What Is Brand Equity: Meaning and How to Measure It

Today’s business landscape is crowded with companies of all sizes across nearly every sector. To stand out in this environment, you must focus on a clear and effective brand strategy.

A strong brand strategy starts with brand equity – an asset that shapes customer preference, supports premium pricing, and drives loyalty.

The following sections explain what brand equity is, how to measure it, and how it impacts your business.

What Is Brand Equity?

Brand equity is the value a brand adds to a product or service, derived from consumer perceptions, experiences, and loyalty. It strengthens the customer’s ability to interpret and process data, boosts confidence in the brand and purchase decisions, and overall positively influences user experience. 

In a nutshell, brand equity is what sets apart valuable brands from all the rest. 

Several components that shape brand equity are:

• Brand awareness – The extent to which consumers recognise and recall the brand.
  
• Brand associations – Can be positive brand associations (enhancing perceived value and improving the brand’s ability to retain existing clients and attract new customers) or negative (usually damaging due to poor brand image and reputation).
  
• Perceived quality – The customer’s perception of the brand’s product or service quality.
  
• Brand loyalty – The degree to which customers prefer and repeatedly purchase from the brand.
  
• Brand value – The financial impact of the brand on overall business success, including market share and revenue.

Let’s dive deeper into these components from the perspective of brand perception, positive or negative effects, and the resulting positive or negative value. 

Brand perception

Brand perception is how the customer views the brand and what they believe the company’s products or services represent. Although businesses often try to influence how consumers perceive them, brand perception is something that potential clients establish for themselves from brand recognition and brand awareness.

Brand recognition is formed due to all the features and characteristics of a brand that make it easily recognisable and memorable, like logos, fonts, colours, messaging, and other specifics.

On the other hand, brand awareness is achieving awareness in your niche or market and announcing to your audience what your brand stands for.

Positive or negative effects

A customer’s perception of a brand strongly influences how they interact with it. 

Their reaction is subjective and often shaped by:

• Customer experience – A smooth, enjoyable user experience creates a positive impression. Think of Apple stores, where customers can try every product and instantly feel the brand’s quality.
  
• Quality – Strong brands are linked to reliability and trust. LEGO, for example, consistently ranks among the world’s most reputable companies thanks to its product quality, innovation, and governance.
  
• Customer preference – People buy brands that fit their values and lifestyles. Sometimes this is emotional – like Kellogg’s, whose mascots and childhood memories create long-lasting loyalty.

Positive brand equity leads to more purchases, recommendations, and a stronger brand reputation. It also allows companies to experiment with premium pricing and high-quality offerings. 

Negative brand equity, on the contrary, usually occurs when a brand’s reputation is harmed due to scandals or poor quality, potentially causing customers to avoid, criticise, or boycott a product.

Resulting positive or negative value

As a result of positive or negative associations, brand perception can be categorised by two separate groups – tangible or intangible value. 

Tangible value represents all measurable, physical results of brand equity. For example, this could be an increase in sales, and therefore revenue, or a decrease in the company’s stock price. 

On the other hand, intangible value is all that you can’t physically measure or track, like a greater brand awareness from word of mouth. For example, if a company has negative brand equity, it’s highly likely that consumers will prefer buying a generic product rather than a particular product that’s been branded by the company. 

Models of Brand Equity

There are several different brand equity models that companies can explore.

In the following section, we present some of the most popular ones.

Keller’s Brand Equity Model (Brand Equity Pyramid)

Keller’s brand equity model, also referred to as the customer-based brand equity model, was created by marketing professor Kevin Lane Keller. 

It concentrates on building strong and lasting relationships with customers via four stages and four key questions:

• Brand identity – Who are you?
• Brand meaning – What are you?
• Brand response – What about you?
• Brand resonance – What about you and me?

The meaning behind Keller’s brand equity model is very simple – it encourages businesses to shape how consumers think and feel about their products and services. 

During the brand identity stage, a company sets the foundation for future customer relationships. The brand meaning and brand response stages focus on building and strengthening that connection. In the final stage – brand resonance – loyalty is achieved.

Aaker’s Brand Equity Model

Another frequently used brand equity model is David Aaker’s.

Unlike Keller, Aaker’s model defines brand equity via five dimensions:

• Brand loyalty – Encourages repeat purchases and advocacy.
• Brand awareness – Increases recognition or consumers’ awareness and recall.
• Perceived quality – Impacts consumer trust and willingness to pay a premium.
• Brand associations – Influences consumer perception and positioning.
• Proprietary brand assets – Includes trademarks, patents, and unique features.

In other words, Aaker’s model defines brand equity as a combination of these elements. It highlights brand awareness, customer loyalty, and perceived quality as powerful assets that can greatly increase the commercial value of a company’s products or services.

How To Measure Brand Equity

You can measure brand equity via both qualitative and quantitative methods.

Qualitative methods would include things like:

• Focus groups – help gain valuable consumer feedback on brand perceptions and associations.
  
• Surveys – allow companies to measure brand awareness, customer satisfaction, and loyalty.
  
• Customer interviews – enable businesses to gain in-depth insights into consumer preferences and emotions. 

At the same time, quantitative methods usually track things like:

• Brand recognition – monitors how many consumers recognise the brand.
  
• Net promoter score (NPS) – measures the customer’s willingness to recommend the brand.
  
• Financial metrics – tracks things like sales, customer lifetime value, market share, repeat purchase rates, customer acquisition costs, and others.
  
• Revenue premium – shows the difference between branded and non-branded products.
  
• Price premium – represents the extra amount customers are willing to pay for the brand.

When measuring brand equity, the most important components to focus on are brand awareness, brand affinity, brand perceptions, and brand loyalty. 

Benefits of Strong Brand Equity

Building strong brand equity for your company can deliver significant advantages and enable you to position yourself competitively in your niche. Although brand equity is created over time with consistency and usually requires ongoing input, it can be incredibly rewarding. 

Here are some of the most attractive benefits:

• Achieving a competitive advantage – a positive brand equity enables companies to set premium pricing and to differentiate themselves from others in their space. The branding efforts can also help attract loyal customers who prioritise the brand over alternatives.
  
• Financial gains – building your brand equity can help you increase your market share and profitability, thus improving your brand’s valuation. As a result, you can attract external investments and potentially consider market expansion.
  
• Customer loyalty and retention – in a competitive market, having returning, loyal customers can be a complete game-changer. Brand equity can help you build lasting relationships with existing customers, also encouraging word-of-mouth referrals.
  
• More efficient marketing – brand equity can amplify the impact of marketing campaigns and your overall marketing strategies. By achieving strong brand recognition, you can simplify customer acquisition and make it more affordable. 

These benefits naturally make brand equity a key component of a successful marketing mix. 

How to Build and Strengthen Brand Equity

In this section, we share all you need to know about building and managing brand equity. 

Live up to What You Promise

One of the most important aspects of building a strong brand equity is to deliver on your promises. This could mean providing high-quality products and services, but it could also be maintaining consistency in your messaging across channels, delivering the promised customer service, keeping your prices in certain ranges, or others.

Make sure that you’re setting realistic expectations. The quickest way to damage your reputation is to overpromise and make commitments you can’t keep. 

Invest in Brand Awareness

Another way to build high brand equity is to focus on brand awareness. 

Use the information you have about your market and audience and invest in targeted marketing to boost your recognition and recall. You can do this via a cohesive visual identity, including colours, logos, fonts, and tone of voice. 

When positioning yourself online, use high-reach marketing channels, like social media ads, influencer collaborations, podcasts, and partnerships. Develop an appealing, yet simple brand story about who you are and what makes you valuable or unique. Share grabbing content consistently and prioritise UGC. 

Build Emotional Connections

No matter what type of product or service you’re selling today, chances are that there’s at least one alternative on the market. Usually, the top choice for consumers is the one that manages to build an emotional connection – a powerful factor that has an impact on any company’s success.

Create brand equity by concentrating on marketing campaigns that evoke positive emotions. You can trigger these positive feelings by telling meaningful stories, standing for something that resonates with your audience, and showing authenticity. 

Foster Customer Loyalty

Growing brand equity is directly linked to customer loyalty. 

Set up loyalty programs and rewards to encourage repeat business and make sure you’re providing excellent customer service to boost satisfaction. 

Also, don’t underestimate the importance of consistent quality. Loyalty grows when shoppers know exactly what to expect from your products or services. 

Remember, brand equity doesn’t have to be about big campaigns. Sometimes it’s the small, everyday items, like offering a brand-specific business card, providing customer packaging, or simply your tone of voice.  

Conclusion

Overall, brand equity is a core asset that represents the value a brand adds to its product or services. It’s a fundamental aspect of growing a business, no matter the industry or niche, and is directly tied to the company’s ability to grow and expand over time. 

By building awareness, fostering loyalty, and delivering consistent quality, you can strengthen brand equity and achieve long-term success.

Frequently Asked Questions

Why is brand equity important?

Brand equity is an essential piece of the overall business strategy and can help increase financial value, boost sales, and attract external investments. It’s linked to customers’ willingness to pay more for products or services and can lead to higher customer loyalty.

Are brand equity and brand awareness the same thing?

While both brand equity and brand awareness reveal details about a company’s overall brand health, there’s two separate components. While brand awareness is about recognition, brand equity is about value, as it represents the trust, loyalty, and positive perception that makes your business more desirable than others.

Can brand equity be negative?

Yes, it can, if shoppers have a negative experience with your company’s customer service, your product or service quality, or others. This leads to distrust and can cause negative equity and lost sales.