Know What is Brand Equity and Its Case Studies
Brand equity refers to the value that a company generates from a product with a name that is more easily recognizable when compared to similar products. Companies can create brand equity for their products by making them memorable, easy to recognize, and superior in quality and reliability.
When a company has positive brand equity, customers are willing to pay high prices for its products, even though they can get the same thing from competitors at a lower price. Customers are, in effect, willing to pay a heavy price for brands they know and admire.
A company with positive brand equity does not incur more costs than its competitors to produce an equivalent product, while the price difference will go into the profit margins. Brand equity allows the company to make a bigger profit on each sale.
Understanding Brand Equity
Brand equity has three basic components: consumer perception, negative or positive effects, and generated value. Consumer perceptions in particular – covering consumer knowledge and experience with a brand and its products – are very influential in building brand equity.
The perception that consumers have about a brand will have a positive or negative effect. If brand equity is positive, the organization, products, and finances can benefit. If brand equity is negative, the opposite is true.
Finally, these effects can turn into tangible or intangible values. If the effect is positive, the tangible value is an increase in revenue or profit, and the intangible value is realized as brand awareness. If the effect is negative, the tangible or intangible value will also be negative. For example, if a consumer is willing to pay more for a standard product than a branded product, the brand is said to have negative brand equity. This might happen if the company carries out a massive product recalls or causes a widely publicized environmental disaster.
Effect on Profit Margins
When customers associate a brand with a level of quality or prestige, they perceive that branded products are more valuable than products made by competitors, so they are willing to pay more. As a result, the market has to bear higher prices for brands that have high brand equity.
Brand equity has a direct effect on sales volume because consumers are attracted to products with a great reputation. For example, when Apple releases a new product, customers are willing to queue to buy the product even though the price is higher than similar products.
One of the main reasons why Apple products sell in large numbers is because their company has managed to accumulate a surprisingly positive brand equity, and bigger sales volume means higher profit margins as well.
Very positive brand equity can generate customer retention. Going back to the Apple example, most of their customers don’t just own one Apple product; they have several, and they’re already getting ready to buy their next new Apple product.
Apple’s customer base is very loyal, sometimes even too fanatical. Apple enjoys high customer retention, and this is one result of its brand equity. Retaining existing customers will increase profit margins with lower marketing costs to achieve the same sales volume. It is cheaper to retain existing customers than to acquire new customers.
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