• Friday, April 19, 2024
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BusinessDay

Brand Equity vs. Brand Value: What’s the difference?

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In answering the poser in the title, the first layer to unravel is understanding that brand equity and brand value offer different ways to increase loyalty, but require different metrics. Brand equity refers to the importance of a brand in the customer’s eyes, while brand value is the financial significance the brand carries. Both brand equity and brand value are educated estimates of how much a brand is worth.

Brand Equity

Brand equity is a set of assets or liabilities in the form of brand visibility, brand associations and customer loyalty that add or subtract from the value of a current or potential product or service driven by the brand.

In the late 1980s, brand equity helped create and support the explosive idea that brands are assets that drive business performance over time. That idea altered perceptions of what marketing does, who does it, and what role it plays in business strategy.

Brand equity also altered the perception of brand value by demonstrating that a brand is not only a tactical aid to generate short-term sales, but also strategic support to a business strategy that will add long-term value to the organization.

Brand Value

Brand value, on the other hand, is the financial worth of the brand. To determine brand value, businesses need to estimate how much the brand is worth in the market – in other words, how much would someone purchasing the brand pay? It is important to note that a positive brand value does not automatically equal positive brand equity.

How Should Brand Equity and Brand Value Be Measured?

While measuring brand value is fairly straightforward, the process for brand equity is not quite so simple. Brand equity is a set of assets or liabilities in the form of brand visibility, brand associations and customer loyalty that add or subtract from the value of a current or potential product or service driven by the brand.

a. Brand Visibility

This means that the brand has awareness and credibility with respect to a particular customer need—it is relevant. If a customer is searching for a buying option and the brand does not come to mind, or if there is some reason that the brand is perceived to be unable to deliver adequately, the brand will not be relevant and not be considered.

b. Brand Associations

Brand associations involve anything that created a positive or negative relationship with or feelings toward the brand. It can be based on functional benefits but also a brand personality, organizational values, self-expressive benefits, emotional benefits or social benefits.

c. Customer Loyalty

Customer loyalty provides a flow of business for current and potential products from customers that believe in the value of the brand’s offerings and will not spend time evaluating options with lower prices.

Driving Brand Value in the Short Term

The value of a brand represents its impact on the short-run and long-run flow of profits that it can generate. With respect to short-term profitability, the problem is that programmes that are very good at driving short-run products – like price promotions – can damage brands.

Looking at the ways a brand can help drive short-term financial performance can help mitigate this tendency. These include brand loyalty, reduced marketing costs, trade leverage, attracting new customers via awareness and reassurance, reason to buy and brand associations, among others.

One of the ongoing challenges of brand equity proponents is to demonstrate that there is long-term value in creating brand equity. The basic problems are that brand is only one driver of profits, completive actions intervene, and strategic decisions cannot wait for years.

There are, however, some perspectives that can be employed to understand and measure the long-term value of brand equity.

Approach #1: Estimate the Brand’s Role in Business

One approach is to estimate the brand’s role in a business. The tangible and intangible assets are identified and the relative role of the brand is subjectively estimated by a group of knowledgeable people, taking into account the business model and any information about the brand in terms of its relative visibility, associations and customer loyalty.

The value of the brand is then aggregated over products and markets countries to determine a value for the brand.

Approach #2: Observe Investments in Brand Equity

A second approach is to observe that, on average, investments in brand equity increase stock return, the ultimate measure of a long-term return on assets.

Approach #3: Reflect on Other Valuable Brands

A third approach is to look at case studies of brands that have created enormous value. Consider, for example, the power of the Apple personality and innovation reputation, BMW’s self-expressive benefits connected to the “ultimate driving machine,” and the ability of the Chicken Republic brand to define an entire subcategory.

Approach #4: Consider the Conceptual Model

It’s important to consider the conceptual model surrounding a business strategy. What is the business strategy? What is the strategic role of the brand in supporting that strategy? How critical is it? Is price competition the alternative to creating and leveraging brand equity? What impact will that have on profit streams going forward? Management guru Tom Peters said it well: “In an increasingly crowded marketplace, fools will compete on price. Winners will find a way to create lasting value in the customer’s mind.”

Last line

Brand equity continues to be a driver of much of marketing, indeed business strategy. For it to work, it needs to be understood conceptually and operationally. And it is important that it be tied to brand value in credible ways.