Brand Equity

What is Brand Equity?

Brand Equity is defined in many ways. Our text book defines brand equity as **********************************************

Even though there may be are many different definitions of brand equity, they all have several factors in common:

Monetary Value. The amount of additional income expected from a branded product over and above what might be expected from an identical, but unbranded product. For example, grocery stores frequently sell unbranded versions of name brand products. The branded and unbranded products are produced by the same companies, but they carry a generic brand or store brand label like Kroger’s or Albertson’s. Store brands sell for significantly less than their name brand counterparts, even when the contents are identical. This price differential is the monetary value of the brand name.

Intangible. The intangible value associated with a product that can not be accounted for by price or features. For an example, Nike has created many intangible benefits for their athletic products by associating them with star athletes. Children and adults alike want to wear Nike’s products to feel some association with these star athletes (“be like Mike” - for Michael Jordan). It is not the physical features that drive demand for their products, but the marketing image that has been created. Buyers are willing to pay exceedingly high price premiums over lesser known brands which may offer the same, or better, product quality and features.

Perceived Quality. The overall perceptions of quality and image attributed to a product, independent of its physical features. Jaguar, Mercedes and BMW all have established their brand names as synonymous with high-quality, luxurious automobiles. Years of marketing, image building, brand promotion and quality manufacturing have lead consumers to assume a high level of quality in everything they produce. Consumers are likely to perceive Jaguar, Mercedes and BMW as providing superior quality to other brand name automobiles, even when such a perception is unwarranted.

The overall description of brand equity incorporates the ability to provide added value to your company’s products and services. This added value can be used to your company’s advantage to charge price premiums, lower marketing costs and offer greater opportunities for customer purchase. A badly mismanaged brand can actually have negative brand equity, meaning that potential customers have such low perceptions of the brand that they prescribe less value to the product than they would if they objectively assessed all its attributes/features.

One of the best examples of brand equity is in the soft drink industry. Without a brand name and all of the marketing dollars that have gone into it, Coca-Cola would be nothing more than flavored water. Due to the company’s long-term marketing efforts and protection, enhancement and nurturing of their brand name, Coke is one of the most recognizable brands in the world. However, even this marketing giant has trouble capitalizing on its own brand equity when handled improperly (e.g. New Coke). We all remember in 1985 when New Coke was introduced to the market. This was supposed to be a sweeter soft drink more comparable to Pepsi but it failed on the market. Because sales of Coke dropped 60% Coke was forced by the consumer to go back to the original recipe. Coke had a major marketing campaign for the new product, but it still failed. Because Coke has loyalty from their consumers, the customers all continued to buy the product when the product had been returned to the original recipe. When Coke reintroduced the original Coke back into the market this led to a significant gain in sales, which some speculate was the original purpose of the campaign all along. If someone suddenly took their brand name and brand equity away from them, Coke would lose hundreds of millions, if not billions, of dollars. This includes lost sales, lost marketing dollars and lost promotions, additional marketing costs to promote a new brand, and significantly lower awareness and trial rates for their new brand. Coke has recently introduced another new product called Coca-Cola Zero which is zero calories but has a different taste than Diet Coke. I am one of the consumers that truly is loyal to Diet Coke. The text book reveals that some people are willing to pay a 60% premium over Pepsi products and I am included in that market.

Pepsi was not exempt from the marketing flop of introducing a new product either. In 1992 PepsiCo introduced Crystal Pepsi and marketed it as “clear alternative” to normal colas comparing clearness with purity. It tasted like regular Pepsi and consumers had become accustomed to the clear colas being a lemon-lime taste such as Sprite