How much is your brand worth? Often we hear of our partners and clients using the terms brand value and brand equity, often they are loosely applied and not fully understood. And, whilst they may seem similar and interchanged in conversation, brand value and brand equity are not the same.
Why you should know the difference between brand value and brand equity
Importantly for CMOs and brand owners, it’s of great advantage if you can determine your brand’s worth. While the term ‘brand value’ refers to a brand’s financial weight, ‘brand equity’ measures its value from a customer perspective. Importantly, while neither is an exact science, both provide an educated evaluation of a brand’s approximate value.
Let’s start with precise definitions of brand value and brand equity to draw a line between the two:
1. Brand Value
Brand value explains the financial worth of your brand. This is measured in terms of your brand’s value in its relevant market. In simple terms, it indicates how much a buyer would be willing to pay for it, today.
Don’t be fooled; strong brand value doesn’t always indicate strong brand equity.
2. Brand Equity
Brand equity considers the impact of a brand’s visibility, associations, and consumer loyalty on the value of its goods and services. These factors form assets and liabilities that affect the value of their offering. Business marketing and growth strategies are often shaped by brand equity.
Some 40 years ago, brand equity gave rise to the idea that brands can be instrumental in driving long-term commercial performance. This changed the way in which businesses viewed marketing, its agents, and its role within business development.
Brand equity has challenged the fact brands are not simply short-term solutions for sales generation. Instead, increasing a brand’s equity can categorically change views on brand value with the success of many companies demonstrating that a brand can underpin long-term business development strategies.
How to measure brand value and brand equity
While measuring brand value is fairly straightforward, brand equity is not always clear to judge or calculate. We do know, however, that the stronger the brand’s positive presence in the market built out of a set of assets or liabilities, the higher the equity. This includes an organisation’s customer loyalty, visibility, and associations. Each of these assets and liabilities influences the value of an organisation’s goods and services. Let’s break the facto’s down:
1. Consumer loyalty
Loyal customers guarantee business for existing products and new innovations. These customers have faith in a brand and have no desire to compare its offering with cheaper alternatives. By including consumer loyalty in assessments of brand equity, marketers can justify the financial prioritisation they give to brand loyalty.
2. Brand visibility
If a brand is known and appears credible in a given area, it will be considered relevant. If a buyer doesn’t immediately think of the brand when searching for a product or service or believes that it isn’t capable of delivering on its promises, they won’t consider the brand to be suitable.
3. Brand associations
Brand associations are anything that increases or decreases a customer’s impression of a brand. These associations could include the brand’s social, emotional or self-expressive benefits, the brand’s organizational values or personality, and its functional advantages.
Short-term brand development
Brand value demonstrates the influence of a brand on short-term and long-term profit generation. Importantly, however, short-term initiatives such as price promotions can have a lasting, negative effect on brand value.
In order to avoid this risk, there are a number of alternative ways in which brands can generate short-term financial gains. Some of these are as follows:
- Brand visibility and increased consideration;
- Positive brand associations;
- Long-term brand value development;
- An anchor for new associations;
- Niches and brand positioning;
- Brand awareness and reassurance for new business;
- Informative communication;
- Generation of positive emotion;
- Response to competition;
- Purchasing incentives;
- Partner and/or supplier leverage;
- Brand metrics such as net promoter scoring
- Indications of substance and commitment;
- Positive familiarity and brand liking;
- A reduced marketing effort;
- Customer loyalty.
Supporters of brand equity are challenged to evidence of its true long-term value. Typically, it’s difficult to demonstrate the value of brand equity when short-term factors also influence profit, and strategic decisions are pressing.
That said, there are a number of approaches that help marketers to consider and evaluate the long-term benefits of brand equity:
1. Consider other valuable brands
It’s worth considering case studies that show brands of significant value. For instance, (because everyone gets it) Virgin has a hugely positive reputation for innovation and personality. The Tesla brand has, alone, defined its own niche, and Google connects as Australia’s most meaningful brand.
To really understand brand power, we should consider the fact that between 1989 and 1997, one car manufacturing plant created two identical vehicles. Using the same design and the same materials, these vehicles were marketed as either Chevrolet (GEO) Prizms or Toyota Corollas. Selling far more vehicles than the Prizm brand, the Corolla vehicles were 10% more expensive and had a much slower depreciation rate. What’s more, consumers and experts scored the Corolla much more favourably than the Prizm. The only thing that was different? The brand.
2. Monitor brand equity investments
Secondly, it’s worth acknowledging that, as the best measure of long-term value, brand equity investment typically generates an increased stock return.
Studies by the Deloitte and KPMG have illustrated the fact that increased brand equity has almost as great an impact on stock return as changes in return-on-investment (ROI). Indeed, increased brand equity showed around 70% of the same influence. Marketing, on the other hand, was shown to have no effect on stock return, except for that which was associated with brand equity.
3. Consider the conceptual model
Business strategy is underpinned by a conceptual model. Consider this model in closer detail. What is the strategy? What is the strategic role of the supporting brand, and how important is it? Can the value of brand equity be replaced with competitive pricing? How will this affect long-term profit streams? Business management author Tom Peters explained that, in an ever-more crowded marketplace, a price-focused strategy is somewhat foolish. According to Peters, winning companies will identify ways in which to create sustainable value in the eyes of their target customers.
4. Assess the commercial role of a brand
Assess the value of your brand within your business. Within a product-driven market, a firm’s value is calculated by discounting future income. To make such assessments, the role of a brand must be evaluated by a knowledgeable, subjective group of individuals, while considering the associated business model, brand visibility, associations, and loyalty.
Brand value is then calculated according to the corresponding markets and products and identifies an isolated value for the brand itself. With wide-ranging results, the value of a B2B brand could be as low as 10%, with consumer brands such as Patagonia or WaterAid over 60%.
Brand equity underpins commercial marketing and business development. To reap the full benefits of brand equity, organisations must understand it on both an operational and conceptual level. Further, successful organisations will create credible links between brand equity and brand value.