Brand Equity: What Is It and Why Is It Important?

Equity is the value of an asset after subtracting its liabilities. A brand isn’t the same thing as a company, though. It’s not a product or a service either. It’s not really a thing at all, but an idea - or, to get even more abstract, a cloud of ideas, feelings, and information associated with a company or product.

How can something so vague and intangible as a brand have real value?

It’s simple, really. People are willing to pay more for brands they know and trust. Sometimes a lot more. This is why celebrity endorsements work. This is why Procter & Gamble’s “Thank You, Mom” Olympic campaign is considered the gold-standard in advertising, even though it had so very little to do with actual products.

Brand equity isn’t about offering superior products or services. It’s about building relationships with people.

More than a Feeling  

Sure, we like to believe that when we spend more for a product, we are getting higher quality than cheaper competitors. And often we are correct in believing this. 

Yet the relationship between cost and quality is not so straightforward. That feeling of comfort and confidence we get from a reputable or premium brand is worth more than merely the extra cost that goes into producing a higher-quality product. 

Most of us just don’t have the time to become experts on all the different products we buy. Often we don’t even know the ingredients in our food, the fabrics in our clothes, or the kinds of cutting-edge tech in our devices. When faced with a shortage of information, we tend to go with the brands we trust. 

This is why companies must understand what brand equity is — how to measure, track and build it. 

Tracking the Intangible

Even though brand equity plays such a central role in motivating consumers to purchase a company’s products, it can still be quite hard to calculate the profits directly resulting from a brand-building campaign. This is why brand tracking is so essential.

Brand tracking, like measuring brand equity, is all about putting numerical values to the many intangible elements that comprise a brand. Yet brand tracking is concerned with more than the strength of a brand at a given moment. It is concerned with how that strength ebbs and (hopefully) flows over time, usually in response to some event, such as the launch of a marketing campaign.

Tracking brand equity helps marketers understand how a campaign is affecting sales and how to optimize going forward. Marketers can study impacts on the business with metrics such as customer retention and price premium. They can also study impacts on the consumer with methods such as panels, surveys and sentiment analysis. 

Building Bonds

Measuring and tracking something as elusive and amorphous as brand equity can be a real challenge. Building brand equity is even harder. But in a world where consumers are so overwhelmed with choice, it’s necessary for a company’s survival.

Companies need to figure out who their target audience is and what sets their brand apart from competitors. They need to have a sense of their why — the purpose behind their brand — beyond garnering sales, of course. 

Then they need to figure out how to communicate all of this — clearly and effectively — to as many people within their target audience as possible. Offering a great product is important. But when it comes to building brand equity, conveying a sense of your company’s values is even more important.

Once a brand is popular and reputable, consistency throughout all aspects of marketing is key. To a consumer, a trusted brand is like a trusted friend. If a good friend suddenly starts showing up in a totally different kind of outfit — or worse, speaking with a different dialect — trust goes out the window. Confusion and suspicion set in.

Remember, though, that in an increasingly digital age, brands live and die in spaces beyond advertisements. Online, consumers chatter incessantly about which products they like and which they don’t, which brands work for them and which fail to strike a chord.

It’s essential that marketers understand and manage consumers’ expectations of a product or service. A brand can be quickly and severely tarnished by just a few negative reviews, just like a person’s reputation can be stained once the gossip starts to swirl behind their back. 

While representing a serious risk to brand equity, these digital spaces — especially social media platforms — also provide companies an extremely powerful tool with which they can create and maintain strong, long-lasting relationships with consumers.

And that — relationships with people, not only pocketbooks — is what brand equity is built of.     

To read more about the next generation of brand tracking, download our whitepaper for free.