Brand equity is the perceived value a company gains by having a known name, logo or other identifier. The value is determined through customer experience and perception to quantify the worth of a brand. Brand equity can both positively and negatively affect an organization's ability to market products and services that are associated with a particular brand image.
The premise behind brand equity is that sales are strongly correlated to consumers' awareness and sentiment toward a particular brand. There are various methods for building positive brand equity, including memorable marketing campaigns, building brand recognition with free trials or simply producing an excellent product or service. Influences that can harm brand equity include faulty products, poor customer service or a marketing campaign that is executed badly.Content Continues Below
The importance of brand equity can be understood by looking at the bottom line of a business. The purchase preference afforded by brand equity drives top-line sales, while also generating savings in marketing and advertising expenditures. Brand equity is also useful in helping companies expand product lines. The loyalty, awareness and perceived quality that a brand accumulates is carried forward as the brand enters new markets or industries.
Components of brand equity
While brand equity can depend on various factors, a few common components include:
- Brand awareness- Consumers need to be familiar with a brand before the brand itself can create value.
- Brand loyalty- After a customer makes a purchase with a brand, it is important they are so satisfied with their experience that they remain loyal to the brand when making future purchases.
- Brand associations- This encompasses what comes to a customer's mind when presented with a brand. Associations can affect brand equity positively or negatively and can include logos, commercials or recent news.
- Perceived quality- Similar to brand associations, when a customer is presented with a brand, they also have a perceived level of quality that the brand typically delivers.
Examples of brand equity
A positive example of brand equity can be seen with the company Apple, which has a vibrant, global community of brand loyalists. Apple users have been known to discuss products in online forums, wait in long lines to purchase the latest Apple device and promote the company through word of mouth. After the success of its iPod audio player and the popular apple logo, the company leveraged its brand equity to expand into other product lines such as the iPhone, iPad and Apple Watch.
Inversely, Facebook has experienced negative brand equity after the Cambridge Analytica scandal that took place in 2018. Personal data of Facebook users was found to be harvested as a means of interfering with the 2016 US presidential election. This caused Facebook to lose over $100 billion in market capitalization and become associated with a negative stigma. Some Facebook users even deleted their accounts and the hashtag #DeleteFacebook emerged across social media.