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The Benefits of Brand Equity

January 25, 2017 // Deputy Dan

A graphic drawing showing people analyzing dataA graphic drawing showing people analyzing data

Business owners cannot afford to ignore brand equity. In fact, many marketing experts have argued that strong brand equity is one of the most valuable assets that a company can have. In this article, we take a look at brand equity and the effects that it can have on your business.

What is brand equity?

Brand equity, put formally, is the bundle of assets and liabilities attached to a brand that add to or subtract from the value of a product or service. Put less formally, brand equity can be thought of as reputation. If consumers think that products with your brand on are in some way better than a comparable generic product, then your brand has positive brand equity. Brand equity is notoriously difficult to quantify. It depends on consumers' perceptions and awareness of your brand, meaning that attempts at brand evaluation have to rely heavily on qualitative data from interviews.

Brand equity and the bottom line

The chief advantage of strong brand equity is that it enables you to charge a higher price than your competitors. A bottle of Coca-Cola is significantly more expensive than store-brand colas, and yet people still happily buy Coke. The difference probably isn't taste: blind taste tests produce wildly varying results when it comes to cola preferences. It comes down to the fact that customers are willing to pay extra for a brand that they trust. In fact, they expect to pay a premium for branded goods and services. Because of this expectation, a strong brand equity can also help to insulate you from damaging price wars. If consumers expect your products to be more expensive than rival brands, they won't expect you to compete with cut-price brands. A strong brand reputation, then, can be worth a large amount of money.

Brand equity and marketing

Brand equity doesn't only help to grow your bottom line directly. A firm with strong brand equity enjoys increased brand awareness, reducing the need for awareness-focused marketing campaigns, and will also benefit from word-of-mouth marketing as your loyal customers recommend your products. Your marketing department can focus on shorter-term promotions instead, saving time and money. A strong brand also gives you more bargaining power with vendors and distributors. If they recognize that consumers seek out your products by name, they will be far more interested in working with you, allowing you to negotiate more favorable terms with them.

Brand loyalty

Brand loyalty is an extremely important part of brand equity, and should be the goal of any brand management strategy. Loyal consumers demand your brand specifically and will seek it out. Essentially, they no longer see it as substitutable. This provides great protection against being drawn into price wars: if customers don't see firms offering similar products as genuine alternatives, you don't have to do as much to compete with them. Brand loyalty also makes expansion far easier. Launching new products is much less risky when consumers are willing to try them on the strength of the brand name alone.

Brand equity won't necessarily make your new product a success: Coca-Cola and Pepsi have released plenty of failed sodas between them. But it makes it much more likely that consumers will give your innovation a chance. And if your new product still fails, the brand loyalty that consumers feel towards a high-equity brand makes them quicker to forgive your mistake. Coca-Cola survived New Coke. Any effective branding and marketing strategy must take brand equity extremely seriously. Brand equity might not be the easiest concept to pin down, but it has genuine and measurable effects on consumer behavior. A firm with strong brand equity can expect better results across the board, including in sales, customer loyalty and ability to negotiate with suppliers and distributors.

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