what-is-brand-equity

What Is Brand Value And Brand Equity And Why They Matter?

Brand equity is the premium that a customer is willing to pay for a product that has all the objective characteristics of existing alternatives, thus, making it different in terms of perception. The premium on seemingly equal products and quality is attributable to its brand equity.  

Beyond the balance sheet and into the consumer’s mind

balance-sheet
The purpose of the balance sheet is to report how the resources to run the operations of the business were acquired. The Balance Sheet helps to assess the financial risk of a business and the simplest way to describe it is given by the accounting equation (assets = liability + equity).

If you speak to an accountant about brand value, he’ll call it “goodwill.” Indeed, in the accounting world, goodwill is a sort of leftover. A sum of money accountants can’t explain by matching existing assets with respective accounts, so they’ll lump it up under the umbrella of goodwill.

Goodwill usually arises when a company gets acquired with a plus, which can’t be explained in any other way.

However, if you ask a marketer what’s the brand, she/he’ll tell you “that’s everything!” It’s not like the marketer is trying to emphasize, quite the opposite. All the marketer does is about creating a brand, making a brand unique, making a brand “valuable.” They will ask for a marketing budget based on that brand.

Yet, when you ask the marketer, how much is our brand worth? The marketer will probably have a stunning face, almost like you were asking to put a dollar value on the Monalisa.

Between those two positions, there is a third one, which is that of brand valuation. More than science this is an art, which is in infancy. The attempt is to put a dollar value on a brand so that marketers can’t say a brand is worth like the Monalisa and entrepreneurs are finally happy to tell their accountants a brand is much more than just goodwill.

Understanding the difference between Brand Equity and Brand Value

First, you need to understand the difference between brand equity and brand value.

Brand equity refers to the importance of a brand for customers, while the brand value is the financial strength and significance of that brand. Both brand equity and brand value are estimates of how much a brand might be worth in the marketplace.

Therefore, brand value is primarily a financial estimate. Brand equity is a more holistic measure which comprises:

  • Brand Loyalty
  • Brand Visibility
  • Brand Associations

Inside brand value

A brand is the set of expectations, memories, stories and relationships that, taken together, account for a consumer’s decision to choose one product or service over another.
If the consumer (whether it’s a business, a buyer, a voter or a donor) doesn’t pay a premium, make a selection or spread the word, then no brand value exists for that consumer. 

This is a great definition given by Seth Godin in 2009. And he continued:

A brand’s value is merely the sum total of how much extra people will pay, or how often they choose, the expectations, memories, stories and relationships of one brand over the alternatives.

While this definition is the best I could find. Putting a dollar sign on memories and stories is tough. Thus, brand valuation as a financial methodology has a more quantitative approach. That doesn’t necessarily mean a better approach.

A few argue that the things that can be measured might be those that count the least. Yet as we start measuring them, they become part of our conscious understanding of the world, which makes our world a set of metrics. This, in turn, makes us measure things that don’t matter.

Indeed, even though brand valuation starts from a compelling need to assess a brand quantitatively to explaining how valuable is a company in the marketplace. It might also end up simplifying too much a brand. For that matter, it is critical to understand that brand valuation is just an estimate. Thus, a reference number, not something to take as the absolute value of your brand.

At least tracking a brand value has multiple benefits:

  • Justifying marketing expenditures and activities based on a “clearer” ROI
  • Tracking the growth trajectory of a brand
  • Being able to communicate more clearly the value of the brand to stakeholders (potential investors, shareholders and potential partners)

But it might also lead to side effects:

  • Measuring the wrong metrics for a company’s brand success
  • Removing the focus from customers and placing it too much on metrics that don’t really impact the business

Having said that, let’s see the methodologies available.

The approaches and methodologies used to compute a brand value

There are several methodologies available to compute brand value:

  • Brand Equity Ten: things like Differentiation, Satisfaction or Loyalty, Perceived Quality, Leadership or Popularity, Perceived Value, Brand Personality, Organizational Associations, Brand Awareness, Market Share, and Market Price and Distribution Coverage 
  • Brand Equity Index: it takes into account three main aspects of Effective Market Share, Relative Price, and Durability
  • BrandAsset Valuator: it accounts for Differentiation, Relevance, Esteem, Knowledge
  • Brand Valuation Model: also based on a few key financial metrics and other parameters to assess the value of a brand
  • Brand Contribution to Market Cap Method: given by the asset value of the brand as a component of the company’s market valuation

Those are the leading brand valuation methodologies. Each of those takes into account a different perspective and makes an assumption about what a brand is made of. Thus, each of those approaches has its limitations.

Brand equity and demand generation

Brand equity is about mastering the desires, and perceptions of your customers, thus making them demand your product, and define their needs around it. Rather than start from existing pain-points, demand generation also focuses on changing the fundamental questions other brands ask.

For instance, where a brand might sell sport’s shoes because they are more comfortable than others. Companies like Nike tap into demand generation by inspiring people to give them meaning through sport. In short, rather than asking “is this shoes more functional?” Nike asks “are we making our customers feel they are part of a movement?”

That is how a shoe transitions from being a commodity to becoming a status quo.

Brand building is the set of activities that help companies to build an identity that can be recognized by its audience. Thus, it works as a mechanism of identification through core values that signal trust and that help build long-term relationships between the brand and its key stakeholders.
value-proposition
A value proposition is about how you create value for customers. While many entrepreneurial theories draw from customers’ problems and pain points, a value can also be created via demand generation, which is about enabling people to identify with your brand, thus generating demand for your products and services.
nike-vision-statement-mission-statement
Nike’s vision is “To bring inspiration and innovation to every athlete in the world.” While its mission statement is to “do everything possible to expand human potential. We do that by creating groundbreaking sport innovations, by making our products more sustainably, by building a creative and diverse global team and by making a positive impact in communities where we live and work.”

Other brands’ related concepts

Brand Positioning 

brand-positioning
Brand positioning is about creating a mental real estate in the mind of the target market. If successful, brand positioning allows a business to gain a competitive advantage. And it also works as a switching cost in favor of the brand. Consumers recognizing a brand might be less prone to switch to another brand.

Brand Awareness

brand-awareness
Brand awareness is a measure of how familiar a customer is with a brand. The greater the brand awareness a business enjoys, the more their products and services are recognizable to their target audience, thus, in theory, augmenting its long-term strength on the marketplace. Brand awareness is a key element of an effective marketing strategy.

Other resources: 

Case studies:

Connected Business Concepts To Distribution Channels

B2B2C Business Model

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Account-Based Marketing

account-based-marketing
Account-based marketing (ABM) is a strategy where the marketing and sales departments come together to create personalized buying experiences for high-value accounts. Account-based marketing is a business-to-business (B2B) approach in which marketing and sales teams work together to target high-value accounts and turn them into customers.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Direct-to-Consumer Business Model

direct-to-consumer
Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

Marketplace Business Models

marketplace-business-models
marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

E-Commerce Business Models

e-commerce-business-models
We can classify e-commerce businesses in several ways. General classifications look at three primary categories:
– B2B or business-to-business, where therefore a business sells to another company.
– B2C or business-to-consumer, where a business sells to a final consumer.
– C2C or consumer-to-consume, or more peer-to-peer where consumers sell to each other.

Marketing vs. Sale

marketing-vs-sales
The more you move from consumers to enterprise clients, the more you’ll need a sales force able to manage complex sales. As a rule of thumb, a more expensive product, in B2B or Enterprise, will require an organizational structure around sales. An inexpensive product to be offered to consumers will leverage on marketing.

What’s Distribution?

whats-distribution
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.

VBDE Framework

vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Dropshipping Business Model

dropshipping-business-model
Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

VTDF Framework

competitor-analysis
It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.

Digital Strategy Mix

distribution-strategy
Distribution is one of the key elements to build a viable business model. Indeed, Distribution enables a product to be available to a potential customer base; it can be direct or indirect, and it can leverage on several channels for growth. Finding the right distribution mix also means balancing between owned and non-owned channels.

Business Development

business-development
Business development comprises a set of strategies and actions to grow a business via a mixture of sales, marketing, and distribution. While marketing usually relies on automation to reach a wider audience, sales typically leverage a one-to-one approach. The business development’s role is that of generating distribution.

Leave a Reply

Scroll to Top
FourWeekMBA
[class^="wpforms-"]
[class^="wpforms-"]