The term ‘brand equity’ refers to the value as well as strength of the brand which determines its worth. Brand equity can also be defined as different impact of brand knowledge on consumers’ responses to the marketing of the brand.
Brand equity is a function of what consumers choose in the marketplace. The notion of brand equity comes into existence when consumers choose a product or a service. It comes into play when the consumer knows the brand and holds some favourable positive, strong as well as distinctive brand associations with it.
What defines brand equity?
There are three main points which define brand equity:
- Tangible and intangible value – This can be tangible value such as revenues and price premiums or intangible value such as awareness and goodwill.
- Positive or negative effects – The organisation, products, services and bottom line can benefit or suffer from brand equity.
- Consumer catalysts – Brands are built by consumers, not companies. Therefore, brand equity is built by consumers as well.
The value is determined by the consumers’ perception of, as well as experiences with, the brand. If individuals think highly of a particular brand, it is said to have positive brand equity. If a brand consistently under-delivers, as well as disappoints to the point where consumers recommend that others avoid it, it has brand equity which is negative.
The value of positive brand equity
Companies are able to charge more for a product which has a great deal of brand equity. This equity can be relocated to line extensions which are products that are related to the brand. Line extensions include the brand name.