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What is brand equity and why is it important?

Nov 17, 2021
Brand Equity

Your brand is made up of many elements – from its values and vision to its personality and voice. These elements, in conjunction with the products you provide, communicate who you are to your customers. Further, your brand evokes either positive or negative emotions from your customers that leave a lasting impression – one that they’ll remember next time they make a purchase decision.

Brand equity translates this impression into your company’s brand value. Let’s take a closer look.

What is Brand Equity?

Brand equity is the added value that a brand name has on a product. It is the perceived value of a recognizable brand name in the eyes of consumers. Brand equity implies that reputable brands have greater success, not necessarily because their products are better than competitors, but because their brand is recognizable and trusted.

For example, let’s say a customer is shopping for milk and is deciding between Brand A and Brand B. Both offer the same exact milk product, with the difference only being the name of the brand. Brand A is $1 more expensive than Brand B. This customer recognizes Brand A, has had a positive experience with this brand before, and their family and friends buy the same brand. Brand B is unfamiliar to this customer. The customer purchases Brand A’s milk, even though it is more expensive.

Brand A displays positive brand equity in this example. The customer chose Brand A’s product over Brand B’s solely because the brand name was valuable to them. The added value here (or the price premium) would be $1, since the customer paid an extra $1 for Brand A.

Why is it important?

As shown in the example above, brand equity can hold real, tangible value for companies. Having positive brand equity gives your company a major competitive advantage. Not only will customers choose your brand over others, but they can also be willing to pay a price premium for your brand.

With positive brand equity, you’ll be able to:

  • Grow your market share – With the competitive advantage that comes with positive brand equity, you’ll create more sales and revenue.
  • Create new product lines with confidence – When customers recognize and trust your brand, they will be more willing to try new products you release.
  • Gain respect within your industry – Companies with positive brand equity are well-respected, not only by their customers, but within their industry.

Brand equity is extremely beneficial for brands and shouldn’t be overlooked. In order to build positive brand equity, you’ll need to evaluate multiple aspects of your brand. Here’s how.

The elements that build positive brand equity

Before measuring and managing brand equity, you’ll need to understand the pieces that it is made of. We’ve established that brand equity is the added value from having a recognizable and reputable brand name. Therefore, the elements of your brand that contribute to having a recognizable and reputable brand are the ones to consider. Some of the most important contributors to brand equity are:

Brand Awareness

Brand awareness is the most important contributing factor of brand equity. Understandably, people often confuse brand awareness with brand equity. These two concepts are closely related yet are distinct. Brand awareness tells you how familiar consumers are with your brand. Brand equity is the added value your products have as a result of brand awareness.

Perceived Quality

Purchase decisions are heavily influenced by the customer’s perception of the product. If they have a positive perception and recognize your product as ‘good quality’, it will positively contribute to brand equity. Further, customers will be willing to pay more for a product they perceive as high quality, allowing you to add a price premium.

Brand Association

Brand association (AKA the characteristics that customers associate with your brand) also contributes to brand equity. These associations help customers identify your brand and differentiate it from others. After all, it is much easier to recall things if you can connect them to something else in your mind.

For example, you may associate McDonald’s with its golden arches. When you see the giant golden arches outside of the restaurant, you recognize that restaurant as McDonald’s. McDonald’s is differentiated from the one next door simply because you have this brand association with it.

Helping customers recall your brand through brand associations will make it easier for them to recognize your brand, and therefore positively impact your brand equity.

Brand Loyalty

Establishing loyalty is a crucial component of brand equity. As a customer becomes more loyal to your brand, the likelihood that they will switch to another brand diminishes. Brand loyalty displays a preference for your brand, and further adds to its value.

Customer-Based Brand Equity: Keller’s Model

Customer-based brand equity (CBBE) emphasizes the idea that customer’s attitudes and perceptions of a brand directly impact the success of that brand. Keller’s Brand Equity Model is a well-known CBBE model that displays how a brand builds CBBE. The model is a pyramid that shows the steps to form a positive relationship between a brand and its customers. Here is the model:

Keller's Brand Equity Model

Level 1: Brand Identity

The first level of Keller’s Model asks the question: “Who are you?”. This foundational level is what the following levels build upon, so it needs to be strong. Here, you establish what your brand stands for and the promises you will make to your customers. Through advertising campaigns and marketing, you should confidently identify who your brand is and start attracting customers.

Level 2: Brand Meaning

Now that the customer is aware of your brand, they’ll be intrigued to learn more. This level reveals what your brand is through performance and image. Customers will learn how well your product actually performs and form perceptions of your brand. Your brand’s performance will be evaluated by customers based on:

  • Primary characteristics and features
  • Product reliability, durability, and serviceability
  • Service effectiveness, efficiency, and empathy
  • Style and design
  • Price

The image of your brand is the customers’ perception of the identity that you established in level 1. Ideally, your brand image and brand identity will closely align; If they do not, you will need to work on better communicating your identity to customers.

Level 3: Brand Response

After discovering what your brand is, the customer will make judgments and form responses. You’ll need to ask yourself questions like:

  • How do customers feel when interacting with my brand?
  • What brand associations do customers make?
  • What are the positive responses? What are the negative ones?
  • How can I respond to the judgements made about my brand?

Your response to your customers’ judgements is crucial. It will determine if your brand moves on to the last level of the pyramid or not.

Level 4: Brand Resonance

Once you successfully make it through level 1, 2, and 3, you will have formed a strong relationship with your customer. Now, the customer is loyal to your brand. They will continue to come back to your brand, choose it over others, and positively add to your brand equity.

Brand equity market research in one step

Building brand equity requires extensive market research – from brand awareness to competitive research. Luckily, GroupSolver® has a brand equity market research solution that will answer everything in one step. Quantify your brand equity while understanding brand perceptions and associations – all at the same time.

Check out how we helped an iconic home products brand evaluate their brand equity and determine their price premium in this case study.


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