Reviewed by Aug 27, 2020| Updated on
Brand equity refers to the premium a company commands in comparison to its competitors. Brand equity gets created from products that leave a long-lasting impression in the minds of customers. The products are generally distinctly recognizable, of high quality, deliver value, and reliable.
Understanding Brand Equity
If a company's brand is perceived positively, its products will be priced at a premium. Customers will pay a high price despite cheaper alternatives available in the market. The brand carries a reputation, a class, and is widely accepted. Hence, customers will pay a premium to own a product of the brand. The premium the company earns increases its profitability.
Mass marketing also helps a company create positive brand equity for its product. The company incurs no extra cost in comparison to its peers. However, the company charges a high price and commands a premium on its products. Thus, establishing brand equity enables a company to earn higher profits.
The three components of brand equity are:
(a) Consumer's awareness A consumer's awareness of the brand is linked to marketing, value creation, usefulness, distinct features, and social status. Consumers also build a perception of the brand based on their use and experience with the after-sales service from the company and resale value.
(b) Quality perception Consumer's experience with the product and its features create a perception of the brand. A positive perception leads to consumer loyalty and repeats sales. In case a consumer does not get the quality promised by the company or feels the product is overpriced, the sales may not get a boost.
(c) Value delivered A product which delivers value, such as durability, stability and consistency creates a positive brand image in the eyes of consumers.
Brand equity has a positive impact on the sales of a company. If a company with a positive brand image introduces a new variant of the earlier product, consumers are more likely to queue up to buy the latest product and latest technology. Trust in the brand generates higher sales.
Brand equity initially focuses on building a consumer base, consumer's acceptance, and perception of the product. Later, brand equity is used to retain the existing customers and offer better value to the consumers. A well-known brand can penetrate the market for new launches and generate revenue and profits.