What Is a Brand's Equity?

Brand equity relies on consumer perceptions.

Name a soda. Chances are the first brand you think of launches expensive advertising campaigns, enjoys celebrity endorsements and appears on shelves in every grocery store. The brand might not be your favorite type of beverage -- in fact, you might never drink it. But your instant recognition means the brand has value, or equity, to many consumers.

Function

Formulas and numbers can quantify many types of equity in the business world. For example, a company can determine its real estate equity by finding out how much its property and buildings are worth on the open market. But brand equity is a subjective entity, meaning you can’t use financial benchmarks to measure it. It exists in the minds of consumers. In essence, brand equity is the goodwill that consumers have toward a particular product. Companies that successfully establish goodwill with their brands can charge higher prices than others, meaning greater profits.

Factors

Factors that influence brand equity include the product’s perceived quality, consistency and popularity. Companies try to create favorable associations through name choice, slogans, logos and marketing messages, according to Chris Pullig, Ph.D. of Baylor University’s Keller Center for Research. He says a strong brand has a clear, relevant and unique image. In other words, consumers must know what benefit your product offers, feel that it offers value specifically to them and believe no other product can match it.

Expert Insight

At an estimated $69 billion, the most valuable brand equity in the world belongs to a type of cola, according to the book “Strategic Brand Management” by Jean-Noël Kapferer, who cites estimates provided in part by “Business Week” magazine. The company sells a sugary beverage, yet its brand equity exceeds computer manufacturers, famous fast-food chains and top automobile producers.

Contrast

Some companies take the opposite route, offering no-frills brands. These companies put little effort into promoting their brands directly to consumers. Instead, they stay competitive by mimicking high-equity brands, hoping bargain hunters will forgo better-known products to save money. They can charge lower prices because they spend so little developing brand equity compared to their competitors.

References

• Baylor University; What Is Brand Equity and What Does the Branding Concept Mean to You?
• Strategic Brand Management: Creating and Sustaining Brand Equity Long Term; Jean-Noël Kapferer