Brand Equity Definition

Cite this article as:"Brand Equity Definition," in The Business Professor, updated March 1, 2019, last accessed June 5, 2020, https://thebusinessprofessor.com/lesson/brand-equity-definition/.

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Brand Equity Definition

Brand equity is a higher value than a company produce from a product with a recognised brand name in comparison to a generic equivalent. Companies can create brand equity for their products by making them stick to minds and memorable, easily recognised and superior in both quality and reliability. Also, mass marketing can create brand equity.

A Little More on What is Brand Equity

There are three basic components in brand equity which includes: consumer perception, either negative or positive attitude and resulting value.

To start with consumer perception, that includes knowledge and experience with a brand and its products builds brand equity. The opinions about the brand lead to either positive or negative impacts.

When the brand equity is positive, the company, its products and financials benefit while if the brand equity is negative, the company, its products and financials suffer.

The positive and negative effects resulting from perception can result to either tangible and intangible value, When the effects are positive, tangible value is gained resulting to both revenue and profit growth and intangible value is achieved as marketing informs of awareness or goodwill.

In the case of negative effects, the resultant value of tangible and intangible value is also negative. For instance, if consumers are willing to pay more for a generic product than for a branded one, then the brand has negative brand equity.

This is possible when a company has a most significant product returned or causes a widely publicised environmental disaster has happened.

Example of Brand Equity

When a company is anticipating expansion of its product lines, then brand equity then becomes an important aspect for consideration. With positive brand equity, the company can increase the probability of customers purchasing its new products by linking the new product with an existing and successful brand.

For example, if Campbell’s releases a new soup, the company is likely to keep it under the same brand name rather than inventing a new brand. The positive relationships customers already have with Campbell’s performs a significant role in making the new product more enticing than if the soup has an unfamiliar and negative brand name.

Brand equity is the primary yardstick for determining the strength and performance of companies, more so public companies.

There is always brand quality competition among companies in a similar industry. To show this, an EquiTrend survey conducted on July 14, 2016, found that The Home Depot was the No. 1 hardware company in terms of brand equity. Lowe’s Companies, Inc. came in second, with The Ace Hardware Corporation scoring poorly.

Consumers’ perception of the strengths of a company’s e-commerce is the major determinant of brand quality in the hardware environment, and Home Depot is the industry leader, and besides the e-commerce, Home Depot has the highest familiarity among consumers facilitating its penetration into the industry and increasing its brand equity.

References for Brand Equity

Academic Research on Brand Equity

  • Conceptualizing, measuring, and managing customer-based brand equity, Keller, K. L. (1993). the Journal of Marketing, 1-22.  The paper presents the conceptual model of brand equity (BE) in consideration of individual consumer. The author brings a type of brand equity, Customer-Based brand equity which is defined as the differential effects of brand knowledge on consumer reactions to brand marketing. A brand can either have a positive or negative customer-based brand equity when consumers react favourably or less as a result of the element in the marketing mix for the brand than they do to the same marketing mix elements when attributed to fictitious name or unnamed version of products. Customer-based brand equity exists when consumers are aware of the brand and holds a positive, strong and unique brand association in their memory.
  • Measuring brand equity across products and markets., Aaker, D. A. (1996). California management review, 38(3).  The paper state that customer-based brand equity, individualism, and online users rating brands serve as signs of quality, increase trust, and reduction of risks relating to the purchase of products. Aaker also suggested that the perceived quality and rank of a brand serve as a measure of customer-based brand equity. He went further to state that brand personality, which refers to the set of human characteristics associated with a brand.
  • Managing brand equity., Farquhar, P. H. (1989). Managing brand equity. Marketing research, 1(3). The paper defines s brand equity as the added value with which a brand enjoys as a product. The added value can be looked at from the firms, the trade and consumer point of view. The author’s focus was on the establishment of strong brands with customers, and over time sustainability of brand equity in addition to expansion and protection of business by leveraging brand equity.
  • An examination of selected marketing mix elements and brand equity, Yoo, B., Donthu, N., & Lee, S. (2000). Journal of the academy of marketing science, 28(2), 195-211. The paper is based on the examination exploring the association between some identified marketing mix elements and the creation of brand equity. The authors propose a conceptual framework in which marketing elements are similar to the dimensions of brand equity, that is, perceived quality, brand loyalty, and brand associations combined with brand awareness. These dimensions are then related to brand equity. The results indicated that frequent price promotions, for example, price deals, are related to low brand equity, whereas high advertising spending, high price, good store image, and high distribution intensity are related positively to high brand equity.
  • Measuring customer-based brand equity, Lassar, W., Mittal, B., & Sharma, A. (1995) and measuring customer-based brand equity. Journal of consumer marketing, 12(4), 11-19. The author emphasizes the importance of brand equity to merchants of consumer goods and services. The effectiveness of brand introduction and extension is facilitated by brand equity. The facilitation is as a result of consumers who trust and display loyalty toward a brand is willing to try to adopt brand extensions. While there have been methods to measure the financial value of brand equity, measurement of customer‐based brand equity has been lacking resulting to the development of a scale to measure the customer based brand equity based on the five customers characteristics, and these include performance, value, social image, trustworthiness and commitment.
  • Cultivating service brand equity, Berry, L. L. (2000) Journal of the Academy of Marketing Science, 28(1), 128-137. The author outlines that in packaged goods, the product is the main brand. Although, with services, the company is the primary brand. This paper is based on primary research with 14 mature, high-performance service companies, makes a case for service branding as a cornerstone of services marketing for today and tomorrow. The paper presents a service-branding model that underscores the famous role of customers’ service experiences in brand formation. Four primary strategies that first service firms use to cultivate brand equity are discussed and illustrated. Branding is not just for tangible goods; it is a significant successful factor.
  • Characteristics of memory associations: A consumer-based brand equity perspective, Krishnan, H. S. (1996). International Journal of research in Marketing, 13(4), 389-405. A memory network model of identification of numerous related characteristics showing consumer-based brand equity was used.
  • Brand equity as a signalling phenomenon, Erdem, T., & Swait, J. (1998). Journal of Consumer Psychology, 7(2), 131-157. The author undertook evaluation on the relationship in features like asset size, uniqueness and origin and based on these was able to identify high and low equity brands. In this paper, the variation in the consumer associations is agreeing with the external indicators for equity and provides information on how stronger and weaker areas of a brand with the possibility of putting it into action for brand strengthening. There was also discussion on the impacts of relationship with other approaches to quality management.
  • Brand equity, brand preference, and purchase intent, Cobb-Walgren, C. J., Ruble, C. A., & Donthu, N. (1995). Journal of advertising, 24(3), 25-40. The paper talks about the emergence of brand equity as one of the most important areas in marketing management in the 1990s. The author states that regardless of the high interest in the brand equity, there was little evidence of how brand value is created and its exact effects are. Some of the consequences of brand equity on consumer preference and purchase intentions were examined. The conclusion of the examination stated that brand with higher equity in every category generated reasonable greater preferences and purchase intentions.
  • The measurement and determinants of brand equity: A financial approach, Simon, C. J., & Sullivan, M. W. (1993). Marketing Science, 12(1), 28-52. This paper availed the method of approximating the company’s brand equity which is based on the financial value of the firm. The author defines brand equity as the additional cash income which accrues to the branded product more than the unbranded product. Brand equity value from the value of the other firms’ assets is extracted by the estimation method. The technique is important because of these two reasons:  to begin with, the macro approach assigns an objective value to a company’s brands and relates this value in the determination of brand equity. Second, the micro approach isolates changes in brand equity at the individual brand level by measuring the response of brand equity to major marketing decisions. The Autor carried out estimation on brand equity using the macro approach for a sample of industries and companies such as Coca –Cola and Pepsi.
  • Brand equity: snark or boojum?, Barwise, P. (1993). Brand equity: snark or boojum?. International Journal of Research in Marketing, 10(1), 93-104. The author states how young is the concept of brand equity to be less than ten years and has become the subject of academic research recently. The examination mainly concentrated on the short temporary feedback from US consumers to possible brand extension that resulted in much data that are important to practitioners. The result found needed to be imitated, valued, and there was the need for the examination extension to cover brand equity by giving it a definition and measurement, building and managing it more so over a longer period while analyzing the relationship between customer-based brand strength and financial brand equity. The overall conclusion of this paper is that there was a need for researchers to put more focus on brand equity ‘s strategic, financial, managerial, and international aspects.
  • Brand equity and the extendibility of brand names, Rangaswamy, A., Burke, R. R., & Oliva, T. A. (1993). Brand equity and the extendibility of brand names. International Journal of Research in marketing, 10(1), 61-75. The author states the importance of extending brandas an opportunity for companies to use the equity built up in the names of already existing brands in increasing productivity of the market.  But before the consideration of the extension to undertake, the author states that managers have to evaluate the nature of extension and its possibility. Consumer utility was developed during the study, and the findings were that the brand should increase the value to consumers of the features relating to its brand name for instance quality, style, durability and reputation that are not specific to a product for it to maximize its future potential of extension.

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