Brand equity is the extra value a business gets from a product with a recognizable name, or high brand awareness, compared to the generic alternative. It can be broken down into three basic components: brand perception, the effect this perception has on your company, and the value of that effect.
With strong brand equity, a business has an easier time retaining customers, charging a premium for products, and launching new products to a receptive market. In fact, 60% of people would rather make a purchase from a familiar brand than from a brand they don’t know or like.
Let’s take a closer look at why brand equity is important, some examples of brand equity, and the most well-known brand equity model. As you work to build your own brand equity, surveys that measure brand awareness, brand perception, and brand loyalty can help you track your progress and improve your approach.
When customers like your brand, they’re loyal to your products. A brand that inspires brand loyalty and repeat business can make sales without having to constantly convince new customers to buy its products. And because it costs 5 times more to acquire a new customer than it does to retain an existing one, businesses with a loyal customer base spend less money on marketing per sale.
Apple, for example, leverages brand equity to make a huge number of repeat sales. A 2014 study found that 85% of early iPhone 6 adopters upgraded from another iPhone model. A more recent study found that almost 90% of iOS users stay loyal to iOS when they switch devices. This trend extends beyond the iPhone too, as most users own at least two Apple devices.
It costs the same amount for businesses with and without brand equity to bring a product to market, but a business with brand equity can charge more for its products (and fetch a larger profit on each sale) without spending more on product development.
Take Heinz ketchup, which controls 60% of the ketchup market in the United States. Heinz costs about 60% more than a generic store brand like Great Value, but as long as the company has solid brand equity, it can charge that higher price and still make more sales.
If a customer is willing to pay more for a generic product than a brand name product, that brand has negative brand equity. This can occur after a major product recall or a well-publicized business scandal. For example, many people avoided purchasing financial products from Goldman Sachs in the period right after the financial crisis of 2007-2008.
Brand equity is valuable for product launches too. A business with brand equity will have a much easier time expanding its product line than a business without brand equity, since people are more likely to purchase an unfamiliar product from a familiar brand. In fact, more than 20% of people have purchased a new product because it was from a brand they liked and 15% of people have purchased a new product because it was from a well-known brand.
Tylenol, for example, has launched many successful products—including Tylenol Extra Strength, Tylenol Cold & Flu, and Tylenol Sinus Congestion & Pain—under the same brand name. Companies with brand equity, like Tylenol, will often sell their products under a single brand name, while companies without brand equity will sell products under multiple brand names. This is because once a company has established brand equity, the success of one branded product can translate to other products under the same brand name.
Brand equity is a clear indicator of a business’s strength and performance, especially relative to its competitors. If you prioritize shaping how customers think and feel about your brand, you’ll set your business up for long-term success.
Customer-Based Brand Equity (CBBE) is based on the idea that customers’ attitudes toward your brand have a direct impact on your brand’s overall success. The most well known CBBE model was devised by Kevin Lane Keller, Professor of Marketing at Dartmouth and author of Strategic Brand Management.
The Keller brand equity pyramid breaks the development of brand equity into four sequential stages—brand identity, brand meaning, brand response, and brand resonance—which build on each other to support a positive customer perception of your brand.
1. Brand identity answers the question “Who are you?” and includes the most visible elements of your brand, such as your name, your logo, your color scheme, and your brand voice. These basic elements help people identify and remember your brand, which builds brand awareness and distinguishes you from the competition.
2. Brand meaning is the expression of your brand values, which make up the value proposition you offer your customers. A clear value proposition helps customers understand exactly what they’ll get when they do business with your brand. Brand meaning is the answer to the question “What are you?” and is expressed in two ways:
3. Brand response answers the question “What about you?” and is the way customers react to your brand once they’ve made a purchase. Some customers will become brand advocates by sharing their positive customer experience, while other customers might become brand detractors by sharing a negative experience. Their experience, or brand response, will generally fall into two categories:
4. Brand resonance is the strong relationship a customer forms with your brand over time. It’s what happens when a customer is loyal to your brand, advocates for it, and won’t consider buying any other. When your brand resonates with customers, they want to share their positive experience with as many people as possible, which drives more sales than any other type of marketing. Brand resonance answers the question “What about you and me?” and is the ultimate goal for any business looking to build brand equity.
Since brand equity is all about customer perception, building brand equity centers on shaping how customers think and feel about your brand. The more customers recognize and trust your brand, the stronger your brand equity.
Here are 3 steps you can take to build brand equity:
Once you have a handle on the definition of brand equity and the stages of the pyramid, you’ll want to track and measure your brand equity. One way to do this is by surveying your target market or customer base at each stage of Keller’s brand equity model. Run surveys 2 to 4 times per year to measure the impact of your initiatives, identify your brand’s strengths and weaknesses, and see how you stack up against competitors.
By frequently surveying your target market and customers, you can ground your brand equity initiatives in real data about brand perception, impact, and value.
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