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The means a company uses to help individuals and other business to identify its products is called brand equity. Brand equity and advertising have a relationship because many companies use the latter to strengthen the former. Advertising, for example, may include franchise ads or ads that are specific to products or stores. These advertisements help inform external stakeholders about the company’s product brands. Brand equity and advertising also have a connection because companies often use these two items to create an inseparable bond with consumer perception and the company.
The two most common brand equity strategies a company uses with advertising are brand extensions and consumer-based approaches. Brand extensions allow a company to launch new products using currently successful channels. For example, brand equity and advertising allow a company to use current advertisements to introduce new products. In this regard, current consumers who have loyalty to the company have an opportunity to purchase new products. Unfortunately, companies may find it difficult to quantify brand extensions as advertising is often a qualitative tool used by companies.
Consumer-based brand equity and advertising techniques focus specifically on changing consumer perception. For example, poor product quality or customer service in the past may result in poor consumer perception. Advertising helps a company to improve consumer awareness of new products, product quality, and improved operations. Essentially, the company needs to increase its brand loyalty through these measures. When compared to brand extension equity activities, companies may find it easier to track consumer-based brand equity advertising.
Advertising is a common way companies look to improve their market share and net profits. In some cases, brand equity and advertising may have an indirect relationship. For example, a company may not desire to intentionally use advertising solely to strengthen brand equity. Instead, the company looks to increase profits, which can sometimes lead to improved brand equity. The purpose here is to not let customers to see the company’s number one goal of increased profits.
Successful brand loyalty and increased brand equity may lead to decreases in advertising expenditures. Less advertising is necessary because the company already has its strong consumer base and loyal customers. When this occurs, advertising is more of a maintenance process than an activity to generate new customers. In fact, a company may achieve strong brand equity through word-of-mouth, which naturally occurs when a company sells quality goods. The company then increases its profits through lower costs and increased sales from word-of-mouth advertising.