Brand Equity Law and Legal Definition
When people speak of "brand equity" they mean the public's valuation of a brand. Brand equity is associated with wide recognition, customer loyalty, and the market share enjoyed by the branded product or service. Wide familiarity, strong loyalty, and a dominant share tend in the long run to be the consequences of consistently favorable performance by the owner of the brand. A very strong bond equity of long standing may also result in that brand being used as the name of an entire category. Thus people talk of "hoovering," "cola" is a generic for a soft drink, and people say, "Let me get you a Xerox of that" even when the copier used is of another brand. In these situations the brand equity of the Hoover vacuum cleaner, of Coca-Cola, and of Xerox copiers is clearly evident. As discussed elsewhere in this volume (see Brands and Brand Names) Coca-Cola's brand equity is the highest in the world.
Brand equity, however, can also turn negative. Examples are communications services that get a reputation for wretched customer service, automobiles with a dangerous design defect, or a widely-used pharmaceutical that is discovered, later, to cause heart problems. Unless corrected, negative brand equity soon means oblivion.
To be sure, brand equity is just one way of saying that a product or service has superior features and is therefore profitable for the company that owns the brand. This profitability may be due to market share and/or to the price commanded by the product because of its brand equity. Branded products invariably command a higher price than so-called "generic" or "store brands"—even when the product is itself a commodity like sugar. In such cases the higher price is due almost entirely to the power of the brand. Quite evidently, therefore, "brand," as such, is separable from the product or service narrowly viewed. Brands can be bought and sold. The buyer acquires the brand equity and attempts, thereafter, to maintain it by selling a product that measures up to the brand's reputation. Similarly, the owner of a famous brand can put on the market an inferior product and at least temporarily enjoy benefits brought by the brand's equity—until the customer becomes wise.
MEASURING AND PROTECTING BRAND EQUITY
For these reasons, brand equity management has become a business specialty complete with competing "brand equity models" and "brand strategies." Models are built from formulae in which elements of brand equity are assigned different values (market share and price, for instance) or built out of very extensive surveys on how customers perceive the brand. The models are then modified in order to increase brand equity. All of these techniques, in effect, are attempts better to understand why a product performs better than another.
An example of such modeling is presented in a recent article in Nilewide Marketing entitled "Mind and market share?". The anonymous author starts out by saying: "While some believe that brand equity is a function of its market share, others believe that it is how the brand is held in the customer's mind." It is possible for a brand to have a higher "mind share" than "market share." One reason for this might be that the brand is held in high regard but its pricing is just out of reach for many who admire it. Modifying the pricing component of the model could therefore potentially bring "mind share" into better balance with "market share."
Brand equity is also recognized to be complexly related to many other factors beyond the product and service on the one hand and customer perceptions on the other. Measurement of brand equity, therefore, involves a holistic attention to all the factors, including the channel through which the product flows and services rendered to the channel. Improved relations with the wholesaling and retail channels, for example, could result in much more or more attractive shelf-space for the product.
Brand management also has a defensive component. As Alan Mitchell wrote in Marketing Week, "Companies which develop good measures of their brand equity have an early warning indicator of likely future profit trends…. If brand equity is falling, you're storing up trouble for yourself … If brand equity is rising, you're investing in future performance, even if it's not showing through in profits today. Real business performance therefore equals short-term results plus shifts in brand equity."
TRANSFERRING BRAND EQUITY ONLINE
Companies often seek to leverage their brand equity by transferring consumers' positive associations with a brand to a related product or service. In the late 1990s, many companies attempted to extend their brands into electronic commerce. Doing business online proved difficult even for established businesses with popular brands. "Think branding an offline business is tough? It's nothing compared with creating a brand for your company's electronic offshoot," Rochelle Garner declared in an article for Sales and Marketing Management. "That's because b-to-b [business-to-business] brands are built brick by independent brick with customer service, support, and quality—and are cemented by personal relationships. In the offline world, those relationships are forged by a sales force that calls on customers face-to-face. Successful online brands must deliver those same elements, and more, through the use of technology."
Garner outlined a series of steps for companies to take in creating a successful online brand. First, the company must decide whether or not to use its offline brand name in its new online venture. This strategy may prove effective in cases where the online business is a straightforward extension of the existing brand, but it may also have the effect of diluting the brand equity. Second, Garner says that companies should develop an understanding of the benefits they want to deliver through the online business and assess how technology can help in this mission. Third, she emphasizes that companies should try to understand customers' expectations for the online business and the brand. Finally, she recommends that companies find ways to use Internet technology to create a rewarding shopping or purchasing experience for their customers.
Overall, according to Garner, the key to extending a brand online is using technology to enhance the buying experience for customers. After all, the Internet offers sellers a number of new ways to service their customers' needs, including bringing together buyers and sellers from all over the world, offering instant electronic customer support, creating new production efficiencies, and reducing order time and costs. When companies can take advantage of Internet technology to improve their relationships with their customers, moving the business online can only increase their brand equity.
Berry, Leonard L. "Cultivating Service Brand Equity." Journal of the Academy of Marketing Science. Winter 2000.
"Finding a Holistic Brand Value." Nilewide Marketing Review. 18 December 2005.
Garner, Rochelle. "A Brand by Any Other Name." Sales and Marketing Management. October 2000.
"Mind and Market Share?" Nilewide Marketing Review. 25 September 2005.
Mitchell, Alan. "Why Brand Equity Is the True Measure of Success." Marketing Week. 3 August 2000.
Hillstrom, Northern Lights
updated by Magee, ECDI