Brand equity is the value that a product has acquired over time. It may be valued positively or negatively.
This process occurs through the associations that users have made and the expectations they have about the company, its products and services. This experience is an intangible element since it cannot be measured.
The value of the brand will be positive or negative depending on the perception that users have of the products associated with it. The type of perception has been built on the branding of the brand.
When you use effective advertising throughout the history of the brand, you get a positive opinion about the brand and its services. The product will have managed to satisfy the needs and expectations projected by the brand.
When the brand management has been wrong, this translates into a negative perception on the part of the customers and will have a negative impact on the interest of consumers in the product.
Steps to calculate brand equity
Millward Brown, one of the world's leading advertising and brand research companies, outlines three steps in calculating the value of a brand:
- The earnings. There is a first step in which the percentage of total revenue generated by each company of the brand is identified. For example, in the case of Coca-Cola, some revenue comes from other brands such as Fanta. From these brand gains, capital and investment expenditures are subtracted to obtain the true value of the business.
- Contribution. Only part of these earnings can be considered brand-driven. This is the "Brand Contribution", and it is established by analyzing the market of the country and also of the brand.
- Multiple brand. The growth potential of these brands is studied, based on their income. An analysis and study of its growth opportunities and brand barriers is established, making financial projections based on consumption data.
Brand equity goals
The purpose is to measure the profitability of a brand. A brand includes the name, logo, image and perception that identify a product or service in the minds of customers.
All this takes shape in advertising to become the focus of the relationship with consumers.
When users trust a brand that they find relevant, they choose its products over those offered by its competitors, even if they are more expensive.
Brand equity is managed more effectively through the development of goals to increase brand equity, and which serve to track the progress and performance of the brand.