What Is Brand Equity? - Definition, Components & Measurement

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  • 0:00 Brand Equity Defined
  • 1:25 Components Of Brand Equity
  • 2:25 Measuring Brand Equity
  • 3:30 Lesson Summary
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Lesson Transcript
Instructor: James Carnrite

James has a masters degree in IT Management.

In this lesson, we'll be looking at brand equity, a critical component to building a business. After the lesson, you can test your knowledge with a short quiz.

Brand Equity Defined

The American Marketing Association defines brand equity this way: from a consumer perspective, brand equity is based on consumer attitudes about positive brand attributes and favorable consequences of brand use.

Brand equity in the positive form can help a company in many ways. A common benefit that typically results is the financial benefit, which allows for a company to demand a premium price for its product. For example, Lacoste has such strong brand equity that the premium price is both accepted and expected by customers. In addition, brand equity provides the ability for companies to expand product lines, which can increase sales and revenues for the business, and in some cases reduce costs. An example of this benefit can be seen in companies such as Oakley. Their sunglasses have such positive brand equity that they require little to no awareness, promotion or discount sales.

The outcome from this is that marketing budgets have more strategic flexibility and require less investment. A company with positive brand equity finds itself better positioned for success because customers have special connections and loyalties to its brand. This enables companies to maneuver through dynamic market challenges better than companies with less equity in their brands.

Components of Brand Equity

Increased market share is one result of customer brand loyalty and brand equity. There are four components that provide these results:

  • Brand Recognition - The brand is widely known and recognized, and consumers know what it provides in relationship to the competition.
  • Brand Experience - Consumers have used and experienced the product enough to build expectation.
  • Brand Preference - The brand is preferred by consumers, and as a result, they become returning customers.
  • Brand Loyalty - The brand and the consumer have an emotional attachment, and the consumer will go to any length to purchase it.

As consumer loyalty grows, there comes a point when no alternative or substitute will satisfy the customer's needs. The brand remains present on the customer's mind, and the customer or brand connection is formed. At this point, it is critical for the company to continue building loyalty with customers and sustain commitment with consumers.

Measuring Brand Equity

For the most part, we use five factors to measure brand equity, which begins with two key factors: 'unassisted awareness' and 'differentiation.' Differentiation is measured in multiple ways, first by identifying the brand associations that come to mind for consumers and then by determining how well the brand delivers against category attributes and values. In addition to the first two factors, we utilize 'brand value perception,' 'accessibility' and 'consumer connection' to complete the formula.

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