How to Build and Measure Brand Equity: A Complete Guide
“A product is something that’s made in a factory; a brand is something that is bought by a consumer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless.”
How Does Your Brand’s Value Stack Up in the Marketplace?
Branding often gets a bad rap in companies, most especially in the marketing department. But it shouldn’t. It’s one of the most powerful components of a business that can have a dramatic impact on a company’s bottom line. I can’t tell you how many companies I’ve worked for that made phenomenal products and were marketing those products well but paid absolutely no attention to their brand or treated it as some icky thing that dinosaur marketers cared about before the advent of digital marketing.
At one particular company, I surveyed every employee and found out they hated the company’s primary logo color. When I asked the CEO about it, assuming he had been a part of the team that had originally selected it, he told me that he wasn’t the one who selected it and that he hated the color too. It turns out that every single person in the company hated the color and no one knew how, why or when it was selected. The company had been using this color for over 12 years! This sounds almost too strange to be true. But it’s actually more common than you might think. If you’re in the same boat and just really don’t like your company’s logo or brand identity, you don’t have to stay stuck in the status quo. You can actually design a great logo in 10 simple steps.
At another company, whose marketing department is filled with recognized digital marketing experts, they also had a logo and color that no one liked. When I began the process to rebrand the company, I sent out a survey to the leadership team. One question asked them to think about the current brand persona and what values it conveyed. Not a single leader in the company understood what the company’s brand persona was or agreed on the values it should be conveying. (To learn how to develop a brand persona, check out our free Brand Persona Worksheet.) What I’ve learned is that although we are often dismissive of brand, branding is an art and not a science, and because it’s an art, it isn’t easy. It’s something most companies struggle to do correctly because there is no predictable formula for getting it right.
Over the last 10 years, marketing has shifted from being a cost center to a revenue center. This shift has exacerbated the problem. As modern marketers have become more and more obsessed with big data, analytics, and “science” in marketing, we have come to largely eschew our “art.” I’ve included disqualifying quotation marks because in the postmodern world we currently inhabit, it is no longer cool [read profitable] to suggest that marketers are artists. As marketing departments spent years trying to extricate themselves from old labels and associations—such as being the “paint palette department,” we have forgotten that while science may bring predictability to business, it is art—creating stuff that inspires people to buy–that determines a business’s success.
But what I’ve also noticed across the board is that companies that fail to recognize the importance of branding struggle to ever gain brand awareness and more importantly struggle to ever achieve true advocacy from their customers, partners, and influencers. Companies whose marketers claim to be digital marketing gurus, yet don’t care a whit for their brand, often find themselves lagging behind their competitors or wondering why their NPS scores are -30 – in short, wondering why they cannot break through and achieve high growth. And I would argue that the reason for their stunted growth lies in the fact that they have poor brand equity.
What Is Brand Equity?
Brand equity is a term that refers to "the value of a brand in the marketplace." The first and most telling effect of brand equity is the ability of that brand to create a "positive differential response" in the market. A positive differential response means that a brand is easily recognized or that its audiovisual cues bring to mind a certain mindset, keyword or action in the minds of the targeted audience.
It's essentially the sum total of all the intangible assets that a brand has accumulated over time, including consumer loyalty and advocacy. Brand equity is essentially the difference between what consumers think about a brand (the positive things) and what they would think if it weren't associated with a brand (the negative things). A strong brand has more positive associations than negative ones, so its overall value is higher than one without such strong association.
Put more simply, brand equity is a brand’s power derived from the goodwill and name recognition that it has earned over time, which translates into higher sales volume and higher profit margins against competing brands. Indeed, the response that your brand gets in the market translates into real dollars through the premium that a consumer pays in order to be associated with that brand.
Brand equity is not—I repeat not—synonymous with brand value. Brand value is the “quantitative” or financial measure of your brand and does not include the “qualitative” aspects of your brand including consumers awareness or emotional associations with your brand. For example, brand value measurements could not possibly include the “irrational fidelity” of some loyal customers that would constitute a long-term advantage in the marketplace, thus, improving overall financial outlook for the brand and company. In short, it does not provide a complete picture on the potential impact your brand has on your business in the present or future. However, brand value is an important metric and one that should be used when calculating overall brand equity.
How Does Brand Equity Contribute to Your Bottom Line?
Brand Equity Increases Brands’ Profit Margins
For the end-user or consumer, brand equity can:
Identify a product or company
Enhance processing of information
Increase confidence in purchase decision
Provide use satisfaction
For a business or firm, it can:
Signify quality
Reduce marketing costs
Create barriers to entry
Serve as a competitive advantage
Secure a price premium
Increase profit margins
Increase market share
Enhance trade leverage
In short, brand equity is not just critical to your business’s bottom line. It’s everything. Literally, everything.
You think I’m exaggerating? Let’s take price premium, which is arguably the best single measure of brand equity available. A price premium is a basic indicator of customer loyalty or more specifically the amount a customer is willing to pay for a brand in comparison to another brand offering similar benefits. For example, a consumer might be willing to pay 15% more for a Coke than a Pepsi or to pay 10% more to shop at Sakes Fifth Avenue than Bloomingdale's.
Take a look at this image of two cups of coffees. Why does one brand of coffee cost so much more than the other when there is no real qualitative difference between the two? The answer lies in the fact that in the realm of coffee, Starbucks has immense brand equity and McDonalds has almost none, allowing Starbucks to secure a price premium with an otherwise commodified product.
Starbucks vs McDonalds Brand Equity Face-off
We can see how brand equity translates into massive market dominance as we move into higher-priced consumer products, such as smartphones. Notice in the comparison below that Apple’s iPhone, thanks to its world-class brand which allows it to command a price premium, can fetch a price differential almost 10x its generic competitor.
Apple iPhone vs Generic Smart Phone Brand Equity Face-Off
Apple has developed one of the world’s foremost brands, and it has done so not only by the careful creation of their brand persona, but also in the way it has mastered customer loyalty to create a massive advantage in the marketplace. You can view our extensive discussion of Apple’s unique brand persona here.
Want to develop a Brand Persona like Apple or Amazon? Consider working with a brand agency like Verge Marketing, experts in developing world-class brands:
And if we assume this kind of price premium only really matters in consumer goods, think again. Take any business product and you’ll see this same dynamic play out, only at much higher price points. Let’s start with CRM, a system of record for any brand selling a business product. Salesforce, as the first mover in the space, quickly dominated market share and has since been able to capitalize on market dominance with unparalleled brand equity in the marketplace that directly translates into a price premium. In fact, Salesforce’s brand is so ubiquitous that it has come to stand-in for the noun “CRM” in business, i.e., “Have you analyzed your funnel in your Salesforce instance?” There is an implicit assumption that every business is automatically using Salesforce for their CRM. This kind of brand equity is rewarded with a price premium, which I’ve illustrated in the image below.
Salesforce vs Sugar CRM Face-Off
In fact, if you look at the finer details here, this price is based per user per month. What happens when we assume an average of five users a month per company? This means that Salesforce’s average contract value (ACV) at this price would be $18K. Contrast that with Sugar, which is only $8K. This means that Salesforce can command 66% price premium over its rival Sugar thanks to brand equity. Five users per month is a rate reserved for small businesses. Now imagine what that price premium does to Salesforce’s profit margins at the enterprise level, when each customer has hundreds of users per month. This case illustrates better than any other the importance of brand equity and why every company must make cultivating a strong brand and diligently managing its equity a top priority.
Another interesting case is the exploding field of cloud storage services. Amazon’s brand value has skyrocketed in the last 16 years, to a record high in 2022 of $705 billion dollars and it recently overtook other top brands like Apple to become the most valuable brand in the world. Amazon AWS (Amazon Web Services)—it’s cloud storage unit—is on track to reach $3 trillion in value according to esteemed analysts. Amazon is trouncing its competitors, Microsoft and Alphabet (aka Google), because it has better technology which has enabled it to grow brand equity. While the pricing on these deals is too complicated to compare through a simple price comparison, it is clear that Amazon’s rapidly growing brand equity in this space is contributing to its dominance and creating barriers to entry for rivals. Think about the fact that Amazon is not natively a technology company, yet its cloud computing brand has single-handedly enabled it to overtake two global technology companies to dominate the cloud storage market, a market that is currently worth over $70 billion and growing.
No matter what level or playing field, it is brand equity that allows a company to develop a competitive advantage that helps them secure a moat or an ability to maintain that advantage over the competition.
How Do You Build Brand Equity?
Build Brand Equity through Customer Loyalty
But how do you build brand equity? Achieving brand equity isn’t easy. Your brand must move slowly across the spectrum in your audience’s mind—from Awareness on one end all the way to Loyalty on the other.
Brand Equity Spectrum - From Customer Awareness to Customer Loyalty
I said your brand must move from unaware and disinterested all the way to “irrational fidelity,” or a type of loyalty brand experts, John Gerzema and Ed Lebar, call “energized differentiation,” which is a palpable and measurable energy that fosters extreme customer loyalty. However, in reality it is you, the marketer (in partnership with product development), that must move the consumer through this journey through the careful cultivation of a brand and its management.
Brand Equity Attributes - Brand Loyalty, Name Awareness, Perceived Quality, Brand Associations etc.
Some things to keep in mind:
Strong brand equity is created primarily at the “loyalty” stage
Brand equity doesn’t happen overnight. It’s difficult to develop and takes time
Companies must “invest” in their brands and manage them diligently
How Does Brand Strategy Build Brand Equity?
One of the priorities of any savvy marketer or brand manager should be how to increase this positive response using brand equity. Here are a few of the proven ways to improve brand equity and participate in the positive feedback that comes from it.
Position Your Brand
The equity that your brand has in the marketplace is all about how your customers perceive the experience of association with your brand. Your customers must recognize your brand as different from and better than its competition, and you must back this up with a quality product that engenders loyalty over time.
Your product quality and marketing go hand-in-hand when you decide what aspects of your product to prioritize in advertisements. You know the old adage: "sell benefits, not features." In short, benefits are what the product does for the customer, while features are simply explanations of product characteristics. Your R&D team may be excited about the features they have implemented into the new iteration of your product, but the product benefits are what will ultimately build brand equity in the market to the consumer.
Solve a Problem
Brand equity is all about solving consumer problems. However, you must be sure that you are solving the problem that your consumer actually considers an issue.
For instance, what problem does Rolex solve with its luxury watches? Although this may seem counterintuitive on a certain level, the people who make purchases of Rolex watches are not concerned with keeping up with time. Although the watch needs to work, the real problem that the watch solves is one of social esteem. A consumer could wear any watch to tell time - when a person wears a Rolex watch in public, the social esteem that he or she receives from the association with the luxury brand is the true benefit. A Rolex may help a person gain entry into an exclusive club or social circle. It may draw attention from people whom the consumer considers important or attractive. None of these solutions have anything to do with the time of day.
This is how you must think of your brand in terms of its equity. Find the real problem that your consumer is looking to solve, which may be quite different from the basic function of your product. Properly identifying your brand with the right audience will go a long way in helping you to determine the motivations of your target market and position your product accordingly.
Drill Down into Branding; Do Not Expand
The purpose of a brand, especially a brand that is building equity for you, is not to serve the largest number of people. If you have to give up a few ancillary sales in order to solidify the position of your business in the marketplace, then you should do this. The sacrifice will be well worth it if you build your brand equity up to a point where the premium far outweighs the loss in sales from second-tier customers. Do you think Rolex cares that entry level job holders cannot purchase one of its watches?
Drill down into your branding so that you market to a particular niche through a strong, singular benefit. This benefit will be your lead in and showcase how your company solves a problem for its audience differently from any of its competition. Push this singular benefit in all of your marketing until your position is solid. From here, you have the choice to expand if you believe that your brand can serve a larger audience without losing its equity.
Use Emotion
As stated before, brand equity is not necessarily built on functionality. The problem that your product ends up solving may have nothing to do with the actual feature set of your product. If you are trying to build brand equity, you must focus on engaging the emotions of your target audience. Prospects will take much greater action with products if they have an emotional connection to them.
For example, jewelry companies do not approach their customers from the angle of accentuating a dress or garnishing a look. Viewing most jewelry commercials, you will see that the exchange of jewelry is associated with an emotional event such as a holiday or a birthday. Silhouettes kissing romantically in the background is a common theme, and voiceovers in jewelry commercials appeal to the emotional connections between romantic partners. Does any of this have much to do with the actual function of jewelry? Think of your brand in the same way as you create your advertisements.
Keep in mind that the emotions you cater to do not have to be completely positive. Certain luxury products solve the problem of social esteem through jealousy or exclusivity. If this is the problem that your audience is trying to solve, you cannot be afraid to move there with that audience.
Create a Story for Your Product
Products are much easier to sell when they have a story, especially if you are trying to sell a product with a premium. Customers associate emotions with back stories, and you also gain an excuse for charging the premiums that you charge. For instance, Nike associates itself with top athletes with rags to riches stories and puts forth adventurous slogans, insinuating that you can have the same rise in your lifestyle if you purchase the shoe. This story should permeate all of your advertising, including social media and mobile advertisements.
Your logo and slogan should speak to the emotions of your audience and tell your story at the same time. The Nike swish is one of the best examples of this type of logo. Its close resemblance to a checkmark brings up feelings of acceptance and victory in many people, because a checkmark is usually associated with a job well done in school or at work. Nike's target market becomes highly familiar with the checkmark at an early age through school assignments, and the association continues into the professional careers of most people.
Xerox is another brand that has achieved such ubiquity that the company name actually became a verb in the dictionary. This is the kind of story that you want to create for your brand –one that is so closely tied to the everyday activities of your target market that they begin to see you as a part of their lives.
How Do You Measure Brand Equity?
So now we know what brand equity is and how to build it over time, but how exactly do you measure something that is so ephemeral? How do you measure which brand name has more value? Tesla. Amazon. Or Apple? Why is a brand strong or weak and how do brand strength levels change over time? And why do they change? What’s more, how do they vary by country and why? The point is simply this. It’s not enough to build brand equity. You need to be able to measure it so you can maintain and even optimize your brand’s strength, i.e., value.
So yes, there is no easy way to measure a brand’s value, but generally there are four primary methods you can use alone or in combination to help you measure brand equity.
Brand Perception or Evaluation
Brand evaluation is a measurement of how well a brand is perceived by its target audience. The goal of the brand perception metric is to understand the overall perception of your brand and its products or services, so that you can address any issues and make improvements.
The process for measuring brand perception involves surveying consumers about their perceptions of particular brands and analyzing the results in relation to other factors such as competitors' brands, market share, industry trends and more. A good way to get started with this type of analysis is to look at some existing studies on large companies within your industry—you'll be able to see what kind of information has been collected about them in previous studies (and whether those results are applicable).
However, a brand equity survey is the fastest and most accurate way to measure the overall perception of your brand, especially its intangible assets. Here are a few questions taken from Verge’s complete Brand Equity Survey template on the question of brand perception carefully designed to elicit completely objective responses from participants, so you get the most accurate gauge of your brand’s equity:
“This brand provides good value for the money. Yes or No.
”
“This brand has a personality. Yes or No.”
Brand Strength
Brand strength is the ability of a brand to command a premium price or secure greater sales volume in the market. In short, it’s determined by customers’ perception of the brand’s value, which is based on their experience with the brand.
Brand strength can be measured using a simple formula:
Brand Strength = (Perceived Value) x (Brand Loyalty)
You can also capture this sentiment using consumer surveys. Below I’m providing a leading question on Verge’s Brand Equity Survey template on the question of brand strength as a reflection of a price premium:
“Brand Y would have to be X percent less than Brand X before I would switch brands.”
Brand Awareness
Brand awareness, as the phrase suggests, is a measure of how many people have heard of your brand. It can be measured as a percentage of the total population or as a percentage of your target market.
It’s important to note that brand awareness is not the same thing as brand recognition. If you ask someone if they recognize your logo, but they don’t know what product or service it represents, that's not great for our purposes here. Instead, we want to measure how many people know who you are without having any other information about what you do or how much money goes into making sure those people see or hear about you every day.
Once again, brand awareness is a more intangible value of brand equity and can be best measured using a survey.
Verge has developed an excellent overall Brand Equity Survey template and here is a sample of questions on it that help marketers and brand managers evaluate “brand awareness.”
“Name the brands in this product class. ”
“Have you heard of this brand? Yes. No. ”
Brand Relevance
Relevance is metric that measures how integral your brand is in the lives of consumers and most closely resembles a customer satisfaction index. It can be measured by asking customers to answer a set of questions that directly tie back to the value the brand is providing to their customers:
“I was—disatisfied vs. satisfied vs. delighted—with the product or service during my last use experience.”
“I would buy the brand on the next opportunity. Yes or No.”
The questions above were taken from Verge’s comprehensive survey that includes questions regarding relevance, but you can also leverage NPS (Net Promoter Score) or CSAT (Customer Satisfaction Score) to help you understand how relevant your customers see your brand and if it’s providing value.
It’s very important to analyze all of your branding and marketing efforts from the beginning of the branding program. No marketing strategy will be perfect at its inception; even Fortune 500 companies must move through many iterations of their strategies before truly engaging the target market at eye level.
How Do You Protect Brand Equity?
Develop Strong Brand Governance
No matter how strong your brand equity is, if you do not take the time to develop strong brand governance, your brand’s equity will slowly erode over time. Whether through employee confusion and error or actual malfeasance from competitors or bad actors looking to cash-in on your brand’s equity, there are many ways that your brand can become distorted—even corrupted—in the marketplace.
In particular, it is absolutely essential to develop rigorous brand governance in the form of air-tight brand identity guidelines. Creating brand identity guidelines is a time-consuming process, but it’s absolutely worth it if you’ve spent any amount of time developing a powerful brand. In fact, brand governance is so critical to the longevity of your brand that we’ve developed a checklist for ensuring you develop the most comprehensive brand identity guidelines possible.
Grab our free Brand Identity Guidelines checklist
And now you’ve learned almost everything you need to know about what brand equity is and how you build brand equity. Moreover, you’ve learned how difficult it is to measure brand equity, but we’ve provided you with two tools to get you started measuring and monitoring your brand’s value in the marketplace.
And just think, merely by reading this guide you’re already ahead of 90% of marketers in the world who still don’t understand the value of a brand, let alone how to measure its value.
Just remember that branding isn’t easy. If it were, they wouldn’t be paying you the big bucks to develop and manage it. But it gets easier the more you research, read, and practice. We hope the tools we’ve provided in this guide will get you one step closer to brand mastery. ‘
Brand Equity Survey Template
Learn how your brand’s value stacks up in the marketplace by leveraging Verge’s Brand Equity Measurement Bundle, which includes a comprehensive Brand Equity Survey Template as well as a Brand Value Checklist.