Building and managing brand equity

Looking to increase your company's profits or attract new investors? Understanding the importance of creating and managing brand equity can help with these goals.

by Edward A. Haman, Esq.
updated May 11, 2023 ·  3min read

Your brand's reputation can affect its bottom line. Brand equity, or how the public perceives your brand—separate from its goods and services—can impact revenue and the overall value of your business. That makes managing brand equity a crucial part of your marketing strategy.

Illustrated hand holding a pencil and signing a document under the words "Brand Equity".  Surrounding the document on the table are a calculator, money, charts, a notebook, and other branding tools.

Brands vs. brand equity

A brand is much more than just the products or services a company sells. It's also a way for consumers to differentiate goods from those of competitors. Wrapped up in a brand are all the ways it identifies itself, such as product names, logos, or distinctive colors. For example, Honda has brands in the names Honda and Accord, each of which have separate reputations in the public eye. The Pepsi brand is instantly recognizable by its red, white, and blue color palette.

Brand equity, on the other hand, is the value a brand brings to a company once it becomes widely recognized by customers. If a consumer would choose a generic product over a branded one, the brand has a negative brand equity, and vice versa. Positive brand equity often results in increased customer loyalty, which is when a consumer is willing to pay a premium for a brand they prefer.

For example, people with brand loyalty to Campbell's Soup believe that it tastes better or has more beneficial qualities than soup of similar price. People who always buy a Mercedes believe they are of higher quality than BMWs or Cadillacs. This is one reason why brands, particularly luxury ones, so rigorously defend their trademarks and public image.

Ways of building brand equity

Positive brand equity is not created overnight but rather is developed over time by:

  • Developing a quality product or offering excellent customer service.
  • Engaging in an effective marketing plan. You can have the best product, brand name, and logo ever, but that won't build brand equity if your potential customers don't know about them.
  • Creating a memorable brand name or logo.
  • Protecting the brand with appropriate copyright or trademark registration.

Measuring brand equity

While no one doubts the existence of brand equity, quantifying it is another matter. Some marketing organizations lean toward a customer-based measurement, which focuses on aspects such as customer loyalty and consumer awareness, recognition, and opinion of the brand.

Others use a measurement model that emphasizes factors such as:

  • The proportion of sales attributed to the brand recognition
  • Comparing the price of the product to the price of other brands or generics
  • The brand's market share for its product or industry

Still others use a combination of these approaches or more complex methods that analyze stock performance, projected profits, total company value relative to tangible and intangible assets, and various other factors.

However, many of the factors used are vague and intangible and, just like with celebrity endorsements and event sponsorships, there is no universally accepted method for measurement. On top of that, many measurement models are created by marketing consulting firms, which are in the business of charging companies for conducting consumer marketing surveys and so may have an interest in manipulating the perceived value of a company's brand equity.

Managing brand equity

Once brand equity is established, it needs to be managed in order to maintain or increase its value. The stability of the brand recognition may need to be balanced with changing markets, consumer attitudes, government regulations, and other factors. In some situations, efforts may be needed to revitalize the brand or even to rebrand a product.

Once established for an existing product, brand equity can be managed to extend brand recognition to new ones.

For example, once Whirlpool established its brand for clothes washers and dryers, it expanded the brand to ovens, dishwashers, and microwave ovens.

If consumers develop a negative impression of the company or product, a brand's equity could be negative, decreasing both sales and the value of the company. This might happen in the event of unfavorable media attention, such as from a highly publicized lawsuit against the company, repeated product recalls, or cybersecurity breaches. For example, widely publicized concerns about the privacy of personal information led to many users canceling their Facebook accounts.

It can takes years to establish a reputation with consumers, although it's easier today than it's ever been. Focusing on consumer satisfaction and quality goods goes a long way towards building positive brand equity and even making your company more attractive to buyers or investors.

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Edward A. Haman, Esq.

About the Author

Edward A. Haman, Esq.

Edward A. Haman is a freelance writer, who is the author of numerous self-help legal books. He has practiced law in Hawa… Read more

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