What is brand equity?

Brand equity is the value added to a product or service as a direct result of the recognition and reputation of the brand.

The basic concept is very simple. If you are offered two computers with the same technical specifications, but one is unbranded and the other is a Dell, you would probably be more willing to pay for the Dell device. The brand is well known and trusted, and this implicit trust adds value to the product. People make choices like this all the time, and taken together, this adds significant value to Dell as a company, and we call this added value the brand equity.

 

The concept is simple enough to understand and intuitively true, but it is also notoriously difficult to measure. There is no agreed single definition of how to do this, with many different firms offering their own models and indexes.

The first question you need to ask when setting out to measure brand equity is where you want to measure it:

  • Do you want to understand the total value added to the organization by the brand?
  • The additional revenue generated from sales of a particular product or product group as a result of brand?
  • The perceived positivity of a brand in the mind of a customer?

brand equity

 

Measuring the total value added to the organization

A direct estimate of this can be made by adding up the value of all the estimable capital assets of an organization and comparing this figure to the market capitalization of the organization. The difference is attributed to the influence of the brand on shareholder perception of value and acts as an estimate for the brand equity across the organization.

market capitalization – capital assets = estimate for brand equity

Variations on this approach include Interbrand’s “Brand Valuation Model” and Brand Finance’s “Royalty Relief” approach, which both attempt to achieve a similar result by modelling what difference between the revenue expected without the benefit of the brand and the observed actual revenue.

Alternative approaches generally involve the creation of an index to measure relative brand equity between companies in a market. These measures tend to be based on subjective assessment of the relative impact of various factors informed by experience and supporting research. Factors included might be:

  • market share
  • relative pricing of equivalent products
  • customer retention rates

organization

 

Measuring the additional revenue generated from sales of a product or product group as a result of brand

b2b sales

The approach to measuring this is generally more consistent as Conjoint Analysis is a natural fit for this task.

The output of the analysis is a model of customer choices and we can simulate the current competitive market situation for a product category and compare this with the prediction if we replace our products with unbranded equivalents.

This can establish a “price premium” customers are willing to pay but can also be used to estimate the total additional revenue across the market for that product by identifying and comparing total expected revenue for the branded and unbranded offerings at optimal prices.

 

Measuring the perceived positivity of a brand in the mind of a customer

The basic starting point for measuring and comparing the appeal of brands to customers is to collect information about the breadth and quality of brand recall as well as measuring the associations the brand has with brand attributes. After this though, the approach to interpreting the results can vary a lot, with consultancies and agencies often having their own proprietary approaches to evaluating the positivity of brand perceptions.

At B2B International, we understand that most B2B markets are very different in terms of what attributes are important. With this in mind, our preferred approach is to use regression modelling to identify key drivers of engagement for the market we are investigating and to use this to develop a bespoke measure of appeal for brand in that market.

b2b customer