What is brand equity and how do you build it?

What is brand equity and how do you build it?

Brand equity is the secret sauce that differentiates the most valuable brands from everyone else. To help you win the hearts of your customers, we’re breaking down everything you need to know.

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 because buyers are willing to pay more for the label. This concept is based on customers’ subjective value of your brand.

Brand equity vs. brand value

Brand equity refers to the customers’ perceived importance of a brand, while brand value is the financial value of the brand. Both numbers help you understand how much your brand is worth.

To determine the brand’s value, companies need to work out how much the brand is worth in the market. In other words, if someone was going to buy your brand, how much would they need to pay? You can put a dollar figure on your brand, but it’s much harder to calculate a concrete value for brand equity, as it’s tied to customer judgment and feelings. However, both demonstrate the long-term strategic value of a strong brand.

Let’s look at some of the biggest brands in the world. According to Kantar, these were the five most valuable brands in the world in 2023:

  • Apple: valued at about USD 880 billion
  • Google: valued at about USD 578 billion
  • Microsoft: valued at about USD 502 billion
  • Amazon: valued at about USD 469 billion
  • McDonald’s: valued at about USD 191 billion

But even within this illustrious list, you can see that some brands have higher equity (perceived value) than others. Between 2016 and 2022, Google sold 27.6 million units of its Pixel smartphone. In the same period, Apple sold more than 235 million iPhones. Why? Because customers think Apple makes better, more desirable products.

So, while brand equity and your brand’s value are closely linked, they’re not the same. And, crucially, just because one’s high doesn’t mean the other will be, too.

From awareness to loyalty: The 4 pillars of brand equity

Brand equity is built on four foundational elements. Your brand needs all of them to deliver the most value to the business:

  1. Brand awareness: Do customers recognize your brand if they see your adverts on social media or spot your products on crowded store shelves? Awareness and recognition are the foundation upon which companies start building brand equity.
  2. Brand associations: What thoughts and feelings do customers have about your brand? Do they associate your brand with high-quality products, great service, and speedy delivery? Your brand needs a good reputation — something positive people think of when they encounter your brand.
  3. Perceived quality: How do customers feel about the quality of your products, service, and overall experience with your brand? As the saying goes, beauty is in the eye of the beholder. So, if customers think your brand is good quality, it has a high perceived value to them.
  4. Brand loyalty: Will customers buy from you again? Will they recommend you to their friends and family? Loyalty — which boils down to being repeat customers or long-time followers — is the final element of brand equity.

The Keller Brand Equity Model

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. Each positive answer helps contribute to building equity in a brand:

  1. “Who are you?” — The first question prospective buyers ask is about the brand’s identity.
  2. “What are you?” — Next, customers assign meaning to a brand.
  3. “What about you?” — Customers start to develop an emotional response to the brand and build a two-way relationship with it.
  4. “What about you and me?” — Finally, if they have positive answers to the previous questions, customers begin a long-term relationship with the brand.

Keller used these questions to develop the brand equity pyramid — one of the most popular and widely accepted models of brand equity:

This multilevel model shows that building brand equity is all about cultivating lasting, healthy customer relationships. The brand’s identity forms the solid foundation of the future customer relationship: 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.

Further reading: Using the brand equity pyramid to build a powerful customer-centric brand

The importance of brand equity

Building brand equity may seem a little fluffy, but it offers many benefits to your business:

  • Financial gains
  • Customers have lower price sensitivity
  • Stronger customer loyalty
  • Increased brand trust

The most tangible benefit is the positive impact on your company’s bottom line. Companies with high brand equity can charge more for their products than competitors with similar offerings.

Take, for example, Estée Lauder, a high-end cosmetics company, and Rimmel, a drugstore cosmetics brand. According to a 2019 article, these two companies shared manufacturing facilities, and both received 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 charges an average of $28 for a tube of mascara. Rimmel mascara sells for around $7.

That’s a very practical example of why brand equity is important. But high brand equity also offers many intangible benefits: Companies can see stronger levels of customer loyalty, brand trust, and resilience.

Customer loyalty is the natural result of a continued positive brand experience: It’s based on people’s experiences with your company — their satisfaction with your products and service and their positive perception of your brand. Loyal customers will generally consider your product better than alternative options.

Fifty-seven percent of customers spend more money on brands they’re loyal to. Loyal customers tend to be repeat customers, too. This makes your company more resilient to market changes as you have a solid customer base.

How 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 practical suggestions to get you started.

1. Aspirational marketing: Craft a brand story that speaks to customers’ goals

Loyal customers are paying for more than your product; they’re buying into the lifestyle your product represents. With aspirational marketing, buyers form positive associations between themselves and your brand.

It’s no longer enough for consumers to own something — they want products that transform them into the people they aspire to be. This emotional connection makes them more likely to view your brand as more valuable than a competitor’s brand that doesn’t reflect their goals and dreams.

So, to build brand equity, promote a lifestyle that’s attractive to your target buyers. Conduct surveys or focus groups to research ideal customers and their pain points, interests, and personal and professional goals.

Then, strengthen your brand with positive, motivational messaging and visuals that speak directly to those goals. Make these messages personalized and specific: You’re more likely to connect with shoppers through targeted marketing than broad messaging that resonates with no one in particular.

Further reading: How to build brand equity like Amazon, Google, and Apple

2. Consistent branding: Present a unified brand image across all touchpoints

Before customers can trust and value your brand, they first need to recognize it. Consistency is the key to brand recognition, and it extends beyond just using your logos properly. Help shoppers become familiar with your company through creative, consistent campaigns and experiences.

The first step is to ensure your branding is unique. Your logo, your graphics — even your tone and the fonts you use — must 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. 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.

Present your messaging and design elements in a unified way, be it on a banner at a charity event or spanning your website's header. This will help build brand recognition, which is crucial for letting customers develop positive associations with your brand.

3. Social proof: Use reviews, referrals, and user-generated content to boost brand equity

How many times have you compared two seemingly identical products on Amazon and ultimately decided to go with the one with more positive reviews? Or how often have you read companies’ case studies before deciding whether to book a demo with their sales team? Every time you do that, you’re looking at social proof.

Social validation is a huge marketing opportunity to strengthen your brand equity. The perceived value of a brand grows when happy customers spread the news about their experiences with the company. These messages also give your company the opportunity to interact with its community — including addressing any negative comments or reactions, to make people feel heard and appreciated.

Consider creating a customer loyalty or ambassador program to incentivize happy customers to promote your brand. Ask customers to write reviews or share photos of your products on social media.

Referral programs are also powerful tools to build customer rapport because they offer free advertising from a trusted source — buyers’ friends and family. Online cosmetics company Glossier built strong brand equity through its referral program, allowing social media influencers to share their unique referral code with their network to earn discounted products.

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 most authentic advertisement for your products is often real people using and loving them — in real time.

Further reading: These brand equity examples that will make you reassess your strategy

Brand equity challenges and pitfalls

While it’s clear that strengthening brand equity offers many benefits to your business, it can also bring a few challenges you need to be aware of.

Negative brand equity

Just as positive associations can increase your brand equity, poor brand impressions can decrease it and result in your brand hurting consumer preferences and loyalty.

Several factors can contribute to negative brand equity:

  • Poor quality: If customers connect your brand with low-quality products or services, they’ll likely have a negative view of it.
  • Negative publicity: Controversies, scandals, or bad press can significantly harm a company’s status and decrease its brand equity.
  • Customer service issues: Brands that provide poor customer service or fail to address customer complaints can develop a negative reputation.
  • Outdated image: Brands that fail to evolve with changing consumer preferences or market needs will be perceived as old-fashioned, outdated, and generally undesirable — not great for that all-important brand equity.

If any of these issues damage your brand, you often require a strategic effort to rebuild positive brand equity. You’ll need to address the underlying issues to help improve the brand's overall customer perception. This may involve rebranding, communication campaigns, product improvements, and changes to your customer service.

Staying relevant in the digital age

Companies need to be mindful of how their online reputation and digital presence impact their brand equity.

There are more channels than ever to monitor and be present on — including social media, emails, websites, and directory listings. Presenting a consistent brand image across all these touchpoints enables you to create a clear and consistent brand identity that customers can trust.

Focus on quality, not quantity, when deciding where to set up accounts: Don’t jump onto every hot new social media platform as soon as it launches. Instead, be selective and choose the most popular and relevant channels for your audience, and focus on building an active, engaged presence there.

Additionally, it’s essential to keep all these digital touchpoints up to date. If you rebrand, add a seasonal logo variant, or update your core messaging on one channel, you need to update the others to achieve consistency. Being selective with the number of accounts will make it easier to regularly share posts that add value — your audiences will thank you.

Closely monitor brand equity for continued growth

Establishing your company’s brand equity takes time and consistency, but it’s vital 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 with Frontify to accelerate your brand growth journey.

Further reading: Your guide for successfully measuring brand equity

Oskar Duberg
Oskar Duberg
Senior Brand Content Specialist