What is Brand Equity?

Brand equity is the intangible value of a particular company or product based on consumers' perception of the brand name. Many factors contribute to brand equity including advertising, consumer reviews and publicity. A brand with strong equity tends to be well-known and thought of positively by many consumers. This helps create the perception that its products or services are better than those of lesser-known brands.

There are three levels on which brand equity can be measured: the firm level, the product level and the consumer level. At the firm level, the equity of the brand is measured as a financial asset by subtracting all other measurable variables; what remains is called brand equity. In a product-level evaluation, equity is calculated by subtracting the price of a generic product from the price of an equivalent branded product. The remainder is the value of the perception of that brand in the marketplace. Consumer-level measurement focuses on brand recognition and opinions instead of trying to quantify the equity financially.

The brand management and product management divisions of a company typically will actively seek strong brand equity in the marketplace. One common method of gaining equity is through advertising campaigns that promote the brand, even if they are not trying to sell a particular product. For example, a television commercial might include an inspirational message or celebrate a holiday rather than promote the company itself, but viewers might have a positive reaction to the commercial and associate that feeling with the company, improving its perception and its brand equity.

Messages that are delivered through advertising are created by the company, unlike other factors that affect the brand's equity but are beyond the company's control, such as news reports or product reviews. Depending on the source, these might affect the brand positively or negatively. Companies actively pursue positive reviews and news articles, but they can be damaged by negative publicity or reviews.

Companies and products that have the strongest equity tend to be those that have the highest market share and profits, as well as those that have been around for the longest time. A sure sign of high brand equity is the use of a particular brand name to refer to any products of a certain type. For example, referring to any facial tissue as Kleenex® or any flying toy disc as a Frisbee® demonstrates the high equity of those brands in their respective categories.

A brand extension, the launching of a product in a new category by using an existing brand name, is a common method of taking advantage of the high equity of a product or brand. For example, a company that makes a popular brand of candy might extend that brand name by creating a new ice cream that tastes like or contains the candy. Brand extension products are also called spin-off products, and they can be found in many categories.