eBusiness Weekly
Leslie Mupeti
In an increasingly competitive market place, brands are now more than ever presented with the challenge of capturing and sustaining market share and keeping their customers loyal.
Brand equity allows customers to pay a price premium to do business with a brand they know and admire.
Brand equity refers to a value premium that a company generates from a product with a recognisable name when compared to a generic equivalent.
It can also be defined as the difference in value of a branded product and the value of that product without the branding. Some like to define it as the additional value that a recognisable brand name adds to a product offering using words like ‘‘good standing’’ or ‘‘commercial value.’’
It represents the value of the brand. The company with brand equity does not incur a higher expense than its competitors to produce the product and bring it to market which means that the difference in price goes to their margins. The firm’s brand equity enables it to make a bigger profit on each sale. For example, Apple has more brand equity than its competitors in the high performance smartphone category allowing it to charge higher prices than its competitors and make more in profits.
Brand equity differs from brand recognition in that brand equity emphasises the added value that the brand name provides to the product. For example, retail stores have many different varieties of table salt available to buy. Some versions are store owned and others hold a recognisable brand name that the brand owning company created.
Each packet of salt may be the same and produce the same outcome when used. Yet some branded products hold a stronger standing. Besides allowing brands to make more margins per sale, brand equity also improves the overall market value of the brand in question. Institutional investors who buy and sell businesses look for a select few parameters before they buy a business which include: assets the business owns, liabilities, turnover for example revenues and intangible assets such as brand equity, logos, fonts, image style, website, positioning, messaging and story telling.
Components of brand equity
Awareness
The lowest level of awareness is when the customer has to be reminded about the existence of the brand name and the category it belongs to. In aided recall, the customer can recognise the company’s brand from among a list of brands in the category. In unaided recall, the customer himself mentions the company’s brand. The highest level of awareness is when the first brand that the customer can recall upon the mention of the product category is the company’s brand.
This is called top-of-mind recall. Brands need to answer the following questions about their awareness. What percentage of your audience or industry is familiar with your brand? Are your logo, name and brand identity as recognisable to your customers and potential customers as the Nike swoosh or Starbucks mermaid? Beyond knowing you exist, do they know everything you offer?
Reputation and association
Just because people have awareness of your brand doesn’t mean their perception is positive. I’m sure almost everyone is aware of Theranos and their infamous Edison machine. Brands need to answer the following questions about their recognition. What do the people who have heard of your brand think about it? Is your product considered premium? Or are you a value brand? Do you have high quality products but low quality service or vice versa?
Associations contribute to brand equity as strong positive associations induce brand purchases and good word of mouth. An association is anything that is connected to the customer’s memory about the brand. Customers form associations on the basis of quality perceptions, their interactions with employees and the organisation,advertisements of the brand, price points at which the brand is sold, product categories that the brand is in, product displays in retail stores, publicity in various media, offerings of competitors, celebrity associations and from what others tell them about the brand.
It is important that the company plan each interaction with every customer and relevant others so as to eliminate even the slightest chances of any negative associations that can emanate from any of these sources.
Differentiation
Part of the value of your brand is its ability to be distinct from the competition. Even if you have low awareness you may still have potential equity if your brand has a different personality or the ability to stand out from the pack. For example, when South West airlines was founded, a few people knew about the company but it was their cheerful staff and their excellent customer service which differentiated them from the competition.
Relevance
You may have a great product and your brand may check all the boxes but if it isn’t useful/important to your customers then it won’t do much good. If it is not relevant to the audience that you’re targeting, is there any audience in the industry who would be interested?
Loyalty
A customer is brand loyal when he purchases one brand from among a set of alternatives consistently over a period of time. In the traditional sense, brand loyalty was always considered to be related to repetitive purchase behaviour. For some products such as houses or cars repetitive purchase behaviour may not occur. In these situations, attitudinal brand loyalty for example consumer feelings about the brand which was purchased and their inclination to recommend the brand to others are measured.
Brand loyalty is usually rated as the most important indication of brand equity because loyalty develops post purchase and indicates a consistent patronage by a customer over a long period of time whereas all other elements of brand equity may/may not translate into purchases.
Brand loyalty is also a potential barrier to entry for new players and gives time for the company to respond to competitive threats.
Questions brands have to answer about their brand loyalty include: what would it take to woo your customers away from your brand? Just a small price cut? An additional service? Or would your customers stay with your brand even if you had to give them bad news? It’s also important to examine why your customers are loyal that is if they are.
Flexibility
If you developed a related product could you add it in under the same brand? Or would the association with your brand do more harm than good?
If your brand is too narrowly defined, you may find it difficult to leverage it for anything else in the future.
