Brand equity is defined and a comprehensive framework is described that incorporates recent theoretical advances and managerial practices in understanding and influencing consumer behavior. This framework identifies sources and outcomes of brand equity and permits tactical guidelines as to how to build, measure, and manage brand equity, as will be developed further in other sections of the paper.
Customer-Based Brand Equity
Understanding the needs and wants of consumers and customers is at the heart of marketing. A brand equity framework should therefore recognize the importance of the customer in the creation and management of brand equity. Accordingly, customer-based brand equity is defined as the differential effect that brand knowledge has on consumer response to the marketing of that brand. A brand is said to have positive customer-based brand equity when customers react more favorably to a product and the way it is marketed when the brand is identified as compared to when it is not (e.g., when it is attributed to a fictitiously named or unnamed version of the product). Accordingly, the key to branding is that consumers perceive differences among different products in a category. As noted above, brand differences often are related to attributes or benefits of the product itself. In other cases, however, brand differences may be related to more intangible image considerations.
There are three key ingredients to this definition “differential effect,” “brand knowledge,” and “consumer response to marketing.” First, brand equity arises from differences in consumer response. If no differences occur, then the brand name product can essentially be classified as a commodity or generic version of the product. Second, these differences in response are a result of consumer’s knowledge about the brand. Thus, although strongly influenced by the marketing activity of the firm, brand equity ultimately depends on what resides in the minds of consumers. In other words, “customers own brands and your brand is what customers will permit you to have.” Third, the differential response by consumers that makes up the brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the marketing of a brand (e.g., product evaluations or choice, recall of copy points from an ad, actions in response to a sales promotion, or evaluations of a proposed brand extension).
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Sources of Brand Equity
What causes customer-based brand equity to exist? Customer-based brand equity occurs when the consumer has a high level of awareness and familiarity with the brand and holds some strong, favorable, and unique brand associations in memory. The latter consideration is critical. For branding strategies to be successful and brand equity to be created, consumers must be convinced that there are meaningful differences among brands in the product or service category. The key to branding is that consumers must not think that all brands in the category are the same.
Thus, establishing brand awareness and a positive brand image in consumer memory — in terms of strong, favorable, and unique brand associations — produces the knowledge structures that can affect consumer response and produce different types of customer-based brand equity. In some cases, brand awareness alone is sufficient to result in more favorable consumer response, e.g., in low involvement decision settings where consumers are willing to base their choices merely on familiar brands. In other cases, the strength, favorability, and uniqueness of the brand associations play a critical role in determining the differential.
Benefits of Brand Equity
Customer-based brand equity occurs when consumer response to marketing activity differs when consumers know the brand from when they do not. The actual nature of how that response differs will depend on the level of brand awareness and how favorably and uniquely consumers evaluate brand associations, as well as the particular marketing activity under consideration. A number of benefits can result from a strong brand, both in terms of greater revenue and lower costs for the firm, including the following:
- Greater customer loyalty,
- Less vulnerability to competitive marketing actions,
- Less vulnerability to marketing crises,
- Larger price margins,
- More inelastic consumer response to price increases,
- More elastic consumer response to price decreases,
- Greater trade cooperation and support,
- Increased marketing communication effectiveness,
- Possible licensing opportunities, and
- Additional brand extension opportunities.