Brand Equity: What it is, What it does, How it is Measured?
Brand equity is the outcome of the investment a firm makes in building a brandâ€™s franchise. It is made up of
Â· Number of Users of the brand
Â· Consumer loyalty
Â· Perceived quality
Â· Positive symbols and Favorable associations around the brand.
A bundle of all these assets, together, results in Brand Equity.
Brand equity also adds to the bottom line on a long-term basis. For, when a brand has high brand equity, it means that consumers are willing to pay a premium for the brand and its extensions.
The value of brands owned by firms, like HLL, ITC and the IT majors like Infosys, and Wipro, are many times their total assets.
Brand equity can be measured and quantified.
Though, it is an asset, traditionally, brand equity has been omitted from the balance sheets because of its intangibility. But, it can certainly be measured in financial terms. Already, several companies show brand equity in their balance sheets.
Brand equity of brands comes to the fore during Mergers & Acquisitions and takeovers of companies. Similarly, when one company buys out the brand of another, brand equity invariably gets measured.
Criteria, such as market share, market ranking, brand stability and track record, stability of product category, internationality, market trends, advertising and promotional support, and legal protection are used for measuring brand equity.
A Brandâ€™s Equity can be Quantified and Measured
Although recognized as an asset, the value of brands has been traditionally omitted from the balance sheets because of its intangibility. But, of late, this practice is changing. Already several companies show brand equity in the assets column of their balance sheets.
When a brand can take premium pricing, has extendable properties shows positive response to economic cycles and resistance to market disturbances, these factors together enhance the position of the brand as an asset. In fact, the recent thinking is that brand equity should reflect not only the capitalized value of the incremental profits from the current use of the brand name but also the scope for its potential extensions to other product categories.