Brand equity is a marketing term that describes a brand’s value. That value is determined by consumer perception of and experiences with the brand.
If people think highly of a brand, it has positive brand equity. When a brand consistently under-delivers and disappoints—to the point that people recommend others avoid it—it has negative brand equity.
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Positive brand equity has value:
- Companies with a great deal of brand equity can charge more for a product.
- That equity can be transferred to line extensions (i.e. products related to the brand that include the brand name), so a business can make more money from the brand.
- It can help boost a company’s stock price.
How brand equity develops
Brand equity develops and grows as a result of a customer’s experiences with the brand. The process typically involves a customer or consumer’s natural relationship with the brand that unfolds following a predictable model:
- Awareness: The brand is introduced to its target audience—often with advertising—in a way that gets it noticed.
- Recognition: Customers become familiar with the brand and recognize it in a store or elsewhere.
- Trial: Now that they recognize the brand and know what it is or stands for, they try it.
- Preference: When the consumer has a good experience with the brand, it becomes the preferred choice.
- Loyalty: After a series of good brand experiences, users not only recommend it to others, it becomes the only one they will buy and use in that category. They think so highly of it that any product associated with the brand benefits from its positive glow.
Examples of positive brand equity
Apple, considered one of the world’s most valuable brands, is a classic example of a brand with positive equity. The company built its positive reputation with Mac computers before extending the brand to iPhones, which deliver on the brand promise expected by Apple’s computer customers.
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On a smaller scale, regional supermarket chain Wegmans has so much brand equity that when stores open in new territories, the brand reputation generates crowds so large that police have to direct traffic in and out of store parking lots.
Examples of negative brand equity
Financial brand Goldman Sachs lost brand value when the public learned of its role in the 2008 financial crisis; it faced further backlash in the late 2010s and early 2020s when it was revealed that the company had helped clients evade taxes in various countries.
Automaker Tesla faced criticism in the early 2020s for its poor working conditions and treatment of factory workers. Oil and gas company ExxonMobil has repeatedly faced criticism for its role in climate change and environmental destruction.One negative incident can significantly damage a brand’s reputation and undo years of positive brand equity.
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