Why Brand Equity Is One Of Your Business's Most Valuable Assets

Shared from The Hartford

Believe it or not, one of your company’s most valuable assets is something you can’t see, touch or find on your balance sheet. It’s your “brand” – or what the outside world thinks and feels about your company – which is critical to your success.

The first step to understanding your company’s brand equity is to get a better understanding of what it means, and how managing your reputation can benefit your business’ bottom line.

What Is Brand Equity?

The degree to which your brand generates positive thoughts and feelings is referred to as “brand equity,” and it can add considerable value to your business. One of the fathers of modern branding, David Aaker, defines brand equity as “a set of brand assets and liabilities linked to a brand name and symbol, which add to or subtract from the value provided by a product or service.”

When Aaker first connected “brand” to “equity” in the early 1990s, he was effectively saying that your brand is a valuable company asset to be created and nurtured. History has proven him correct.

Consider what strong brand development can do for a company. Think of Tiffany’s little blue box, or the Mercedes badge on a car hood, or what you feel when you hear the words “Save The Children.” Each of these conjures strong positive thoughts and feelings that add real value to an organization.

The fact is, if you wanted to remove marketing jargon from the equation, you could argue that “brand equity” is just another word for “reputation.” And you know what? You’d be right!

What You Can Do: Take stock of your company. What would your customers say about you? What makes you different? What do you do that no one else does?

Advantages of Strong Brand Equity

While brand equity is largely intangible, its advantages are not. The value that a strong brand identity can bring to your company translates to very real and measurable business benefits. The advantages include:

• Increased margins. Let’s get to the bottom line first: Positive brand equity allows you to charge more for your product or service, because people will be willing to pay a premium for your name – just as they pay a premium for jewelry that comes in a little blue box or electronic equipment with an apple on top. Is the quality of those products significantly superior to competitors’ offerings? Maybe, maybe not. But the perception is that it is. When customers are willing to pay extra for a name they trust and/or value, your profit margins will boost.

• Customer loyalty. Customers are not only willing to pay more for a product with strong brand equity; they’re also willing to stay loyal to a company over many years, while, routinely coming back to buy the product. In fact, some companies have built such strong brand loyalty that even when they hit a bump in the road – a defective product or a bad customer experience – their customers are willing to stick with them.

• Negotiating power. Positive brand equity can give you a considerable advantage in negotiating with vendors, manufacturers and distributors. When suppliers recognize that consumers are enthusiastically seeking and buying products that bear your name, they’ll want to work with you. That, will put you in an enviable bargaining position that can lower your cost of goods sold.

• Competitive advantage. Do you know who won’t be happy about your company’s strong brand equity? Your competitors. When customers are willing to pay a premium price for your products or services…when customers will try your new product sight unseen, just because it has your logo on it…when customers in a new market flock to you simply because of the reputation you’ve built elsewhere…when you can get better pricing from the same vendors your competition is using (and thus undersell your competition)… that can mean very good things for your business and not-so-good things for your competition.

  
  

How Do I Determine My Brand Equity?

To determine your brand equity, you can start by asking yourself these key questions:

• In your market or region, is there a caché to working with you, or does your local reputation make you more easily trusted than the competition?

• Do you have long-term customers/clients who will stick by you if you make a misstep?

• If you’re planning a geographic or product line expansion, can you leverage your company’s reputation as a positive influence?

• Do you believe your company’s brand equity (its reputation) gives you more negotiating power?

• How does your company’s brand equity compare with your competition’s?