What Is Brand Equity and Why is it Valuable?

In the late 1980s, brand equity was just emerging as an important idea. In 1991 I published a book, Managing Brand Equity that defines brand equity and describes how it generates value. This model provided one perspective on brand equity that is worth another look now over twenty years later.I defined brand equity as a set of brand assets and liabilities linked to a brand name and symbol, which add to or subtract from the value provided by a product or service. Connecting “brand” to the concepts of “equity” and “assets” radically changed the marketing function, enabling it to expand beyond strategic tactics and get a seat at the executive table. Marketing was reframed by an avalanche of researchers, authors and executives who provided substance and momentum to this idea.

My model posited that brand equity has four dimensions—brand loyalty, brand awareness, brand associations, and perceived quality, each providing value to a firm in numerous ways. Once a brand identifies the value of brand equity, they can follow a brand equity roadmap to manage that potential value.

The Brand Equity Outline

Brand Loyalty

• Reduced marketing costs
• Trade leverage
• Attracting new customers via awareness and reassurance
• Time to respond to competitive threats

Brand Awareness

• Anchor to which other associations can be attached
• Familiarity which leads to liking
• Visibility that helps gain consideration
• Signal of substance/commitment

Brand Associations, including Perceived Quality

• Help communicate information
• Differentiate/Position
• Reason-to-buy
• Create positive attitude/feelings
• Basis for extensions

The introduction of brand loyalty to the model was and is still controversial as other conceptualizations position brand loyalty as a result of brand equity, which consists of awareness and associations. But when you buy a brand or place a value on it, the loyalty of the customer base is often the asset most prized, so it makes financial sense to include it. And when managing a brand, the inclusion of brand loyalty as a part of the brand’s equity allows marketers to justify giving it priority in the brand-building budget. The strongest brands have that priority.

Another aspect of the definition of brand equity that I presented in my book was the argument that brand equity also provides value to customers. It enhances the customer’s ability to interpret and process information, improves confidence in the purchase decision and affects the quality of the user experience. The fact that it provides value to customers makes it easier to justify in a brand-building budget. This model provides one perspective of brand equity as one of the major components of modern marketing alongside the marketing concept, segmentation, and several others.