What is brand equity?
Brand equity is the value a company gains from a consumer’s positive perception of their brand compared to a generic equivalent. Consumers are known to be willing to pay more for a product from a brand they perceive as being trustworthy and reliable, despite the fact they could purchase a similar product from a generic brand for lower cost. And a business that can charge more for a product than their generic counterparts (without additional production costs), earns a higher profit margin. This margin contributes to brand equity.
How brand equity develops
Brand equity is developed with every positive experience a consumer has with your brand. It starts with a consumer’s first exposure to the brand and continues to increase as the customer journey continues.
A prospective customer is first introduced to Brand X through some form of advertising or marketing. They then familiarize themselves with Brand X by researching it online, seeing other advertising, reading reviews, or hearing about it from existing customers.
The true test of Brand X comes when the prospective customer commits to trying the product. They may initiate a free trial offer or purchase a product. If they have a positive experience, they are likely to continue with Brand X and may even try other its products/services.
Brand loyalty occurs when the customer chooses Brand X over similar competitors and tells others about the positive experiences they’ve had with Brand X.
Over the course of this process, Brand X has:
- Acquired a new customer
- Satisfied the customer
- Retained the customer
- Earned word of mouth referrals
Because of their newfound loyalty and trust in Brand X, this customer is now apt to be willing to pay more for a product produced by them. Brand X has now earned brand equity.
It’s important to note that brand equity can increase or decrease at any time. A news scandal, product recall, or poor experience with customer service can quickly damage consumer perceptions of a brand and cause them to move on to a competitor.
Examples of brand equity
The medicinal properties of Advil are technically the same as generic brands (ibuprofen is the active ingredient); however, many consumers are willing to pay more for Advil. Consumers of Advil are also more likely to purchase other medicinal products from Advil rather than switch to a different brand, resulting in increased brand equity for Advil.
Starbucks has created a great deal of brand equity, in large part due to its commitment to high-quality coffee roasting (all ethically and sustainably sourced) and dedication to providing customers with a first-class experience. Coffee drinkers around the world choose to pay more for a latte at Starbucks, not just because of the actual coffee, but because they enjoy the premium experience Starbucks provides.
Apple could be considered the epitome of success due to brand equity. It has been said that some Apple customers are so loyal to the brand, that they will line up to purchase a newly released product without even knowing what the product is. Customers are not “loyal iPad users”, they are loyal Apple users.