Understanding Brand Equity

At first glance, the term “brand equity” seems like marketing jargon and/or an insider term that only people who make a living in marketing communications need to be concerned with. In truth, brand equity is something that affects everyone in an organization and may very well be the most important asset any enterprise owns. 

But what exactly is it?

Simply put, brand equity is the value—perceptual and financial—placed on a brand. In other words, it’s how customers and the marketplace act in the presence of the brand. Apple, McDonald’s, and Disney have invested billions in their branding and are, not surprisingly, among the world’s most valuable and well-known companies. High brand equity leads not only to instant name recognition but also to larger profit margins and greater customer loyalty.

To get an idea of what brand equity means at the product level, imagine what people would pay for a plain, unmarked coffee mug. Most likely it would $5 or even less. Now imagine the same coffee mug with a Starbucks logo on it. Every day, people pay up to $20 for such a mug. THAT’s what brand equity is worth.

So how do you build brand equity?

Building brand equity is more than just spreading awareness of who you are on a wide range of channels to your audiences. It involves carrying out and sustaining your brand promise—which is actually far more difficult than simply talking about it. It means making every interaction with your brand a positive and memorable experience—creating appealing packaging and/or retail environments, producing a reliable product that does what is expected of it, offering friendly and genuinely helpful customer service, etc. 

These are just a few examples of why brand equity reaches far beyond advertising and marketing communications. It doesn’t matter how clever, entertaining, or intriguing a marketing campaign is if the product or service experience falls short. 

What can threaten brand equity?

As painstaking and time consuming as it is to grow brand equity, it can often be severely damaged by a single poor decision or unforeseen act, and take years to regain customer trust. These events are usually referred to as PR disasters, but they are equally brand equity disasters as well.

Sometimes these blunders are caused by the product itself. One of the most well known product snafus in recent years was the exploding battery in Samsung’s highly popular Galaxy Note phone series. More than $5 billion in sales were estimated to have been lost due to the defective batteries, as were the company’s efforts to get people to switch from iPhones. In other instances, deceitful practices by the brand is exposed, as seen in Volkswagen’s deliberate programming of its diesel cars in 2015 to reduce exhaust emissions only under testing conditions, thus making the cars seem more environmentally responsible than they really were under normal driving.

Of course, self-inflicted wounds to brand equity are often the result of the brand communications itself. In 2019, Peloton aired—and then quickly pulled—a TV spot showing a woman receiving a Peloton bike as a Christmas gift from her unseen husband. Throughout the spot, in which the woman documents her daily Peloton sessions over the course of a year, she is portrayed as timid, hesitant, and strangely needful of her husband’s approval. Even worse, the woman looks just as attractive and slim at the beginning of the spot as she does after “a year” with her Peloton. The sexist and misguided ad was blamed for costing the company nearly $1.5 billion in brand value.

Who is responsible for an organization’s brand equity?

The easy answer is the organization’s leadership—the CEO, the board, and of course the chief marketing/communications officer. In truth, everyone in the organization has more influence on an organization’s brand than they realize. 

Brand equity is affected by every single touch point that the product has with its audiences—through the product itself, through communications surrounding it, or through follow-up services and engagements. In essence, anyone associated with a company’s operations is a brand manager. The more effectively this truth is communicated throughout a company, the greater the foundation will be for brand equity to grow, survive/avoid setbacks, and benefit stakeholders.