Branding and Brand Equity

In today’s environment, building strong brands and establishing brand equity is becoming more and more challenging. Increased pressures to compete on price, increased competition through product introductions and store brands, and the fragmentation of advertising and market segments are just a sample of the pressures being faced by companies in today’s highly competitive environment. There are many different definitions of Brand Equity, but they do have several factors in common –

Monetary Value – The amount of additional income expected from a branded product over and above what might be expected from an identical, but unbranded product. For example, grocery stores frequently sell unbranded versions of name brand products. The same companies produce the branded and unbranded products, but they carry a generic brand or store brand label like Hawkins. Store brands sell for significantly less than their name brand counterparts, even when the contents are identical. This price differential is the monetary value of the brand name.

Intangible – The intangible value associated with a product that cannot be accounted for by price or features. Pepsi and Coke have created many intangible benefits for its products by associating them with film stars. Children and adults want to consume their products to feel some association with these stars. It is not the ingredients or the features that drive demand for their products, but the marketing image that has been created. Buyers are willing to pay extremely high price premiums over lesser-known brands, which may offer the same, or better, product quality and features.

Perceived Quality – The overall perceptions of quality and image attributed to a product, independent of its physical features. Mercedes and BMW have established their brand names as synonymous with high-quality, luxurious automobiles. Years of marketing, image building, brand nurturing and quality manufacturing have lead consumers to assume a high level of quality in everything they produce. Consumers are likely to perceive Mercedes and BMW as providing superior quality to other brand name automobiles, even when such a perception is unwarranted.

In short, Brand Equity is a set of assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by the product or service to a firm and/or to that of firm’s customers.

So overall we can say Brand Equity incorporates the ability to provide added value to your company’s products and services. This added value can be used to your company’s advantage to charge price premiums, lower marketing costs and offer greater opportunities for customer purchase. A badly mismanaged brand can actually have negative Brand Equity, meaning that potential customers have such low perceptions of the brand that they prescribe less value to the product than they would if they objectively assessed all its attributes/features.

One of the best examples of Brand Equity is in the soft drink industry. Without a brand name and all of the marketing money that has gone into, Coca-Cola would be nothing more than flavored water. Due to the company’s long-term marketing efforts and protection, enhancement and nurturing of their brand name, Coke is one of the most recognizable brands in the world and Pepsi in India. However, even this marketing giant has trouble capitalizing on its own Brand Equity when handled improperly (e.g. New Coke). If someone suddenly took their brand name and Brand Equity away from them, Coke would lose hundreds of millions, if not billions, of dollars. This includes lost sales, lost marketing budget and lost promotions, additional marketing costs to promote a new brand, and significantly lower awareness and trial rates for their new brand.

Brand Equity can provide strategic advantages to your company in many ways –

• Allow you to charge a price premium compared to competitors with less brand equity.
• Strong brand names simplify the decision process for low cost and non-essential products.
• Brand name can give comfort to buyers unsure of their decision by reducing their perceived risk.
• Maintain higher awareness of your products.
• Use as leverage when introducing new products. Often interpreted as an indicator of quality
• High Brand Equity makes sure your products are included in most consumers’ consideration set.
• Your brand can be linked to a quality image that buyers want to be associated with. Can lead to greater loyalty from customers Offer a strong defense against new products and new competitors.
• Can lead to higher rates of product trial and repeat purchasing due to buyers’ awareness of your brand, approval of its image/reputation and trust in its quality.

Brand names are company assets that must be invested in, protected and nurtured to maximize their long-term value to your company. Brands have many of the same implications as capital assets (like equipment and plant purchases) on a company’s bottom line, including the ability to be bought and sold and the ability to provide strategic advantages.