Brand equity

More than a market valuation, brand equity represents the real worth of your brand — and how effectively it fulfills your mission and furthers your goals. It isn’t just the increased sales that come from specific branding campaigns, but also the general likelihood of any given customer to choose you over the competition.

Though metrics that measure this intangible value can be hard to pin down, it’s worth the trouble to do so. Analysts have found that brand equity represents “59% of corporate value globally, and 74% of the value of companies in the S&P 500,” making it a clear priority for the world’s biggest brands.

Here’s what businesses should know about brand equity — what it is, why it matters, and how to build it for your own organization.

What is brand equity?

Brand equity is the overall worth of a brand, including its tangible and intangible assets. It represents both the reputation and the value of a brand as a whole, as well as the sum of its individual parts. When a brand is compared to a generic product, service, company or commodity, the recognition it receives from the audience — whether they choose to buy it, over a lower-priced alternative that’s equally viable — indicates its level of equity.

As opposed to brand value, which is a strict monetary amount, brand equity includes more intangible values, such as consumer perception or market differentiation. In this sense, equity can also be understood as the “sway” or influence a brand has among consumers and within a specific niche or industry — factors with real commercial value, but which are difficult to directly measure or manage.

What is positive brand equity? What is negative brand equity?

Important as it is, brand equity isn’t automatically a good thing. Just as surely as positive brand equity can inspire people to make purchases based on feelings of trust, excitement or familiarity, negative brand equity can have the opposite effect of driving them away.

Positive brand equity can be actively built, with marketing efforts, for instance, or brand awareness campaigns. Negative brand equity is usually accidental, the result of a misstep or unforeseeable circumstances. For instance, the food poisoning caused by a restaurant chain could be the fault of an otherwise reliable supplier of produce — or a manager who cut costs by switching to a cheaper source.

Positive and negative brand equity are often associated with personalities around a brand. The CEO of a company who does community work and invests in local neighborhoods can bring positive equity to a company, raising awareness and inspiring buyer decisions. But a leader caught in a criminal act or even accused of wrongdoing could have the opposite effect, leading to angry customers or boycotts.

Why is brand equity important?

Given the potential impact of negative brand equity, the advantages of achieving a positive equity seems obvious. But there are many other reasons to invest in positive brand equity — most of which directly impact a company’s bottom line and help to spur growth.

Theoretically, a positive brand equity should correlate to stronger performance in sales and marketing. Customers buy more from brands they know and trust, which raises a company’s profitability. They will also typically pay a higher price point for that familiarity, which improves profit margin. And that, in turn, can boost a company’s stock price and market standing.

Companies with positive equity can more readily offer premium pricing or customer rewards programs — a loyalty loop that’s also financially advantageous given the high costs of acquiring new customers. Positive brand equity doesn’t just inspire existing customers to buy again (or more), but also reassures new customers to take a chance. For instance, someone who has never purchased an Apple product may feel confident in doing so from the sheer familiarity, ubiquity and power of its brand.

A positive brand equity also helps differentiate a company from the competition, which can be valuable in a crowded market. It can also help draw awareness to new markets. Businesses with positive brand equity can more easily get buy-in for new promotions, more readily introduce new products, and more successfully move into new spaces — as well as raise the price on the goods or services they already sell.

“Brand equity can help marketers focus, giving them a way to interpret their past marketing performance and design their future marketing programs,” writes Kevin Lane Keller in a seminal Harvard Business Review article. “Marketers who build strong brands have embraced the concept and use it to its fullest to clarify, implement, and communicate their marketing strategy.”

What are the different components of brand equity?

Before setting a strategy to build and manage brand equity, it’s important to understand the concepts involved.

Brand awareness. Do people know about your brand? Is it visible among your target market, or within the community in general? Brands with positive equity are usually instantly recognizable, even among people who aren’t in their target audience.

Customer experience. What do customers know about interacting with your business? Did they have a positive experience ordering from your website, or interacting with your customer service? Is order fulfillment reliable? What are buyers getting from a brand that makes it stand out to them?

Customer perception. In addition to or even instead of their actual experience with a brand, what do customers think of it, in general? What emotional associations does a brand bring up in peoples’ minds? Is it fun or serious? Trustworthy or annoying? Don’t assume that you already know, and make the effort to find out with market analysis.

Brand loyalty. How likely are customers to make repeat purchases from a particular brand, without being prompted to do so? And what’s the reason for that loyalty — is it convenience? Habit? Value? Finding out the answers can provide helpful tools for improving positive brand equity.

Brand assets. Finally, what are the actual tangible assets associated with a brand? What elements of brand identity have you invested in? Do you have a formal logo or registered trademark? Are these assets insured and protected?

How to build and manage brand equity

Although some brands hit the market with an innate sense of value, positive, long-lasting brand equity is rarely achieved overnight. Rather, it’s a process of accumulation. Brand managers must work to build awareness and familiarity, and then nurture a positive association for that awareness.

After the brand is created, building and nurturing positive equity is an ongoing process —as much management and constant re-evaluation as creating new campaigns. It also requires finding the right balance among all of the components, without overdoing one or underemphasizing another.

Of course, companies can improve their brand equity by making products that are high quality, by creating compelling marketing campaigns and a memorable logo — but those are all easier said than done. On a more actionable level, some ways to build and manage brand equity on a daily basis include:

Create the elements of brand identity in a way that resonates with the brand’s unique selling proposition (USP). This includes the logo, trademark, music and any other tangible aspects of a brand that people see and interact with. This is the face of your brand, so don’t hesitate to invest in professional design.

Create targeted marketing campaigns to support brand identity, as well as to generate general interest and drive sales. Use market research to ensure best results, and leverage automation and analytics for continuous improvement and cost savings.

Optimize customer-facing parts of the business, and make it a point to offer excellent customer service and/or IT support. Invest in a social media presence to field questions and interact with customers.

Contribute to community or environmental causes. Research from Gartner has shown that “74% of customers expect more from brands — not just around product performance or durability, but in how brands treat their customers, employees and the environment.”

Build brand awareness by advertising across a variety of different media, creating unique content to be shared on social media sites like Instagram or YouTube.

Work to nurture customer loyalty by making sure that you’re successfully addressing customer pain points and delivering on promises to them.

Keep in touch with regular emails or newsletters to keep your brand top of mind among customers. And make sure to use targeting strategies to get the right message to the right person at the right time, to make sure the impact is positive and not negative.

Protect the brand as an asset, with trademark registration, copyrights, insurance and other protections, as necessary.

How to measure brand equity

Brand equity is notoriously difficult to measure. “The problem is, few managers are able to step back and assess their brand’s particular strengths and weaknesses objectively,” writes Keller in his HBR article. “When you’re immersed in the day-to-day management of a brand, it’s not easy to keep in perspective all the parts that affect the whole.”

As the E. B. Osborn Professor of Marketing and the Senior Associate Dean for Marketing and Communications at the Tuck School of Business at Dartmouth College, Keller leveraged considerable expertise and direct observation to create his “brand report card,” which offered a way to measure brand equity in 10 steps:

1. Is the brand delivering the benefits that customers really want?
2. Is the brand relevant — to consumers, and within the culture and marketplace?
3. Does the pricing strategy deliver value for consumers (whether tangible or intangible)?
4. Is the brand positioned to its advantage in the minds of consumers?
5. Is the brand identity consistent and confident, as opposed to muddled and uncertain?
6. Does it make sense within an organization’s larger hierarchy — e.g., Sprite in the Coca-Cola brand portfolio?
7. Are marketing strategy efforts supporting the brand in a way that’s actively growing value?
8. Are the people managing the brand in sync with the customer base?
9. Is the brand being nurtured properly — i.e., do marketing efforts support the key messaging as opposed to making shortcuts to follow a trend or grab some quick sales?
10. Are the sources of brand equity being actively monitored?

Companies looking to measure brand equity in more quantitative terms can set up metrics based on the four Cs of measurable data:

Company data. This includes information like sales revenue, marketing costs, and revenue from club members. While positive trends here are welcome, they can’t always be exactly translated into brand equity. Effectively measuring brand equity requires setting benchmarks, like comparing today’s performance to historic data, or a specific metric like sales among a key demographic before and after a specific campaign.

Consumer data. By tracking the purchasing behavior of your customers and then comparing that data to efforts to build brand equity, companies can get an idea of brand equity as it relates to marketing spend. What kind of trends can be learned from repeat customers? Analytical programs or software are key here, as well as the expertise to decipher meaningful trends.

Competitor data. How are your competitors doing, in general, and when specifically compared to you? How do those trends change over time? The answers to those questions provide a valuable baseline for measuring the success of a company’s investment in brand equity.

Community data. Also called qualitative measurements, this step includes monitoring not just existing customers but an entire target market or audience. This can include getting direct or indirect feedback through means like social media surveys or professionally organized focus groups.

Brand equity examples

One of the world’s best-known brands, Coca-Cola is a classic example of a company with plenty of positive brand equity: With an estimated brand valuation of $97.9 billion — more than third of its overall stock value of $274 billion (as of January 2023).

“The brand is always the hero in Coca-Cola advertising,” as Keller puts it. Yet the company has had its ups and downs on its path to dominance. In the 1980s, when the company faced overwhelming outcry over a change to its formula, it discovered that its brand equity was something that customers were fiercely protective towards.

Apple is another company that benefits from its positive brand equity. With an offering that’s at a higher price point than its many competitors, Apple continues to set records for growth on the strength of its brand and the values it communicates to customers, including functionality, ease of use, reliability, and of course, style.

Of course, any company that’s also a household name — Amazon, Coca-Cola, IBM, Sony, and so on — has significant positive brand equity to leverage. But many of these brands also have negative equity they must work to offset. And any company that can readily expand its offerings under the same brand name — say, Diet Pepsi or Starbucks’ Banana Split Frappuccino® — is doing so thanks to positive brand equity.

The most successful high-end brands leverage equity to not only appeal to a specific, bespoke consumer, but also to create an image of luxury in the minds of everyone else. For example, by positioning itself as a provider not just of luxury transportation but a lifestyle experience, Porsche offers a distinctive and acclaimed brand identity that can be readily measured and compared with others in the same class.

Grow your positive brand equity with NIQ

In an age of rapidly changing values and expectations, effectively managing brand equity is absolutely essential — and increasingly difficult, as the channels where consumers gather, talk and make their purchasing decisions are also shifting and multiplying.

For companies looking to grow their business with effective management of brand equity, having the right guidance can make all the difference. At NIQ, our Brand Strategy solutions are designed to ensure success. From market research to campaign implementation, NIQ is the preferred choice to help today’s businesses meet their branding goals — quickly, efficiently and cost effectively.

Learn more about Brand Strategy solutions at NIQ