What is brand equity? Why’s it so important, and how to measure and build it

What’s brand equity, and why is it important? We run through how to define brand equity, and the three main benefits of building it—increasing sales, higher profits, and way more influence.

Do you buy the generic painkillers or the branded ones? And why does it matter?

When asked whether they would prefer to buy from a brand they know or the cheapest product, 69% of consumers would choose the trusted brand over a cheaper alternative.

As consumers, our purchasing decisions come from exposure to marketing messages that ultimately lead us to conclude if one is better than the other.

The effect is cumulative; built through advertising, PR and ‘social proof’, and it’s vital to brands if they want to stand out in a crowded marketplace. This pulling power is known in the marketing industry as ‘brand equity‘.

It may sound like just another buzzword, but the truth is, if you’re trying to build a brand or promote a new product, understanding brand equity is key. In this article, we’ll walk you through what brand equity really is, and why it’s so important to get it right.

What is brand equity?

Brand equity—or positive brand equity—is the premium value that a brand can obtain when they have a recognizable brand name over a generic product. This brand recognition is achieved in three ways: brand consistency, a positive brand meaning, and a strong brand identity. Negative brand equity happens when customers are willing to spend more on a generic product than on a branded one.

To create brand equity you need a positive brand association and perceived value that can make customers see your branded product and be willing to pay more for it than for a generic product. Essentially, they’re paying for the brand.

However, it’s important to mention that brand equity and brand loyalty are not the same thing. Brand loyalty is having loyal customers that will stick to the brand regardless of market changes.

Wikipedia explains this as:

…the idea that the owner of a well-known brand name can generate more revenue simply from brand recognition.

Investopedia adds:

Brand equity refers to a value premium that a company generates from a product with a recognisable name, when compared to a generic equivalent.

Put simply, the idea is that companies can earn more money from their products if consumers believe them to be superior to lesser-known brands, and they can do this without having to rely purely on price or promotions. This helps them avoid the ‘race to the bottom’ and lifts them above commodity status.

Considered as an asset in itself, a business with high brand equity will, therefore, be more valuable than one with low brand equity.

As Stephen B. Shepard, an American business journalist, puts it:

A great brand is a promise, a compact with a customer about quality, reliability, innovation, and even community. And while the concept of brand is intangible, brand equity is far from it.

Why is brand equity so important?

Whether you simply want to sell more products, at higher prices, or you’re hoping to attract investors, brand equity matters. It even plays a role in the quality of employees you’ll be able to secure for your company.

Here are three key benefits of great brand equity:

1. Increased sales

The purpose of a brand is to give the consumer something they can trust – it’s a seal of quality, a promise of what to expect, and a statement of values and ideals that a consumer can align with their own.

These values are important to most consumers – at least in certain categories. For example, one study found 74% of women prefer to buy brand name health and beauty products, while 69% of shoppers think it’s important for washing detergent to come from a well-known name. Our own research found that 55.5% of consumers are willing to spend more money to buy from brands that align with their own personal values.

Building brand equity is central to cutting through the noise and securing that all-important repeat custom, but also to future business development and the ability to stay ahead of new market entrants.

Risk when introducing a new product is dramatically reduced for companies with a recognisable brand (though success is never assured). An established brand is also at an advantage when it comes to distribution – you’re more likely to get stocked if your brand is in demand, leading to even higher sales.

2. Higher profits

Consumers are willing to pay more for brands they like – you only have to wander through any supermarket to see the price difference between branded and generic products. For example, Tesco’s own-label Italian chopped tomatoes cost 35p for 400g, while Napolina’s same-sized chopped tomatoes tin cost 95p – that’s 171% more!

In the battle for brand equity, it’s who dares wins. Back in 2016, FMCG giants Proctor & Gamble, Unilever, and Mondelez refocused on their brand building efforts and away from promotions, in a bid to improve profit margins. There’s a huge focus on brand equity building amongst online consumer brands too – it’s all in the aim of setting themselves apart.

Research shows brand equity plays an important role in price structure, with companies able to charge a premium for products even when physical superiority over competitors can’t be demonstrated.

The ability to charge more results in higher profit margins and, as such, brand equity is a major indicator of company strength and performance, specifically in the public markets. The top 5 most valuable brands globally (as of 2019) are Amazon, Apple, Google, Microsoft, and Visa – all brands with a whole heap of brand equity in their respective marketplaces, and the world at large.

3. More influence

Just as being good looking reportedly gives people an advantage in life, brands experience perks from having high levels of brand equity. Essentially, it becomes much easier to open doors. When it comes to making strategic partnerships, companies are naturally keener to team up with influential allies. In turn, such collaborations result in even further enhanced brand equity for both partners – it’s a win-win!

What’s more, studies show that companies with high brand equity find it easier to recruit talent. That’s because job seekers use reputation perception as a signal about job attributes, and reputation affects the pride that individuals expect from organisational membership.

Plus, they know that working for a well known, well-respected brand will help them when searching for their next role. Individuals will even accept lower wages to join firms with positive reputations.

A brand perception survey can indicate how your company is being perceived. There are also plenty of brand management softwares that can help you better manage your brand locally and globally—so that you can guarantee positive brand associations, meaning that your customers will recognize and return to your brand.

How do I measure brand equity?

Brand is, by nature, a difficult concept to measure.

While measuring SEO, PPC, social media engagement, and customer reviews can be done on a daily, weekly or monthly basis, often it can take years to build great brand recognition.

The progress might be subtle, but if your company is going to persist and grow, brand loyalty will be one of the key tools in your arsenal.

Even when a brand is so successful that it achieves the ultimate accolades of ubiquity—its name eclipsing a real word; its regular inclusion in pop-culture; its slogan becoming a phrase in its own right—there’s still no way to measure exactly what this means for the company.

That said, measuring your brand is absolutely crucial. And that’s where brand equity comes in.

The perception that people have of a brand directly affects whether they’ll think of it, and whether they’ll think of it first, when considering a certain product or quality. It means they’ll be predisposed to choose it over your competitors, and even pay more for the same product.

And though it’s not an exact science, there are several ways to monitor the pervasiveness and likeability of your brand—your brand equity. We’ve put together a list of ways you can keep track of your brand’s strength.

Brand equity metrics

There are some important brand equity metrics that will give you a better idea of whether you have a strong and positive brand equity, or a negative and low one. The stand-out metrics are:

• Premium price over competition
• Customer lifetime value
• Average transaction value
• Rate of sustained growth
• Brand perception

These are just some financial brand equity metrics that you can use to have a better understanding of your brand equity. However, we’ve outlined below some more holistic methods that help you have a real and deep understanding of your brand equity.

Methods to measure brand equity

Brand lift

Brand lift is perhaps the simplest and most straightforward way to measure a brand’s equity. The aim of measuring brand lift is to show that, all other things being equal, the strength of your brand name will tip the balance.

One way to track brand lift is by running a series of A/B tests, using branded and unbranded versions of your paid search adverts. This is particularly easy to test using Adwords.

To set this up fairly, you should aim to focus only on new audiences (i.e. exclude your retargeting list of existing customers and cookied traffic); then set the keywords to all be unbranded (i.e. the search that a consumer types to trigger your ads showing should not include your brand name to begin with); and then finally your ad sets should be an even split of branded and unbranded phrases that are set to show up equally.

For example:

1. Book an amazing beach holiday
2. Book an amazing beach holiday with TUI

Then wait to see which one performs better in terms of click-through rates. If you get a better click-through rate with the branded terms (number 2), then you can infer that your brand name has a certain cachet.

Calculate the difference in percentage click-through rate and you can conclude that your brand is giving you this percentage lift on marketing.

You can even assign a monetary value to this. For example if your sales are £10m, and your PPC test reveals a brand lift of 15%, then you might estimate your brand is worth £1.3m to you—because without it 15% less people would have converted.

It is worth bearing in mind your brand will always be visible via your advert’s display url. To take this experiment one step further, you could set up a totally debranded webpage or website selling your products and test the performance of adverts to this page vs those of your branded site. This would provide an even more accurate valuation of your brand’s uplift.

Brand value

Many businesses want to put a ‘dollars and cents’ value on their brand, and the folks at Brand Finance offer one such methodology.

They estimate the likely future revenues that are attributable to brand. By looking at the historic value of your brand and the current value of your brand, as well as the projected growth of the company in general, they predict future brand equity.

Theirs is a 6-step process:

1. They calculate a brand strength index (blending metrics assessing marketing investment, stakeholder equity, and business performance—with a heavy emphasis on business performance, which is tied mostly to stock market performance.)
2. The royalty range for the industry is determined (e.g. high royalty rate for luxury goods, low royalty rate for FMCG)
3. These 2 metrics are combined to work out the brand’s royalty rate: for example, if a FMCG has a BSI score of 80/100, and the royalty range is 0-5%, then it will have a royalty rate of 4%
4. Determine what proportion of the company revenues are attributable to brand
5. Forecast total company revenues for coming years
6. Apply the royalty rate to this forecast to work out how much the brand value will be contributing to overall revenue in the future.

There is a strong emphasis on tracking year-on-year changes in brand value. Seeing this progressive growth should incentivise you to set longer-term objectives.

One slight drawback to this methodology is that essentially the best performing brands largely mirror the best performing businesses (because so much of it is tied to ‘business performance’) and this creates more of a rear-facing, lagging indicator than a leading one.

Attest consumer research

The methods above are good measurements of brand equity, they have two shortcomings when it comes to helping brands make actionable decisions.

First, they don’t place enough emphasis on consumers as a key datapoint. And secondly they don’t take into account how people feel about brands, missing the important contextual, qualitative elements of brand equity.

Attest’s consumer research platform aims to provide a better understanding of brand equity by measuring the relative strength of brands in a particular market, based on insights straight from consumers, taking into account how they feel about brands.

By collecting brand awareness survey responses from the right audiences, and allowing free text responses, our brand tracker gives you a detailed picture of exactly how your brand is perceived in consumers’ own terms.

It illuminates the reasons behind consumer behaviour, rather than just quantifying the behaviour itself. Free text responses open up usually-inaccessible data: what do consumers think about your brand on a personal, private level? How would they describe you to others? These insights, combined with more traditional quantitative data, will give you a much better understanding of what your target customers think of your brand—and crucially how that affects buying decisions.

Attest’s method is more heavily based on a brand’s relative strength within its market than the previous methods. Rather than try to put a dollar and cents value on your brand, Attest’s approach tracks how successful your brand is in comparison to other brands in the same category.

It’s a deceptively simple, yet powerful approach with real consumers at its heart. You can ask millions of consumers in dozens of countries to name the first brand that comes to mind in a specific category, giving you an unprompted recall score.

This is combined with a Net Promoter Score, which measures the likelihood of recommending your brand, as well as a Purchase Intent Score, measuring how likely a consumer would be to use and return to your brand.

The NPS and PIS scores are combined to create a brand strength score, which when coupled with unprompted brand recall, provides an overall total brand equity score.

With the flexibility of Attest’s platform, these questions can also be tailored to one specific aspect of your brand. For example, when trying to break into a foreign market, real-time insight into the minds of your new customers will allow you to make the necessary branding adjustments to succeed.

How to build brand equity

To build brand equity you need to have a strong brand that customers value, recognize, and support.

Here are the steps you need to follow:

Step 1: Define your brand identity

The first thing you need to do to achieve brand equity is to have a strong brand identity. To must have:

• A strong brand name
• Easy-to-recognize logo and variations for its different placements and contexts
• Tagline or slogan
• Set colour palette and graphic styles
• A brand voice and tone

These are the elements from which you’ll start to build a brand equity, so they’re crucial.

Step 2: Establish your mission and values

Customers will be more loyal and willing to support a brand if they can align with its mission and values. Additionally, if they see a brand with firm values they’ll be much more able to identify with it and remember it.

Having a mission and values statement and showing them through your actions and products is the best way to show them.

Step 3: Consider brand awareness

To build brand equity you need to be out there and in people’s minds. Having a consistent brand representation and making sure it is where customers are is important.

Improving your brand awareness comes to how and where you’re advertising, what kind of brand campaigns you use, and the social presence that you manage. These three strategies will help you be where your customers are and create positive associations with your brand.

Step 4: Provide a positive customer experience

If customers can recognise your brand but only have negative experiences with it, most likely your brand equity will be negative—something you want to avoid, especially when building your brand equity.

Make sure customers are having a good experience with your brand, not only when making a purchase and using your products, but also when things go wrong make sure you’re repairing the relationship.

Step 5: Reward brand loyalty

Part of having a positive brand equity is that you’ll have repeat purchases and long-time customers. Make sure you’re rewarding brand loyalty by giving discounts and special offers to those that have stuck with the brand for a long time.

Build and measure brand equity with Attest

With the rise of increasingly connected and ‘switched on’ consumers, managing brand equity is more important than ever. Gathering fans both online and offline actively affects your bottom line—according to Thomson Reuters 85% of S&P 500 corporation’s value is their intangible assets.

This means, if you don’t have brand recognition among consumers and you don’t have customers willing to recommend you, your company won’t be able to maximise its value.

Taking steps to build, and measure, a strong brand equity will increase sales, customer loyalty, and prestige—and both are needed to become truly successful and remain a leader in your market.

Start tracking your brand performance today to understand how you can improve consumer perception. See how easy Attest can make brand tracking with your first free survey.