Brand Equity – Meaning, Definition and Components

What is Brand Equity?

There is no universally accepted definition of brand equity. The term means different things for different companies and products. However, there are several common characteristics of the many definitions that are used today. From the following examples it is clear that brand equity is multi-dimensional. There are several stakeholders concerned with brand equity, including the firm, the consumer, the channel, and some would even argue the financial markets. But ultimately, it is the consumer that is the most critical component in defining brand equity. Some researchers in the field of marketing have defined brand equity as follows:

• Lance Leuthesser (1995) writes that “… brand equity represents the value (to a consumer) of a product, above that which would result for an otherwise identical product without the brand’s name. In other words, brand equity represents the degree to which a brand’s name alone contributes value to the offering (again, from the perspective of the consumer).”
• According to Aaker and McLoughlin, brand equity is “The added value endowed on products and services which may be reflected in the way consumers, think, feel and act with respect to the brand, as well as in the prices, market share and profitability the brand commands.”
• Kotler (2013) defines Brand Equity as the “differential effect that knowing the brand name has on customer response to the product or its marketing.”
• The Marketing Science Institute (1988) defines brand equity as, “The set of associations and behaviors on the part of the brand’s customers, channel members, and parent corporations that permit the brand to earn greater volume or greater margins than it could without the brand name and that gives the brand a strong, sustainable, and differentiated advantage over competitors.”
• Aaker (1991) defines Brand Equity as, “a set of brand assets and liabilities linked to a brand, its name and symbol, that add to or subtract from the value provided by a product or service to a firm and/or that firm’s customers.”  The brand assets are grouped into five categories; Brand Loyalty, Name Awareness, Perceived Quality, Brand Associations and other proprietary Brand Assets – patents, trademarks, channel relationships. It can be argued that Brand Equity offers guidance to interpret past marketing performance and design future marketing programs.
• According to Pride & Ferrell (2003), brand equity is “the marketing and financial values linked with a brand’s strength in the market, including actual proprietary brand assets, brand name awareness, brand loyalty, perceived brand quality, and brand associations.”

Brand equity has always been examined from two different perspectives which is either financial or customer based. Recently theoreticians have observed that the consumer is a rational decision maker who based solely on its fulfillment of functional needs chooses a product. Researchers have furthermore developed and tested many accounting methods for evaluation of the brand name/s asset value. Looking at the second perspective which is customer based is where a consumer response to a brand name is evaluated. However the consumers are no longer satisfied with only the high quality services and goods but nowadays consumers/ purchase decision are mainly influenced by the emotional benefits associated to the brand. Focusing on the customer based perspective, customer based brand equity is the motivating force for constant increase in the financial gain. 

Brand equity brings certain strategic benefits to the company such as adding line extension for the company. For example when a product category was entered the decline stage of the product life cycle, the company with strong brand equity can help a brand survive longer compared to its competitors. Besides, in periods of economic downturn, strong brand equity offers a platform that keeps the brand at a profit long after competing products. Brand equity is also what allows branded products or services to charge premium prices. Many customers are willing to pay more for a quality product which they are familiar with or the brand has given them confident or benefits which the brand associated.

Brand equity is closely related to brand loyalty and brand extensions which are significant in assisting a brand or a company to achieve competitive advantage. Competitive advantages of a brand or a company are critical in ensure the success of the organization among its competitor. It’s said that the levels of brand equity affects consumer preferences and purchase behavior, thus, in brief a brand which manage to achieve high brand equity obtains competitive advantage as to its competitors.

Elements/Components of Brand Equity

Brand equity can be defined as three distinct elements:

1. The total value of a brand as a separable asset – when it is sold or included on a balance sheet.
2. A measure of the strength of consumers’ attachment to a brand.
3. A description of the associations and beliefs the consumer has about the brand.

Of those three concepts, the first can be classified as “brand valuation,” the second “brand loyalty,” and the third “brand description.” Brand loyalty will be a factor that affects the overall brand value, and brand description will usually affect or explain some of the brand loyalty. Because of the importance of each of these elements of brand equity, they will each be briefly explained.

1. Brand Equity as Brand Value

Brand value involves actually placing a dollar or rupee value on a brand name. The reasons for doing this are usually to set a price when the brand is sold and also to include the brand as an intangible asset on a balance sheet (a practice which is not used in some countries). While there are many methods for making this measurement, some of which will be described shortly, it is important to note that there is a significant difference between an “objective” valuation created for balance sheet purposes, and the actual price that a brand may get when sold?

A brand is likely to have a much greater value to one purchaser than another depending on the synergy that exists. For acquisitions, the value of a brand to a certain purchaser is often estimated through scenario planning. This involves determining what future cash flows the company could achieve if it owned and took advantage of the brand.

What this means is that there is no such thing as an absolute value for a brand, and brand value needs to be considered as only one component of the overall equity of a brand.

2. Brand Equity as Brand Loyalty

Brand loyalty is a core dimension of brand equity and is a way to gauge the strength of a brand. It represents a barrier to entry, a basis for a price premium, and time to respond to competitive innovations. The variety of measures used for brand loyalty usually is a combination of one or more of the following:

• Price/demand measures – focus on a brand’s ability to command a higher price or make consumers less sensitive to price increases than price increases for competing brands.
• Behavioral measures – focus on consumers’ behavior.
• Attitudinal measures – focus on general evaluative measures such as ‘liking’ or ‘disliking.’
• Awareness measures – focus on identifying a brand as being associated with a product category.
• Brand Loyalty and Equity refer to the notion that some brands are “stronger” or better than others.

3. Brand Equity as Brand Description

Brand description, the final component of brand equity, concerns the actual attributes of the brand. These attributes or associations are major creators of brand loyalty. A wide variety of techniques exist for matching consumer associations with perceptions of a brand. These techniques can be both qualitative and quantitative. They work by getting the respondent to link each brand with pictures or words. These attributes then can be measured with multi-dimensional scaling to position the attributes relative to one another.