Defining brand equity

Brand equity is the added value endowed to products and services. This value may be reflected in how consumers think, feel, and act with respect to the brand, as well as the prices, market share, and profitability that the brand commands for the firm. Brand equity is an important intangible asset that has psychological and financial value to the firm.

Marketers and researchers use various perspectives to study brand equity. Customer-based approaches view brand equity from the perspective of the consumer — either an individual or an organization.

The premise of customer based brand equity models is that the power of a brand lies in what customers have seen, read, heard, learned, thought, and felt about the brand over time. In other words, the power of a brand lies in the minds of existing or potential customers and what they have experienced directly and indirectly about the brand.

Customer based brand equity can be defined as the differential effect that brand knowledge has on consumer response to the marketing of that brand.

A brand is said to have positive customer based brand equity when consumers react more favorably to a product and the way it is marketed when the brand is identified as compared to when it is not. A brand is said to have negative customer based brand equity if consumers react less favorably to marketing activity for the brand under the same circumstances.

Here are three key ingredients to this definition. First, brand equity arises from differences in consumer response. If no differences occur, then the brand name product can essentially be classified as a commodity or generic version of the product. Competition would then probably be based on price.

Second, these differences in response are a result of consumer’s knowledge about the brand. Brand knowledge consists of all thoughts, feelings, images, experiences, beliefs, and so on that become associated with the brand. In particular, brands must create strong, favorable, and unique brand association with customers, as has been the case with Volvo (safety), Hallmark (caring) and Harley-Davidson (adventure). Third, the differential response by consumers that makes up the brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the marketing of a brand.

The challenge for marketers in building a strong brand is therefore ensuring that customers have the right type of experiences with products and services and their marketing programs to create brand knowledge structures for the brand.