Brand Equity: Why companies need it desperately?

PESTLEanalysis Team
PESTLEanalysis Team
Table of Contents
Table of Contents

Learn about what brand equity is, 5 main factors that influence the amount of equity a brand can have and how some companies have more equity than others.

Have you ever wondered what the term “brand equity” means? Or how some companies tend to have more equity than others? Or why having this equity even matters?

In this article, you’ll not only learn about what brand equity is, but also five main factors that influence the amount of equity a brand can have.

What is brand equity?

Brand equity represents the valuation of a brand. Typically, the more reputable the brand, the more brand equity it has. For instance, globally known and used brands like Amazon or Walmart have higher brand equity than a small mom and pop shop. Despite being on a smaller scale, the mom and pop business — and any other — can have brand equity.

Business liabilities and assets can affect the valuation of brand equity. But equity also depends on customer perception — that is how a customer responds, feels, and acts towards the brand.

How to develop, keep, or lose brand equity can be broken down into four categories:

  • Awareness
  • Experience
  • Association
  • Brand loyalty
  • Brand quality

Awareness: How (well) known a brand is

Brand awareness is relatively straightforward: it’s how well or how much the brand is known to customers. Are customers aware that the company exists? And how do they associate the company?

For instance, Nike’s brand is associated with athletes and sports. Netflix is associated with video streaming and entertainment. These brands have spent millions to associate the name of the company with these categories.

New companies need to build awareness (and association). But because they’re often starting from zero, it means the brand equity will be low. Marketing will increase brand awareness — such as social media marketing, paid advertisements, or guerilla marketing. With the right marketing — in this case, the marketing that gets the brand positive attention — awareness will naturally grow over time.

Brand Experience: What’s the customer experience like?

Customers expect a painless, carefree experience whenever interacting with a brand. If a customer has hiccups, or other issues during this process, it can backfire on the company. The customer may make complaints or leave negative reviews online. This negativity can decrease brand equity.

For instance, whenever you buy fast food, you already have preconceived notions of how the experience should be. Ordering should be simple. It shouldn’t take more than 30 minutes to get your food. And your meal should taste exactly as it did last time. If any of that changes, the customer may be unhappy.

Customer experience is one of the biggest influences on brand equity. Because of that, corporations should focus on creating a seamless, simple process for new and old customers.

Association: How is the brand perceived?

All brands are affected by its reputation. Whenever a corporation faces backlash, its brand equity will take a hit. Because the company may suffer profit or sales loss, it may struggle to get more customers. But if the company receives positive attention, the opposite can happen. Sales will flourish, customers will line up, and the brand equity rises.

Reputation can fluctuate, which means the equity can too. It’s not uncommon for companies to temporarily find themselves in hot water, but manage to positively change public perception later on. The equity can dip then rise again during those volatile times.

For instance, Sephora's makeup brand is well-known in the beauty industry. It’s one of the leaders. But recently, the company laid off over 3,000 employees during a quick conference call. This change happened only a few days after promising to take care of employees. As you can imagine, there’s been public backlash about this change of heart. As such, the equity has decreased a bit.

Brand loyalty: Does the brand have repeat buyers?

Brand loyalty defines repeat customers. These customers often buy from the same brands whenever a new product comes out. They also will recommend the brand to others, bringing in new customers. Brands with strong brand loyalty will often have lower customer acquisition costs because the customers do most of the leg work.

A corporation with strong brand loyalty can have higher brand equity. Apple is one of these brands. Customers line up for hours to buy the newest iPhone. The majority of phones are sold to pre-existing customers. It doesn’t matter what the specifications are — these customers are loyal to the brand and will purchase the newest upgrade as soon as possible.

To build brand loyalty, the corporation should focus on offering specific perks to returning customers to keep them coming back for more. This may be specific discounts or access to free products, for example.

Brand Quality: Does the product match the expectation?

Quality impacts brand equity too. Customers expect a certain level of quality of a product or service. It may be based on the type of product or pricing. For instance, a person who buys a BMW is expecting to receive a luxury car. The price tag reflects this. If the customer received a car that looked like a Toyota, there would be a disconnect between expectation and quality.

In some cases, luxurious brands may have more brand equity because the quality of their products is higher than non-premium brands. However, if the price tag doesn’t reflect the quality of the product, the brand may suffer from poor reviews, refunds, and more.

Bottom line:

Brand equity defines how customers value a business is. While it’s not the only defining factor, brand equity has become a crucial one over the last few years.

By assessing brand awareness, association, experience, loyalty, and quality, the valuation, the equity can be easily obtained. But it’s important to note that equity can change — it’s not a set number. If the product quality changes, the customer experience tanks, or brand loyalty weakness, the equity will suffer.

For that reason, it can be important to assess equity annually (or more frequently). In doing so, the company will be more aware of how customers are feeling towards the brand, and correct any issues or problems associated with the customer.

Photo by Patrik Michalicka 

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