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Brand equity, in marketing, is the worth of a brand in and of itself – i.e., the social value of a well-known brand name. The owner of a well-known brand name can generate more revenue simply from brand recognition, as consumers perceive the products of well-known brands as better than those of lesser-known brands.
In the research literature, brand equity has been studied from two different perspectives: cognitive psychology and information economics. According to cognitive psychology, brand equity lies in consumer's awareness of brand features and associations, which drive attribute perceptions. According to information economics, a strong brand name works as a credible signal of product quality for imperfectly informed buyers and generates price premiums as a form of return to branding investments. It has been empirically demonstrated that brand equity plays an important role in the determination of price structure and, in particular, firms are able to charge that derive from brand equity after controlling for observed product differentiation.
While most brand equity research has taken place in consumer markets, the concept of brand equity is also important for understanding competitive dynamics and price structures of business-to-business markets. In industrial markets competition is often based on differences in product performance. It has been suggested however that firms may charge premiums that cannot be solely explained in terms of technological superiority and performance-related advantages. Such price premiums reflect the brand equity of reputable manufacturers. Three brand equity drivers were selected by researchers from numerous factors that have impact on a brand: brand awareness, brand perspective, and brand attachment.
Brand equity is strategically crucial, but famously difficult to quantify. Many experts have developed tools to analyze this asset, but there is no agreed way to measure it. As one of the serial challenges that marketing professionals and academics find with the concept of brand equity, the disconnect between and equity values is difficult to reconcile. Quantitative brand equity includes numerical values such as and market share, but fails to capture qualitative elements such as prestige and associations of interest. Overall, most marketing practitioners take a more qualitative approach to brand equity because of this challenge. In a survey of nearly 200 senior marketing managers, only 26 percent responded that they found the "brand equity" metric very useful. (2025). 9780137058297, Pearson Education, Inc.. ISBN 9780137058297
Some marketing researchers have concluded that brands are one of the most valuable assets a company has,Neumeier, Marty (2006). The Brand Gap: How to Bridge the Distance Between Business Strategy and Design, Berkeley, CA: New Riders Publishing. as brand equity is one of the factors which can increase the financial value of a brand to the brand owner, although not the only one. Elements that can be included in the valuation of brand equity include (but not limited to): changing market share, profit margins, consumer recognition of logos and other visual elements, brand language associations made by consumers, consumers' perceptions of quality and other relevant brand values.
Consumers' knowledge about a brand also governs how manufacturers and advertisers market the brand.Keller, Kevin Lane (1993). "Conceptualizing, Measuring, and Managing Customer-Based Brand Equity," Journal of Marketing, 57 (January) 1-22 Brand equity is created through strategic in communication channels and market education and appreciates through economic growth in , market share, value, and critical associations. Generally, these strategic appreciate over time to deliver a return on investment. This is directly related to marketing ROI. Brand equity can also appreciate without strategic direction. A Stockholm University study in 2011 documents the case of Jerusalem's city brand. The city organic growth developed a brand, which experienced tremendous brand equity appreciation over the course of centuries through non-strategic activities. A booming tourism industry in Jerusalem has been the most evident indicator of a strong ROI.
Social media has changed the traditional communication between brands and consumers and enabled consumer to make positive as well as negative influence on brand equity.
Brand Equity is best managed with the development of brand equity goals, which are then used to track progress and performance.
Firm Level: Firm level approaches measure the brand as a financial asset. In short, a calculation is made regarding how much the brand is worth as an intangible asset. For example, if you were to take the value of the firm, as derived by its market capitalization—and then subtract tangible assets and "measurable" intangible assets—the residual would be the brand equity. Measuring brand equity in this way is often referred to as brand valuation. The modeling is closely related to brand equity, and a number of models and approaches have been developed by different consultancies. Brand valuation models typically combine a brand equity measure (e.g.: the proportion of sales contributed by "brand") with commercial metrics such as revenue or economic profit.
Product Level: The classic product level brand measurement example is to compare the price of a no-name or private label product to an "equivalent" branded product. The difference in price, assuming all things equal, is due to the brand. More recently a revenue premium approach has been advocated. Marketing mix modeling can isolate "base" and "incremental" sales, and it is sometimes argued that base sales approximate to a measure of brand equity. More sophisticated marketing mix models have a floating base that can capture changes in underlying brand equity for a product over time.
Consumer Level: This approach seeks to map the mind of the consumer to find out what associations with the brand the consumer has. This approach seeks to measure the Brand awareness (recall and recognition) and brand image (the overall associations that the brand has). Free association tests and projective techniques are commonly used to uncover the tangible and intangible attributes, attitudes, and intentions about a brand. Brands with high levels of awareness and strong, favorable and unique associations are high equity brands.
All of these calculations are, at best, approximations. A more complete understanding of the brand can occur if multiple measures are used.
There are two schools of thought regarding the existence of negative brand equity. One perspective states brand equity cannot be negative, hypothesizing only positive brand equity is created by marketing activities such as advertising, PR, and promotion. A second perspective is that negative equity can exist, due to catastrophic events to the brand, such as a wide product recall or continued negative press attention (Blackwater or Halliburton, for example).
Colloquially, the term "negative brand equity" may be used to describe a product or service where a brand has a negligible effect on a product level when compared to a no-name or private label product.
Rival GM division Chevrolet re-entered the midsize market when the company resurrected the Chevrolet Malibu nameplate in 1997 (and later the Impala in 2000 as their answer to imports e.g. the Honda Accord and Toyota Camry including its stretched platform Avalon) which had been dormant since 1983 when the company phased out its remaining RWD midsize G platform. As of the 2018 model year, both nameplates are still in production. The Malibu, originally part of the mid-size Chevelle lineup until 1977 as the top trim level, GM promoted its trim level to full model status (at the time the Chevelle nameplate was retired (and has remained dormant since because of its association with the musclecar era) its trim level had brand recognition and better known), a practice first demonstrated in 1969 when the Chevy II lineup was rebadged (the Nova was the top trim level; it was one of the finalists for the official model name dating back to 1962 but Chevrolet management wanted its car nameplates beginning with a "C" – the promotion of the Nova from trim level to official model status broke the tradition of using C-word names by Chevrolet with its automobile and truck product lineup on a selective basis.
The Lincoln-Mercury division of the Ford Motor Company best known brand throughout the late 1960s to 2002 was the Mercury Cougar – first used as a twin to the Ford Mustang and later a personal luxury coupe sharing its platform with its midsize Torino lineup until 1977 when its entire midsize lineup (at the time branded as the Montego) was rebadged as part of the Cougar lineup which went viral (from a base coupe to a station wagon) until the early 1980s when L-M repositioned its midsized lineup by rebadging the Cougar under the Marquis nameplate.
In the early 2000s in North America, the Ford Motor Company made a strategic decision to brand all new or redesigned cars with names starting with "F." This aligned with the previous tradition of naming all sport utility vehicles since the Ford Explorer with the letter "E." The Toronto Star quoted an analyst who warned that changing the name of the well known Ford Windstar to the Ford Freestar would cause confusion and discard brand equity built up, while a marketing manager believed that a name change would highlight the new redesign. The aging Ford Taurus, which became one of the most significant cars in American auto history, would be abandoned in favor of three entirely new names, all starting with "F," the Five Hundred, Ford Freestar, and Fusion. By 2007, the Freestar was discontinued without a replacement. The Five Hundred name was thrown out and Taurus was brought back for the next generation of that car in a surprise move by Alan Mulally.
In practice, brand equity is difficult to measure. Because brands are crucial assets, however, both marketers and academic researchers have devised means to contemplate their value. Some of these techniques are described below.
Familiarity and Favorability scores are analyzed in the context of a company's size in market cap and revenue to determine a base expected level of Familiarity and Favorability for the Brand valuation to be zero. Utilizing a statistical regression analysis of the factors driving the cash flow multiple and thus share price, the variance in Familiarity and Favorability above or below the base expected level is analyzed.
As a point in time analysis, this method is used for brand equity valuation of a company based on its current Familiarity and Favorability, Revenue and Market Cap. The output of the analysis provides the end user with two pieces of data:
Note: These customer satisfaction methodologies have not been independently validated by the Marketing Accountability Standards Board (MASB) according to MMAP (Marketing Metric Audit Protocol).
Event method is applied to determine the stakeholder interest or value assessed in a brand before, during or after an event. As exemplified by Agrawal & Kamakura's (1995) research, the economic worth of celebrity endorsers, the authors demonstrate that an announcement of brand association of a product and celebrity creates a movement in stock value; whereby, shareholder interest is influenced by the endorsement as evidenced from the time-series data.
A similar time-series data analysis offered by Lane & Jacobson (1995) also measured stock market reactions to announcements associated with a particular brand, which factored customer attitudes and the familiarity of the brand to determine financial outcomes. The result was that the stock market response was favorable to brand announcements when consumers were familiar with the brand and held the brand in high esteem. The same applied to low familiarity and low esteem brands, which as Keller (2002) explains, was "because there was little to risk and much to gain …"(p. 157).
Other researchers examine the antecedents of brand equity or brand value. For instance, Roy & Cornwell (2003) showed that lesser known brands may benefit from event sponsorships as a brand-building exercise but customers may have associations with the event sponsors or brand associations that could determine affective attitudes. Ultimately, high equity counterparts will yield stronger results due to their market familiarity.
Simon & Sullivan (1993) suggested long-term analysis of events, as determined by financial returns and market performance, better captures the effect of customer mindset brand equity. In the restaurant sector, for example, returns of branding are contemporaneous. The high-tech sector showed no contemporaneous effects and brand equity is realized in the future with significant delay. The distribution/retail sector included both contemporaneous and positive future profitability. Berger et al., (2006) acknowledge the long-term approach for considering customer lifetime value relevant to the shareholder value or financial performance of a brand. This perspective contributed to concepts like "brand awareness", which Huang & Sarigöllü (2012) apply to the commonly used marketing metrics to determine stock market performance.
(1) what product it represents, what core benefits it supplies, and what needs it satisfies
(2) how the brand makes the product superior and which strong, favorable, and unique brand associations should exist in consumers' minds.
Both of these issues – brand meaning in terms of products, benefits, and needs as well as brand meaning in terms of product differentiation – depend on the firm's general approach to product development, branding strategies, and other strategic concerns.
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