What is brand equity and how does it impact your bottom line?

Brand equity is the secret sauce that differentiates the most valuable brands from everyone else. It’s the reason people everywhere are willing to wait in a 10-car-long drive-through line at Starbucks instead of just making their drip coffee at home. It’s why graphic designers stringently refuse to work on PCs and insist they need a Mac.

To help you win the hearts of your customers, we’re breaking down everything you need to know about brand equity. It’s one of the most valuable assets a company has, so getting it right matters.

What Is Brand Equity?

Brand equity is the value customers assign to a business based on their perceptions of its quality. A company with high brand equity can charge more for its product than a competitor can for a similar product because buyers are willing to pay more for the label. This concept isn’t based on a company’s concrete financial value; it’s based on customers’ perceived value.

In his book, Strategic Brand Management, Dartmouth professor of marketing Kevin Lane Keller defines brand equity as a process of questions customers ask themselves as they get to know a brand. In this model, the first question prospective buyers ask is about the brand’s identity: “Who are you?” The relationship then builds to “What are you?” where customers begin to assign meaning to a brand. “What about you?” comes next–where a brand begins to develop the two-way relationship. Finally, at the peak of the customer-brand management process, buyers ask, “What about you and me?” and begin a long-term relationship with the brand.

Keller’s Brand Equity Model

Keller’s model is presented in a pyramid, where the brand’s identity forms the solid foundation of the future customer relationship. This multilevel model shows that building brand equity is all about cultivating lasting, healthy relationships with your customers. A company has to catch a buyer’s attention in the brand identity stage. The brand meaning and brand response levels are where the real work has to be done to make the relationship thrive.

Why is Brand Equity important?

Building brand equity may seem a little fluffy, but it comes with tangible benefits—including positively impacting your company’s bottom line.

Take, for example, Estée Lauder, the high-end cosmetics company, and Rimmel, a drugstore cosmetics brand. These two companies share manufacturing facilities, and both receive ingredients for their products from the same Chinese manufacturer, Cosmetics Suzhou Co. Ltd. Though their operating costs and ingredients are more or less the same, Estée Lauder can charge an average of $28 for a tube of mascara. Rimmel mascara sells for around $7. So, what’s the difference? Estée Lauder has more brand equity than Rimmel, so they’re able to charge more for their cosmetics.

Besides financial gain, another benefit of building brand equity is growing customer loyalty—which means you don’t have to spend as much time or money on costly acquisitions. According to a survey conducted by conversion rate optimization company Invesp, it can cost up to five times as much to attract a new customer as to maintain a current one. Brands with loyal customers are also more resilient. Their shoppers are likely to stick with the company, even if the economy takes a downward turn.

3 Ways to Build Brand Equity for Your Business

There are many ways to grow your company’s value in the eyes of your customers. Here are a few suggestions to get you started.

1. Communicate with Aspirational Marketing

Loyal customers are paying for more than your product; they’re buying into the lifestyle your product represents. It’s no longer enough for consumers to own something—they want products that transform them into the people they aspire to be.

So, to build brand equity, promote a lifestyle that’s attractive to your target buyers. Spend time researching your ideal customers, with surveys or focus groups, if necessary, to get a clear idea of their pain points, their interests, and their personal and professional goals. Then, build your brand with positive, motivational messaging and visuals that speak directly to those goals. Be sure to make this message personalized and specific. You’re more likely to connect with shoppers through targeted marketing than with broad messaging that resonates with no one in particular.

The company leading the pack in aspirational values is Apple. The tech giant regularly ranks at the top of Forbes’ list of the World’s Most Valuable Brands, even securing the #1 spot for 2020, and with good reason. When it comes to making aspirational values central to their marketing strategy, no one delivers quite like Apple.

In a 2016 report by BBMG, the branding agency described aspirational buyers as influenced by “their love of shopping ... and their trust in brands to act in the best interest of society.” Apple embraces these ideals by providing a singularly unique shopping experience, from the sleek design of its website to the stark, museum-like quality of its brick-and-mortar stores. Everything about the shopping experience, from the pristine gadgets on display to the liberal use of white space, communicates a luxury experience.

But Apple does an equally masterful job of making a human connection, as well. Since unveiling the personal computer in its 1984 campaign, Apple has used the power of aspirational storytelling to position itself as technology for cutting-edge creatives looking to connect and positively contribute to the world around them. Apple’s 2018 Share Your Gifts holiday campaign is an excellent example of harnessing the power of connection. In short, Apple understands its customers and has racked up incredible brand equity as a result.

With aspirational marketing, buyers form positive associations between themselves and your brand. That emotional connection makes them more likely to view your brand as valuable over a competitor’s brand that doesn’t reflect their goals and dreams.

2. Ensure Your Branding Is Unique, Consistent, and Visible

To trust your brand, your customers have to know your brand. Help shoppers become familiar with your company through creative, consistent campaigns.

The first step is to ensure your branding is unique. Make sure your logo, your graphics—even your tone and the fonts you use—differentiate you from your competitors. Be bold. It’s better to be the one memorable colorful logo in a sea of gray than to have your brand confused with the competition.

Once you have your branding established, keep it consistent across all channels. Present your messaging and design elements in the same way, whether on a banner at a charity event or spanning your website's header.

Not sure how to control your branding? Consider using brand management software. Frontify enables users throughout an organization to better understand their brand through guidelines. Our tool also ensures that your graphics and messaging will remain unified across every platform by giving your company a single resource to store, share, and manage all your branded elements.

Consistency is the key to brand recognition, and it extends beyond just making sure your logos are used properly. Every interaction with a customer—whether it’s as short as the second they spend looking at a billboard or a 30-minute support call—is an opportunity to stay on brand. Besides these interactions, communicate your brand regularly by building an active social media presence, contributing helpful and creative blog content, and investing in strategic and targeted marketing campaigns.

3. Make Social Proof Work to Your Advantage

How many times have you been comparing two seemingly identical products on Amazon, and ultimately decided to go with the one with more positive reviews? Or how often have you decided against going into a restaurant on a Friday night when you notice it’s completely empty, while the place next door is packed? There’s a reason you do that.

This concept is called social proof. In layman’s terms, it’s the “sheep mentality” — we, as humans, tend to copy the behavior of people around us. This concept exploded with the advent of social media, when suddenly you don’t even have to leave your home to be inundated with the opinions and experiences of those in your network. This makes social proof marketing a huge opportunity to grow your brand equity. The perceived value of a brand grows when happy customers spread the news about their experiences with the company.

Use social proof to your company’s advantage by creating a customer loyalty or ambassador program to incentivize happy customers to promote your brand. Online cosmetics company Glossier built strong brand equity through its referral program, which allows social media influencers to share their unique referral code with friends and family in order to earn discounted products. Referral programs are powerful tools to build customer rapport because they offer free advertising from a trusted source (buyers’ friends and family).

Another great example of a company harnessing the power of social proof is Outdoor Voices. The outdoor athletic clothing company enjoyed a huge swell in brand equity and value thanks to influencers sharing photos of the company’s brightly colored clothing on Instagram. These user-generated content campaigns are invaluable to building brand equity because the best advertisement for your products is often real people using and loving them, in real time.

On a social media site like Instagram which reports over 800 million daily users, the power of social proof can be nearly limitless for companies willing to use it in the right way.

Closely Monitor Brand Equity for Continued Growth

Building your company’s brand equity takes time and consistency, but it’s a vital step in increasing your brand presence, customer recognition, and, ultimately, your revenue. The best way to ensure you’re reaching your equity-building goals is to closely monitor company growth and brand recognition over time with quantifiable analytics like website traffic, social media activity, and revenue growth rates. Investing intentional effort each week into growing brand equity and tracking your results is essential for any business that wants to scale. And for the best possible results, partner on your brand growth journey with Frontify.

What is Brand Equity? and How it Impacts Your Bottom Line