability. Finally, increasing shareholder value can make your company’s cash flow more stable and predictable.
Measuring Brand Equity
There are several ways to measure brand equity. These include assessing brand awareness, brand relevance, and brand power. Brand awareness measures how well your target audience knows your brand. Brand relevance measures whether consumers believe your brand provides unique value. Brand power measures how strong your brand’s equity is in consumers’ minds after multiple interactions.