What is Brand Equity?
Brand equity is a higher value than a company produce from a product with a recognized brand name in comparison to a generic equivalent. Companies can create brand equity for their products by making them stick to minds and memorable, easily recognized and superior in both quality and reliability. Also, mass marketing can create brand equity.
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How does Brand Equity Work?
There are three basic components in brand equity which includes: consumer perception, either negative or positive attitude and resulting value. To start with consumer perception, that includes knowledge and experience with a brand and its products builds brand equity. The opinions about the brand lead to either positive or negative impacts. When the brand equity is positive, the company, its products and financials benefit while if the brand equity is negative, the company, its products and financials suffer. The positive and negative effects resulting from perception can result to either tangible and intangible value, When the effects are positive, tangible value is gained resulting to both revenue and profit growth and intangible value is achieved as marketing informs of awareness or goodwill. In the case of negative effects, the resultant value of tangible and intangible value is also negative. For instance, if consumers are willing to pay more for a generic product than for a branded one, then the brand has negative brand equity. This is possible when a company has a most significant product returned or causes a widely publicised environmental disaster has happened.
Example of Brand Equity
When a company is anticipating expansion of its product lines, then brand equity then becomes an important aspect for consideration. With positive brand equity, the company can increase the probability of customers purchasing its new products by linking the new product with an existing and successful brand. For example, if Campbell’s releases a new soup, the company is likely to keep it under the same brand name rather than inventing a new brand. The positive relationships customers already have with Campbell’s performs a significant role in making the new product more enticing than if the soup has an unfamiliar and negative brand name. Brand equity is the primary yardstick for determining the strength and performance of companies, more so public companies. There is always brand quality competition among companies in a similar industry. To show this, an EquiTrend survey conducted on July 14, 2016, found that The Home Depot was the No. 1 hardware company in terms of brand equity. Lowe’s Companies, Inc. came in second, with The Ace Hardware Corporation scoring poorly. Consumers perception of the strengths of a company’s e-commerce is the major determinant of brand quality in the hardware environment, and Home Depot is the industry leader, and besides the e-commerce, Home Depot has the highest familiarity among consumers facilitating its penetration into the industry and increasing its brand equity.
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