Brand Equity: how profitable is your brand?February 3, 2016
What is Brand Equity?
Brand equity can be seen as the added value provided by a brand over its generic equivalent; it can show through its market share, profitability and the perception consumers have.
Positive brand equity puts companies in a position to charge a premium price for their products.
How do you build Brand Equity?
Brand equity does not just happen all of a sudden. Buyers go through a brand experience process which can be summarized in 4 main steps:
1. Brand awareness: this is essentially the stage in which customers and potential customers hear about your brand or experience it for the first time
2. Brand recognition: consumers recognize the brand among other brands and know the value it provides compared to its competitors
3. Brand preference: consumers are now familiar with the brand and become repeat buyers. They also become emotionally involved with the brand
4. Brand loyalty: consumers now consider the brand to be indispensable and are even prepared walk distances to find it. Buyers will develop such an emotional attachment to the brand that it becomes so instilled in their mind that they will not find any other suitable substitute
How do you actually measure Brand Equity?
Brand equity is an essential element to any company’s strategy, yet it’s not always easy to measure.
A number of theories have tried to analyze and quantify this intangible asset.
The value of a brand can be extracted by simply looking at profit margins and market share, although these factors fail to incorporate the prestige associated to a brand as well as all the mental and emotional associations linked to a brand.
10 features that measure the strength of a brand
David Aaker, a marketing professor and brand consultant, published an article onwww.boundless.com: ‘Brand equity’ which lists 10 attributes that can be used to assess the strength of a brand:
1. Differentiation: a strategy that involves creating a unique brand tailored to a particular target market.
2. Loyalty: consumer are so happy with the brand that they will no longer seek for a substitute product.
3. Perceived quality: loyal consumers perceive quality as being superior to generic products
4. Leadership or popularity: the brand becomes the most sold product in a particular market segment
5. Perceived value: products created by the company are endorsed by a solid brand that has proven its strength over the years.
6. Brand personality: consumers often tend to associate a brand with the human traits of a brand, which include trust, uniqueness and sophistication.
7. Organizational associations: consumers are so loyal to the Company that they are prepared to buy blindly any product the Company brings out to the market.
8. Brand awareness: is the extent to which potential customers recognize a brand and can associate it to a particular product.
9. Market share: highlight the percentage of the market captured by the brand.
10. Market price and distribution coverage: the relative market price is determined by the average price at which a particular brand has been sold for in a particular month, divided by the average selling price of other brands. This will highlight the performance of an individual brand against other brands. The availability of a product is part of the distribution coverage which essentially looks at how many stores are carrying the brand and how many consumer have access to the brand.
Brands provide a huge increase in the valuation of a business
Brands are one of the principal factors affecting the pricing of a business; whether it’s a local coffee shop or a Starbucks store, an established brand allows a business to charge a premium price; furthermore, in the long term it makes it easier for a business to expand its product range, due to consumer loyalty to the brand, and to enter new markets, given the lower acquisition costs of new customers.
When it comes to brand valuation, customers’ loyalty is ranked as the number one factor, as it results in a steady and predictable stream of revenues.
When looking at your loyal customers, always keep in mind Pareto’s 80/20 rule whereby 20 percent of your customers produce 80 percent of your profits. To determine which are your most profitable customers it’s a good idea to segment your market into smaller groups of buyers who share similar interests, needs and behaviours.
In conclusion we can clearly say that brand recognition and customer loyalty represent two of the biggest factors contributing to the valuation of a business.
Established in 1989 CDG Brand continues to deliver exciting results for all its clients over the world by creating compelling digital solutions that give the wow factor.
CDG offers a broad range of brand strategy services, ranging from brand creation to brand repositioning, brand audits and naming cultures.
Developing and nurturing a brand strategy should be at the core of any organization’s business strategy. By leading customers to experience higher perceived quality and emotional attachment, CDG Brand makes brands memorable and easily recognizable leading to increased brand equity.