The Importance of Brand Equity

“If the businesses were split up, I would take the brands, trademarks and goodwill, and you could have all the bricks and mortar – and I would fare better than you.”

The optimism for the concept can be stated on the fact that when one would say as a predictor of future financial performance, brand equity, if reported, would be valuable for capital marketers and shareholders. Brand equity has the potential to become the set of measures of business performance that matter most. For example, Starbucks can sell its coffee at a higher price than solid market competitors because consumers associate the brand with quality and value. This is why brand equity is oftentimes directly correlated with a brand’s profitability.

The motivation for brand equity comes from the observation that many marketing efforts “realize” benefits; such as sales or profit and these are accounted for in the firm’s profit and loss figures. However, there is the possibility that management might choose between taking realized benefits and “storing” them future. One of the most common times this argument is used is when discussing the role of advertising versus sales promotion. You could spend lots of money on advertising, see no immediate effects, but you could save your job by saying that you had “built the brand“.  At least one advertising agency offers to partner companies in this sort of activity.

So marketing strategies could be putting money into (or out of) the brand equity bank account. But the question is as always how do we know? That is are we actually building the brand with all our advertising (or other brand building 4 p’s decisions e.g., limited / premium distribution rights, high price, fancy packing, after sales service, extended warranties).So, hopefully you have got the idea – theories about brand loyalty and equity are used to represent aspects of brand strength.

This “strength” can take a number of forms, e.g., consumers predominantly buying your brand, which might be represented by a high share of category requirements, or high proportion of sole-buyers.

Consumers saying good things about your brand, e.g., having a positive brand attitude, it might be the ability to charge a price premium. It might be the ability to not be substituted when out of stock.   Future strength might be in terms of some sort of long-term competitive advantage or the ability to sustain brand extensions.

One of the things is that as with many concepts in marketing, is that there are many different definitions and viewpoints on what exactly brand equity is and how to measure it. So that is a problem. We need to be clear just what people mean when they talk about brand equity or brand loyalty, or building brands.

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