The role of brand equity in brand building and how to measure it

Brand Equity Vs. Brand Value
Image of the post author Geetika Chhatwal

Why do people camp outside Apple stores to be the first to access newly launched iPhones? Why do consumers pay more for branded products than for non-branded ones?

It has everything to do with consumer perception or brand equity. When consumers favour your brand over a competitor’s brand and show loyalty to your brand over time, they are contributing to your brand equity. Brand equity is defined as the measure of the perceived value of a branded product over time. Brands need to measure brand equity because boosting it can help them improve their market share and profit margins. 

Get regular insights

Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.

Brand equity is different from brand value

With an estimated brand value of about USD 355.1 billion, Apple has established itself as the world’s most valuable brand for 2022, followed by Amazon in second place with a brand value of approximately USD 254.2 billion.

So, what is brand value, and how is it different from brand equity?

Brand value is the price someone will pay for your brand if you were to sell it. There are many ways of measuring brand value and they include the costs associated with building the brand. The investment made in creating a brand, its identity, logo, graphics, brochures, and other assets is used in the brand valuation process. 

Brand equity is not the same as brand value but can positively raise the worth of a brand because as you build your brand equity, you achieve greater brand recognition and positive brand associations, which can boost revenue and brand loyalty. 

It should be noted that a brand can have value even if it has no equity. For example, a company may invest in developing a product and brand, so it will have a value attached to it even before it enters the market. Brand equity helps enhance and increase brand value. 

What drives brand equity, and how can you measure it? 

While brand value is easy to measure, brand equity can be vague and more difficult to calculate because it is influenced by opinions, perceptions, and behaviours, and not just financial metrics.

Let’s divide these drivers into three categories —namely, financial metrics, brand awareness metrics, and consumer sentiment. 

Financial metrics 

Although not the only factors responsible for brand equity, financial drivers like healthy profits help validate a brand’s equity to a great extent.

Metrics such as sales, average transaction value, customer lifetime value, profitability, growth rate, and the cost of doing business are essential data sets to measure overall brand equity. It is also important to calculate the competitive performance of a brand against other brands in the same space by measuring market share and customer acquisition rate.

These competitive metrics also help your brand identify gaps in customer service, product features, pricing, marketing messaging, positioning, social media engagement and following, and distribution channels.

No matter how well or poorly your competition performs, it will directly impact your brand. Conducting a thorough competitive analysis to evaluate how your brand measures up is essential.

When these financial metrics increase, so does your brand value. 

Brand awareness metrics

A strong brand with a high level of recall and awareness will likely boost your brand equity. This is what sets successful brands apart as they endure even the most difficult economic conditions. 

Customer awareness of a brand and its products and services is essential to brand equity. Brands should aim for consumer advocacy and, more importantly, for their consumers to actively engage with and talk positively about their brand.

Conversation share, measured by the number of times a brand comes up in conversations about the brand’s offerings, is a massive indicator of how aware consumers are of your brand.

Market research helps evaluate brand awareness through various methodologies online and offline. Commonly used methodologies in market research include:

  • Surveys and focus groups
  • Local store traffic
  • Traditional media mentions
  • Online search volume
  • Customer reviews
  • Social media mentions 

Emotional metrics 

Knowing how your consumers perceive your brand is critical—the more positive their perceptions, the higher your brand equity.

Market research helps track consumer behaviour and sentiment to obtain reliable information about brand perception. This type of metric is much more challenging to measure. Market research using qualitative surveys and the right text analytics software to interpret open text is beneficial in data collection and analysis. 

Consumer preference and consumer perception of a brand are good indicators of brand equity. The former pitches the brand against its competition and gauges how consumers view it in relation to competing brands. The latter provides insights into the emotions and feelings associated with a particular brand. For instance, market research using qualitative methods can reveal how consumers react to a particular brand name. 

Consumer preference influences purchase decisions, like paying a higher price for a brand name or going the extra mile to access the brand. A case in point is the annual beeline outside Apple stores when it releases its newest iPhone.

Quantitative methods like sales data are an excellent way to gauge customer preference; however, they should be used alongside qualitative methodologies such as surveys to identify to what extent your customers agree your brand is superior to the competition and how much they are willing to pay for your brand name.

These surveys are also used to measure how emotionally invested your consumers are in your brand and the emotions associated with it. 

While a nebulous concept, brand equity provides the actual value of a brand beyond financial metrics.

Knowing how consumers feel toward a brand can open new opportunities for understanding key demographics within target audiences.

With a deeper understanding of the target audience, products and campaigns can be tailored to specific groups to improve ROI.

Utilizing quantitative methods, brands measure brand equity based on financial data, like sales, revenue, profit, and loss. Qualitative methods of measuring brand equity, on the other hand, include brand awareness, brand recognition, customer satisfaction, customer loyalty, and brand perception. 

Brands like Apple, Amazon, and Microsoft did not build their brand value overnight, but we know they have devoted many years to creating memorable brands that resonate with their target audience, and they continue to tirelessly do so even today. 

While tracking many of these metrics may be challenging, it is not impossible. Market research provides invaluable tools to etch out brands that stand out and shine using data, market intelligence, insights, and breakthrough technology. 

Free Report

Riding the next wave of change - 4 trends that will define 2020

Trend watching experts from across our global boutique identify four key trends that we believe will define the next 12 months, inspiring innovation across Asia, the US and Europe.