What is Brand Equity And How To Build It For Your Business

Table Of Contents

• Brand Equity Definition
• What Is Brand Equity?
• Why is Brand Equity Important?
• 1. Higher Sales
• 2. Profitability
• 3. Lower Costs
• 4. Credibility for New Products
• How to Build Brand Equity - Steps
• 1. Understand your customer’s needs
• 2. Build value in your offering
• 3. Stand out from the competition
• 4. Build brand recognition
• 5. Build brand awareness
• How (not) To Build Brand Equity
• Wrapping Up

If you’re wondering what brand equity is, ask any iOS user what they think of Apple and its products. You will get different answers––iPhones are easier and more intuitive to use, MacBooks have better displays, and Apple’s customer service is better than any other brand’s. Whatever their answer is, the general perception is that Apple is a premium tech brand with the best products in the market.

The opinions above are all examples of brand equity. It goes beyond having a good website logo or celebrity endorsements. It involves your customers thinking positively about your products and overall brand. Regardless of your niche, building brand equity will set your business apart from the competition.

But before we discuss how to build brand equity for your business, let’s discuss what it is and why your business needs it.

Brand Equity Definition

According to Investopedia:

Brand equity refers to a value premium that a company generates from a product with a recognizable name when compared to a generic equivalent. Companies can create brand equity for their products by making them memorable, easily recognizable, and superior in quality and reliability.

What Is Brand Equity?

It is the ability of a company to differentiate itself from the competition by offering a superior product or service and excellent customer service. That yields loyal customers on the one hand. It also allows the company to charge its customers a premium for the brand and its products.

According to a 2019 survey by Gartner, 74% of consumers expect more from the brands they use. Put another way; it means only around 20% of the brands enjoy brand equity of any significance.

When you buy an iPhone, part of the cost is for the product. Another portion is for Apple’s brand equity.

Brand equity is important. Many brands offer the same set of features at a lower price. However, Apple’s brand equity includes a perception of quality, top-notch customer service, and community with other iPhone users. That means many consumers are willing to pay more for the same feature set.

Why is Brand Equity Important?

Brand equity is a company’s most valuable asset, yet you won’t find it on a balance sheet. It’s an intangible asset. A company with substantial brand equity enjoys three clear competitive advantages.

• Perception: Perception is how the consumers view your products and services. Hence, the customer owns and drives a brand’s perception.
• Net Impact: The customer’s perception has a net impact on the company’s top and bottom lines. When customers react positively to a company’s offering, the net impact will be positive. Similarly, a negative perception will hurt the company’s sales and profitability.
• Value: The value of brand equity is linked to the overall impact. A positive impact returns tangible values in sales and profitability. It also returns the intangible value in higher goodwill and brand awareness.

Let’s now look at some of the direct benefits of strong brand equity.

1. Higher Sales

Brand equity gives a company recognition in the market and within its relevant audience. Customers tend to spend more on the brand instead of buying cheaper alternatives from other brands. Brand equity can build brand awareness and support the company’s marketing efforts, yielding better sales numbers.

Companies with strong brand equity tend to be market leaders in their niche. Brand equity yields a large and loyal base of customers who will pay a premium for a superior product and service. It also enables a company to enjoy higher sales than its competition.

2. Profitability

Companies with brand equity enjoy a healthy top and bottom line. When customers see your brand as better than the competition, they will pay a premium for owning it. That enables the brand to enjoy higher sales and profitability over its competitors.

Apple products are more expensive than comparable products from competing brands. Yet, every time Apple launches a new iPhone, people line up overnight in front of Apple stores to be among the first to buy the new device, regardless of the cost.

Luxury brands like Rolex and Ferrari are examples where substantial brand equity drives profitability. They might not sell as many products as the likes of Timex or Toyota, but the brand equity alone is more than enough to keep them operating and innovating.

3. Lower Costs

Brands with substantial equity have better negotiating power with their distributors, manufacturers, and vendors. Distributors and manufacturers want to work with you as it gives them credibility and will often do so at lower prices. Vendors want to stock your products because you have a loyal base of customers willing to pay a premium for your products.

Companies with solid brand equity spend less on marketing and advertising because they don’t need to spend as much. People are already aware of the brand and its benefits. According to a recent report by Statista, the top ten companies with the highest ad-spend don’t include Facebook, Apple, or Coca-Cola, which implies that name recall alone is enough to drive sales.

4. Credibility for New Products

If your company enjoys substantial brand equity, it is easier to sell new products and services because your customers already trust your brand. Once again, Apple is the perfect example, where customers will willingly upgrade their phones every couple of years when Apple launches a new phone.

Strong brand equity means your business can afford to devote more resources to creating new products while reducing advertising costs. By having a captive market, your brand will have more control over the features you’ll introduce in your new products.

How to Build Brand Equity - Steps

Brand equity is the intangible value of the brand to a company. It flows from the idea that an established and recognized brand is more valuable than a generic equivalent. Since the customer’s perception drives brand equity, building brand equity is all about understanding and delivering on the customer’s expectations.

Let’s look at six ways to build strong equity for your brand.

1. Understand your customer’s needs

If your brand claims to be customer-centric, you need to understand the customer’s needs and values. You then need to fulfill those needs to create a positive sentiment in the customer’s mind.

To understand your customer’s needs, create buyer personas. Buyer personas are semi-fictional representations of your ideal customers. They’re semi-fictional because even if the names and faces are fictional, their characteristics, such as demographics and pain points, are based on actual data about your target market.

A buyer persona looks something like this:

Where do you get the information you need to create buyer personas? Social media, for one, is a goldmine of information. Facebook Insights can help you understand how your customers and prospective customers are interacting with social media content. Help desk ticketing software tools which have all the help tickets and requests from your current customers is also an excellent place to find information about your customers needs.

You can also conduct surveys to ask your customers and prospective customers yourself for the data you need. If you want a more personal approach, interviews or focus-group discussions can help, too.

Your CRM can be an important source of data for your customer persona. By mining and analyzing CRM data, you can discover user preferences and develop a long-term customer engagement strategy, which helps you build and maintain brand equity.

2. Build value in your offering

In his book Start with Why, Simon Sinek argues that companies with strong brand equity have a well-defined purpose for their brands. These companies focus on the why rather than on the how. In other words, everything they do has a well-defined reason.

At Apple, the why means going beyond the status quo and offering unique products and services. In fact, one of its iconic ads claims that it’s for “the crazy ones” - those who aren’t contented with the usual.

Once you know the customer’s needs, ensure that your product or service goes above and beyond these needs. Build added value by surprising and delighting the customer with benefits they weren’t expecting.

Brand equity is transferable across a company’s product range. For instance, because Samsung is the market leader for high-end audiovisual products, its brand equity gets transferred to other Samsung products, such as tablets and smartphones.

3. Stand out from the competition

Brand equity is built by competing against and beating the customer’s expectations. That will help you stand out from the competition in the customer’s eyes. At the same time, differentiating your brand from the competition is an integral part of a healthy brand strategy.

Let’s look at some of the ways a company can stand out:

• Quality: Building quality into your product or service is the quickest way to stand out in a crowd.
• Innovation: Being innovative and constantly coming up with new products and services is easy to differentiate yourself from the competition. If you can offer something new, your customers will view you as standing out from the competition.

Standing out from the competition doesn’t mean your audience won’t compare you against the competition. All it means is that even when your audience compares you to the competition, you have the upper hand when it comes to name recall and reputation.

4. Build brand recognition

Brands like Nike, Google, Kraft, or Microsoft enjoy high brand recall. People instantly recognize their logos and associate them with their brand names and products. For example, when people see the Nike logo, they instantly think of sportswear, Michael Jordan, and Cristiano Ronaldo. On the other hand, when people see the Apple logo, they think of iPhones and Steve Jobs.

You don’t need to be a global enterprise to enjoy brand equity. You just need to enjoy brand recognition within your target audience.

For instance, Elon Musk was not a household name until fairly recently. However, he was already well-known in the business world, having been a driving force behind PayPal and other startups. When he joined Tesla, his brand equity and reputation for innovation were already so strong that the company rose from being just one electric vehicle manufacturer out of many to generating over $30 billion in annual sales in just a decade.

5. Build brand awareness

Brand recognition and brand awareness are two different entities. Brand recognition is being aware of a brand and what it does without trying the product or service. Brand awareness is the perspective of an actual user of the brand. In that sense, awareness is the next step after recognition.

You might recognize many brands without being intimately familiar with their products and services.

Let’s say you use a Samsung Galaxy S20 as your smartphone. Chances are you are familiar with its features and its performance. You might associate it with variables like the speed with which it accesses the Internet. You might also associate it with the quality of the pictures it takes.

As a result of being immersed in the Samsung ecosystem, you use other Samsung products, recommend them to your friends, and feel comfortable about owning and using the brand.

Social media is a great space for brands to develop their presence as well as awareness. These are fantastic platforms with opportunities that brands leverage to enhance their visibility. All you need to do is increase your follower base and enjoy wide visibility for your brand.

When you convert your target audience who recognize your brand to actual users, you’re building your brand equity.

6. Focus on positive customer experience

Your customer’s experience with your products, services, and brand is the most crucial factor in building your brand equity. Brand experience is built on tangible factors like product quality and features. It is also built on intangibles like the quality of your customer service.

Why do 81% of iPhone users upgrade to another iPhone? Simple. They love the intuitive UI and the consistent layout. They get all the features they want. They also know Apple CS has their back should anything happen.

Also, they feel good about being a part of a small and exclusive club. That exclusivity enhances their sense of self-worth. Not everyone has or can own an iPhone.

Unless you offer your customers a great brand experience, you cannot hope to build brand equity of any significance. Since customer experience is a combination of several factors, you need to seek excellence in all of them before building your brand equity. Just having a great product or service is not enough.

Let’s say you run online courses in marketing. Your target audience recognizes you. How would you build equity for your brand? The answer lies in the ability to say yes to questions like these:

• Are you visible to your audience?
• Do they recognize your brand and know what you do?
• Does your audience have access to enough free to download and insightful solutions?
• Are you easy to find and subscribe to?
• Is your content, including videos engaging and insightful, and does it help the user build their skills?
• Do you go out of your way to address and resolve each user’s queries?

A negative brand experience will cause customers to walk away. That will erode any existing brand equity.

How (not) To Build Brand Equity

Creating brand equity is not a one-time exercise; it’s an ongoing process that never stops. You don’t just need to build and maintain your equity. You also need to protect it. Protecting your brand equity doesn’t just stop at getting a trademark for your logo. It also includes making sound business decisions and balancing the demands of your market with your brand values.

That said, let’s look at two examples where short-sighted marketing campaigns damaged the company’s brand equity and bottomline.

Coca-Cola

In the mid-80s, Coke rapidly lost market share to Pepsi with its aggressive tagline of a sweeter taste appealing to a younger audience. At first, Coke tried to fight back with campaigns against that sweeter taste. When these attempts failed to stop Pepsi from eating away at its market share, Coca-Cola went ahead and developed New Coke, a sweeter version of the original Coke.

At first, hopes were high for the new formula. After all, the company held hundreds of focus group discussions and 200,000 taste tests to find a taste that everybody liked. However, when Coca-Cola introduced New Coke to the market, people instantly disliked the sweeter version.

As a result of New Coke, the company’s sales plummeted and significantly diminished Coke’s brand equity, which the company painstakingly built for over a century. Within 77 days of launching New Coke, the company had to reintroduce the original product as “ Coke Classic” to address market outrage.

Marketing Lesson:

The whole New Coke fiasco was a lesson in sustaining brand equity: If it isn’t broken, don’t fix it. When you have a long-standing and successful product, be very cautious about changing it. While innovation builds on the product experience, it shouldn’t change the core values of the product. These are values customers are already aligned with. When you change those values, you can quickly lose those customers.

Pepsi

The past decade has been significant for political and social activism. Black Lives Matter and the #MeToo movements have their roots in this period. In 2017, Pepsi decided to jump on this bandwagon to gain attention.

One now-infamous Pepsi ad featured protestors walking down a street for an unstated cause while police officers blocked their way. The ad culminates with model Kendall Jenner leaving a photoshoot to join the protest. She offers a police officer a can of Pepsi. He drinks it, and he glances at one of his colleagues with a knowing look. The road is cleared, and the protestors march on cheering.

Consumers took offense at how the brand co-opted a social movement for self-promotion. Pepsi subsequently pulled the commercial, but not before its stock price went down by 0.12%. Its brand perception index also plummeted to a 10-year low.

Marketing Lesson:

Don’t co-opt social causes at a surface level just to boost your brand. Either get fully involved like Nike did recently with Colin Kaepernick, or avoid it altogether.

Wrapping Up

Strong brand equity gives a company competitive advantages. It also helps in creating a loyal pool of customers. A good brand accumulates this equity over time with a well-defined focus on its products and service.

Building brand equity starts with a company shifting its internal and external focus to the consumer. Organizations should proactively focus on the brand image. They should also focus on how each action contributes to building awareness and perception.

Once you have good brand equity, protect it. Your brand will surely stay in the game for a very long time.

About the author:

Martin Gessner is the Founder of Focus on Force. He has spent over ten years working in various Salesforce roles, including business analyst, project manager, consultant, and solutions architect. Along the way, he has earned twelve certifications, published "The Salesforce Career Playbook", and helps Salesforce professionals learn more about Salesforce, develop their careers and prepare for certifications.

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