Brand equity: What it is and why it matters

Walk into any supermarket, and you’ll find a range of toothpaste brands, from generic store labels to big names like Colgate. Each tube, essentially filled with the same fluoride mix, promises a sparkling clean smile. Yet, it’s the brands with strong recognition, or high brand equity, that often catch the shopper’s eye and command higher prices. 

This isn’t just about clean teeth. It’s about the perceived value added by the brand. 

This perception not only influences buying decisions but also allows these brands to dominate shelf space and sales charts. Ultimately, this impacts the company’s bottom line — and for that reason, it’s something that should matter to all businesses. Here’s what you need to know. 

What is brand equity?

‘Brand equity’ means the worth of your brand in the eyes of your customers. If people see your logo or hear your brand name and get a rush of warm, fuzzy feelings — that’s brand equity at work.  

This value doesn’t pop up out of nowhere. It’s built over time through customer experiences, advertising, product quality, and your brand’s overall reputation. It’s being known, but specifically, being known for something good. 

Take Apple — a company that carries more clout in the brand equity department than almost everyone else. When you think of them, you probably think of innovation or quality. Those associations are part of Apple’s brand equity.

In practical terms, brand equity is important because it has a big influence on sales. From tradespeople to tech creators — if customers trust a business or feel emotionally connected to it, they’re more likely to choose it over competitors, even if it means paying a bit more. 

Why does brand equity matter?

Imagine walking into a store and seeing two similar products, but only one has a brand you recognize and trust. Chances are, you’ll gravitate towards the familiar one. That’s brand equity in action, and it’s a powerful tool for influencing consumer choices. 

We’ll go into why this happens a little later on — but for now, let’s talk about why it’s a good thing.

Pricing power

Strong brand equity = higher prices. You can charge more because people are more willing to pay a premium for a brand they trust. Think about how Apple can price its iPhones way higher than the average smartphone. It’s not just about the features — it’s about the brand’s perceived value.

Customer loyalty

When customers feel connected to a brand, they’re more likely to stick with it, even when competitors try to lure them away with discounts or new offerings. This loyalty reduces marketing costs and stabilizes revenue.

New product success

Launching a new product is risky, but if you have strong brand equity, your existing customers are more likely to give your new products a try. Think about your favorite singer releasing a new track or a popular director releasing a new film — it’s like having a built-in audience ready to jump on whatever you launch.

Resilience during crises

Every business faces tough times, but brands with strong equity can often weather storms better. Customers are more forgiving and supportive if they trust your brand, which can be a Godsend during the recovery process. 

The 5 core components of brand equity

To really get what brand equity is all about, we need to break it down into its core components. These are the building blocks of a well-loved business. 

1. Brand awareness

This is about how well people know your brand. Do they recognize your logo, slogan, name, jingle, or even just the color scheme? If your brand is the first thing that comes to mind when they’re ready to buy, that’s huge. It means you’re already in the lead before they even start comparing options. Think of McDonald’s ‘golden arches’ — everyone knows what that means. 

2. Brand associations

What comes to mind when consumers see your brand? These are the traits or features that customers connect with you based on their experiences, your advertisements, what their friends think, or even which celebrities support you. For example, when you think of Volvo, you likely think of safety. That’s a strong linkage that helps their brand equity.

3. Perceived quality

This is about the quality your consumers expect from you (which may not always match the real nuts and bolts). This perception is shaped by your pricing, how you stack up against the competition, and your overall reputation. When customers believe they’re getting quality, that’s a big win for your brand.

4. Brand loyalty

This is when your customers keep coming back for more. They choose you over anyone else, not just out of habit but because they trust you. This kind of loyalty is gold: it cuts down on marketing costs and gives you a solid base of repeat customers.

5. Brand sentiment

This is all about the feelings people have toward your brand. Are they positive? Negative? Indifferent? Positive sentiment, or how much people like your brand, can turn customers into fans and fans into advocates.

Why should you develop your brand equity?

The answer is straightforward: it’s all about the future of your business. Building strong brand equity essential for survival. 

But it’s not just about holding your ground in the marketplace. Brand loyalty is about setting yourself up for a bright future, strategically expanding your influence and ultimately, getting a bigger slice of the market pie. 

When customers know your brand, they trust it — and when faced with a shelf of choices, they pick yours. Being a first choice naturally expands your market presence. Developing your brand equity is about increasing your base of ‘first choice’ customers. 

A strong brand equity also means product launches are going to be easier because you have that built-in trust factor. This is a huge advantage because it cuts down the risk typically associated with new launches. Your brand’s reputation gives your new product a head start.

Another big perk: charging more. Brands with hefty equity can command higher prices because customers believe they’re getting more value. This isn’t about gouging because of a lack of competition (e.g., airport food costing way more), which leaves a bad taste in peoples’ mouths — it’s about matching price with perception. And if your customers see your brand as top-tier, they’re prepared to pay top dollar.

Lastly, let’s not forget the overall impact of a powerful brand. It gives you leverage — whether you’re dealing with suppliers, negotiating partnerships, or expanding into new territories. A strong brand opens doors that are closed to others. It’s about having a reputation that precedes you, making every business move a bit smoother and a lot more promising.

Examples of brand equity: The good, the bad, and the bankrupt

Let’s look at some real-world examples to see how brand equity plays out in the market. Understanding both the wins and the losses can give us a clearer picture of its true power.

Apple

Starting with the positives, Apple stands out as a textbook example. Why? Their brand is synonymous with innovation, quality, and sleek, simple design. It’s about feeling as much as features: People don’t just own an Apple product — they are part of the Apple community. This strong emotional connection and brand loyalty allow Apple to launch new products with immense success and maintain premium pricing without scaring off customers.

Nokia

Next up: Nokia in the early 2000s. Nokia was a leader in the mobile phone industry, but as smartphones took over, they struggled to keep up. Their failure to adapt and innovate eroded their brand equity. Once seen as a market leader, their failure to meet changing consumer expectations led to a big loss in market share and customer trust.

Nike

Another example of positive brand equity is Nike. Known for high-quality athletic wear and inspirational marketing, Nike has built a strong brand community. They continuously leverage celebrity endorsements and powerful storytelling, which not only maintains but boosts their brand equity. This approach has helped them to charge premium prices and maintain a loyal customer base, even in the face of controversy, year in and year out.

Blockbuster

Once a giant in video rental, Blockbuster failed to adapt to the digital shift led by competitors like Netflix. Their brand, which could have evolved, instead became associated with outdated technology and missed opportunities. This negative brand equity accelerated their decline as consumers quickly moved on to more accessible options.

How to measure brand equity

Measuring brand equity might seem like trying to catch smoke — it’s intangible and a bit elusive, but absolutely possible with the right tools and approach. Let’s break down the key metrics you can use to get a handle on how strong your brand really is.

1. Check your recognition and recall

First, you want to look atbrand recognition andbrand recall. These are your starting points. Brand recognition is about whether customers can recognize your brand when they see it, without any help. Think about seeing the golden arches of McDonald’s. You know right away what it is. Brand recall goes a step deeper. 

Can customers recall your brand name without seeing it? If someone says “fast food,” do people say “McDonald’s”? If you’re hitting high marks on these, you’re in a good spot.

2. Use surveys 

Next, dive into customer surveys. This is where you ask your customers directly about their feelings and perceptions of your brand. How do they describe your brand? Would they recommend it to others? This feedback is gold because it gives you insights straight from the source.

3. Snoop around on social media 

Social media sentiment analysis is another powerful tool. Today, a lot of brand conversations happen online. Tools that analyze the mood, tone, and context of social media posts and comments can give you a real-time pulse on how people feel about your business.

4. Take a look at market share

It’s a straightforward indicator. If your brand equity is strong, you’ll likely see it reflected in your position in the market. Growing or maintaining a strong market share in a competitive industry signals that your brand equity is solid. But don’t rest on your laurels — there’s always room for improvement, and even the mighty can tumble. Remember the lesson of Blockbuster.

5. Crunch those numbers

Lastly, look at the financial metrics. This includes things like price premiums — essentially, the extra amount customers are willing to pay just because it’s your brand. Also, check out revenue stability: brands with strong equity tend to see more consistent revenue streams, even in tough times.

How to build brand equity

We’re playing the long game here. It’s about crafting a strategy that consistently puts your brand in a position to gain trust and loyalty from your customers. Here’s how you can start building or enhancing your equity effectively.

Focus on quality 

Ever bought a bit of tech that seems to last forever? Maybe you own a washing machine, hair dryer, or a car that’s seemingly indestructible. Chances are, you recommend it to friends, and are more likely to stick to that brand (especially in a world where things seem to break after a year or so). 

Your products or services are the backbone of your brand equity. If you deliver outstanding value, the word will spread. Remember, high-quality offerings are more likely to garner positive reviews and customer endorsements, which can massively boost your brand’s perception. 

Build your identity 

Next, develop a strong brand identity. This goes beyond just a memorable logo or slogan. Your brand identity should be a comprehensive system that includes your visual elements, voice, and the emotions you want your brand to evoke. 

Consistency here is key — your brand should be instantly recognizable across all platforms and touchpoints, whether it’s your social media, your website, or your physical packaging. This consistency helps to build familiarity and trust with your audience. It’s especially important for startups because they can gain considerable clout without having sold many products.

When customers see the same values and quality wherever they interact with your brand, their trust deepens. Create brand guidelines and a brand identity kit to make sure that whoever speaks on your behalf (salespeople, the marketing team, copywriters, affiliates and so on), it still sounds like ‘you’. 

Create positive associations

Remember the last time someone made you feel good? Maybe they smiled, told great jokes, or complimented you on your hair. This is how your brand should make people feel. 

Aim to make every interaction a customer has with your brand reinforce their positive feelings about you. Whether it’s through customer service, a smooth and easy checkout, great products, or post-purchase support, ensure that you’re consistently delightful and helpful.

Invest in smart marketing

Use both traditional and digital marketing strategies to communicate your brand’s value propositions clearly and compellingly. Use storytelling to connect emotionally and highlight customer testimonials to build credibility. And don’t forget to use social media to engage directly with your audience, allowing you to build a community around your brand.

Monitor and adapt to customer feedback and market trends

The market is always changing, and so are customer expectations. Stay responsive by listening to your users and adapting your products and strategies accordingly. 

Today’s digital tools make it easier than ever to gather. Use surveys, social media listening tools, and direct customer interactions to harvest all those opinions. This feedback gives you a direct line to customer perceptions while highlighting areas for improvement.

Run regular brand audits

Running a deep brand audit helps you understand where you stand in terms of market perception, customer loyalty, and overall brand health. 

Look at your visual identity, marketing materials, customer experiences, and online presence. Are they all aligned with your brand values? This audit will show you areas that are performing well and others that might need a tweak or a complete overhaul.

Track your brand’s performance in the market

You can’t manage what you don’t measure. Use analytics tools to monitor how your brand is doing in terms of sales, market share, and customer acquisition costs, not forgetting website performance too. 

These metrics will show you the tangible impact of your brand equity and whether your marketing strategies are translating into financial success. Ramp up what works, and kill off what doesn’t, pronto.

Keep an eye on the competition

Watching the landscape is key to maintaining your edge. Monitor how competing brands are positioning themselves and how the market perceives them. This will help you adjust your strategies to stay ahead or differentiate.

Engage with your community

Brands with strong equity often have vibrant, engaged communities around them. Foster this community through regular engagement, like responding to customer feedback, running community events, or supporting causes that resonate with your brand and your audience. This engagement shows that your brand cares about more than just profits — it cares about the people who support it.

Use storytelling

As humans, we’re naturally drawn to stories. It’s how we’ve connected with others since the days of caves and campfires. People connect with stories more deeply than with facts alone. 

Share stories about your brand’s journey, the challenges you’ve overcome, and how your products or services have helped others. It makes your brand more relatable while also reinforcing that all-important connection. It’s another great one for startups to focus on, because it’s a way to get a deep emotional bond without having sold a single product.

Invest in continuous improvement

Brand management is not a set-it-and-forget-it task. It requires ongoing effort and adaptation. Stay updated with market trends, customer expectations, and technological advancements. Regularly update your strategies and tactics to keep your brand fresh and relevant.

Stay innovative

Markets evolve, trends shift, and customer preferences change. To keep your brand relevant and respected, you need to stay ahead of these changes. 

Innovate continuously (radical, disruptive, incremental — it’s all good), not just in your products or services but in how you market them and engage with customers. For example, adopting new tech or embracing new marketing platforms can show your market that you’re a forward-thinking brand.

Embrace tools that support growth

Speaking of innovating — don’t forget to keep your tools up-to-date. Project management helps you track campaigns, set deadlines, assign tasks, and analyze strategies. Meanwhile, diagramming tools are ideal for visualizing workflows, and the customer journey, identifying touchpoints and moments that make your brand memorable. Give both a try today!