Definition of brand equity
Brand equity is the perceived value of a brand. Well-known brands tend to have greater brand equity because customers believe they offer a better product or service.
As an illustration of this – if presented with two bottles of cola at the same price, one of which is branded “Coca-Cola” and the other “Bob’s cola”, most people would choose Coca-Cola.
This enables Coca-Cola to sell more bottles of cola and charge a premium for them.
Why is brand equity important?
If your brand has strong brand equity this gives you scope to increase revenue and profitability, and a competitive edge.
There are two ways you can do this:
1. Charge more – a positive perceived brand value is the gateway to becoming a premium brand and, therefore, being able to charge people more for your services.
2. Sell more – your product or service might not suit the position of a premium brand, but strong brand equity will still enable you to increase your sales volumes and therefore your revenue.
How do you measure brand equity?
It’s notoriously difficult to measure brand equity because so many things affect it, many of which are very subjective. Various tools have been developed to work it out, but there’s no generally accepted method. Big brands tend to put more of an effort into valuing their brand. For example, Coca-Cola’s brand equity was calculated to be US$87.6 billion in 2021 (source: Statista).
For most organisations it’s more practical to take a qualitative approach, perhaps by evaluating your brand’s equity in comparison to your competitors or assessing your customers’ behaviour in terms of brand recognition, loyalty or retention.
How do you increase your brand equity?
There are several schools of thought about this. One of the most popular ideas is the Aaker Model, developed by organisational theorist David Aaker.
The Aaker Model identifies five elements which can either add to, or subtract from, a brand’s equity. These are:
- Brand loyalty (loyal customers will reduce your costs and protect you from competitors).
- Brand awareness (greater brand awareness means your brand is more likely to be considered for purchase).
- Perceived quality (which may go beyond the actual product features).
- Brand associations (what customers associate with your brand and the role this plays in the buying process).
- Other assets (eg patents or trademarks).
Strengthening each of these elements will, in turn, strengthen your brand equity.
Assess and improve your brand equity
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