September 15, 2021

What Is Brand Equity?

Your brand’s product line, reputation, and awareness are all important aspects of marketing and social engagement. As you grow and develop your company, you need to grasp brand equity (and damaging brand equity). This dramatically impacts how loyal your customers are, how much you can charge for your products, and how much you need to spend on marketing.

Let’s explore brand equity in more detail and explain why it’s an important aspect of business you can’t afford to ignore.

Brand Equity Explained

Brand equity is best understood as the “value premium” that a company or organization receives in aggregate from its products, services, and reputation.

In other words, brand equity is the soft social power that an organization has. It’s not something you can purchase directly, but it will either build up positively or negatively as you develop your business and encounter more customers. It also directly impacts your profit margins and consumer perception.

Put another way; brand equity is the brand’s ultimate value. It can be considered the difference between the value of a brand or branded product versus an identical product without the same branding advantage.

Imagine that you have to choose between two pairs of sneakers: One from a well-known shoe brand like Nike and another from a company you've never heard of before.

The odds are you'll choose the sneakers from Nike (even if they have higher prices) because:

  • You know the Nike brand name/brand identity and its famous logo
  • You know it makes high-quality sneakers and has credibility
  • Nike has strong brand equity or value that the other brand does not. It has brand recognition and positive associations, therefore giving the brand preference

Under the best circumstances, brand equity can significantly increase your bottom line, lead to faster expansion, and help make your company a cornerstone of the market share. But brand equity can also hurt you negatively if negative equity is allowed to worsen or fester.

Therefore, understanding how to use brand equity and leverage it to your best extent is vital if you want your business to succeed.

Key Components of Brand Equity

Business experts have developed several models to break down brand equity into manageable parts. But most businesspeople can grasp the key concepts of brand equity by separating the broader topic into five main components of brand equity.

1. Brand Loyalty

Brand loyalty is self-explanatory: It's the dedication a customer has towards a brand without knowing directly whether a product or service is worth their time. The higher the brand loyalty, the more often a customer spends on the brand and the more money they spend on each visit.

The higher loyalty you can cultivate, the better your company is in the long term. This is largely based on customer experience, following through on promises, strategic brand management, and building brand equity.

Brand loyalty is useful if your company undergoes hard times or experiences a PR crisis. In many cases, brand loyalty is synonymous with brand stability.

2. Brand Awareness

Brand awareness is closely related to loyalty. It’s how well your brand is recognized by people who aren’t yet your customers. Quick tip: Social media, such as Facebook and Instagram, and advertising are excellent channels for growing brand awareness.

Take McDonald’s’ golden arch imagery, for example. People recognize this symbol globally. Even those who have never had a McDonald’s cheeseburger probably know what McDonald’s is and what they offer because they’re one of the most known brands in the world. That’s peak brand awareness, and it’s something you should try to cultivate in your industry or niche.

Not every company will gain brand awareness as high as McDonald’s’, of course. But you can still become the most widely recognized brand in your industry with enough effort.

3. Perceived Quality

The perceived quality of your brand ultimately affects whether your brand equity is positive or negative. The higher your company’s perceived quality, the more positive brand equity you have to work with.

Furthermore, the higher your perceived quality, the more likely you will cultivate higher brand loyalty (though not necessarily brand awareness).

4. Brand Association

Your brand association can include anything directly related to your brand that may evoke a positive or negative sentiment, like your company associations and partnerships, brand meaning, brand experience, what you produce, and how you produce your products.

For example, if your company is known for its sustainable manufacturing processes, that impacts your brand’s association for many people. More customers will start to think of you like a green or eco-friendly company. They are also less likely to associate negative values like overconsumption and environmental harm with your brand.

The kinds of products you create will also impact your brand association. For example, if you make firearm accessories or products in the firearm category, your brand will (rightly or wrongly) be associated with many firearm-focused groups.

That’s something to consider when you determine whether to offer a new product or service to your customers.

5. Other Proprietary Assets

Lastly, brand equity is also impacted by other proprietary assets like trading partner relationships, brand promise, patents, trademarks, and more. These impact your brand equity as they affect what your competitors can create or how they can directly compete with you.

For instance, a trademark on a staple item for your brand is a proprietary asset. It affects your brand equity since other companies can’t make the same product and benefit from your hard development work.

Why Is Establishing Positive Brand Equity Important?

Brand equity is an abstract topic, but it’s not something you can afford to ignore. Indeed, establishing positive brand equity is vitally important for several key reasons.

More Customer Loyalty

For starters, boosting brand equity as much as possible will simultaneously increase consumer loyalty. If you want to cultivate a loyal, core group of customers from your target audience, you’ll need as much brand equity as possible, and this includes positive experiences.

For many small businesses, this is the ultimate goal. Not every business can become a mega-giant in their industry or niche. But every business, if they can secure a few thousand loyal customers, can enjoy consistent profits and stay open for years to come.

You can get a small, dedicated group of customers if you improve loyalty and boost brand equity—people by their very nature like to stick with what they know. Give your customers a reason to trust and love your brand, and they will stick with you for years.

Less Ad Spend Requirements

Boosting brand equity can also help your bottom line in the short term. Specifically, it may require you to spend less on marketing and advertising.

Again, think of McDonald's and the golden arches that are recognized around the world. McDonald's advertises heavily, but that's not to spread brand awareness. People would still stop by their restaurants for cheeseburgers from McDonald's because, at this point, everyone knows what McDonald's is and what they offer.

When your brand equity reaches a certain point, you no longer need to spend as much advertising money just to get your brand out there and make people aware of your company.

That’s incredibly valuable, as you can spend that advertising money on other aspects of marketing or different parts of your company entirely.

Improved Order Value per Customer

Perhaps most important of all, improving your brand equity improves the perceived value of your products.
Imagine that you have low brand equity after you launch (i.e., people don't know about your company), and your chief competitor has high brand equity because they have been in the business for five years longer than you.

Both your company and your chief competitor produce an almost identical product in your industry. But people consistently purchase the product from your competitor, even though you believe your product has a slight edge. Why?

Odds are it’s because of brand equity. People will spend more money on your competitor because that competing company is a known quantity and more people are comfortable spending money there than at your business.

Your competitor can probably charge significantly more for their product compared to yours. That’s not because it’s superior or because the materials they use are that much better. It’s because customers value that product intrinsically more because of brand equity.

But as your brand builds up brand equity, people will spend more money at your store. This is true for both new customers and existing customers.

The more people trust your organization, and the more perceived value your products have, the more money people will pay to purchase what you offer.

How To Build Brand Equity

There’s no single way to build brand equity that works perfectly for every company. Instead, most organizations build brand equity through a combination of different tactics, including:

  • Strategic marketing
  • Social media engagement
  • Public relations management

Use Ads Strategically

Naturally, building positive brand equity often involves advertising, both through paid and organic means. Keep in mind that every piece of marketing content you produce, whether a video ad, a social media ad, or an influencer partnership affects your brand equity and reputation.

With that in mind, your marketing team should develop ads. Future marketing pushes with the full understanding that you are trying to build brand equity and position your company as a trustworthy, excellent choice for its target consumers.

Position Yourself in the Market Wisely

You’ll also need to position yourself in the market wisely so that your brand is accessible, identifiable, and visibly unique to your target audience.

In many cases, wise market positioning involves focusing on an aspect or attribute of your brand that sets you apart from the competition.

So if you have a direct competitor that makes similar products to you, focus on what makes your products stand out and double down on that attribute in marketing, social media engagement, and more.

Commit to Customer Relationships

Finally, you should commit fully to any consumer relationships you develop in your earliest months and years. As you engage with customers on social media and get your first purchase orders, communicate with those customers and try to turn them into long-term brand advocates or lifetime customers.

Focusing on the customer relationships you have currently will boost brand loyalty, improve brand awareness as those customers spread the word of your organization, and more.


As you can see, brand equity is significant even though it’s not something tangible you can directly affect. But focusing on marketing, brand awareness, and company reputation will help boost brand equity over time.

Building Blocks helps you learn to build equity for your eCommerce brand and brand building, management, and other eCommerce-related principles. Visit our site or enroll in our program and let us help you take your idea from napkin to reality.

Brand Equity Definition | Investopedia
Evaluating Aaker's sources of brand equity and the mediating role of brand image - Journal of Targeting, Measurement and Analysis for Marketing | Springer
Brand Equity: Why It Matters And How To Build It | Forbes

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