GROWTH OPPORTUNITY IN BRAND EQUITY
Updated: Mar 17
Two weeks ago, we briefly discussed brand equity. As a refresher, brand equity is defined as “the tangible and intangible value a buyer receives from his perception of the brand offering the product or service (its name and symbols), including how well known, history of taking care of its customers, social acceptance, risk factors, etc.”
Brand equity can be as simple as slapping a label on a product or as complicated as spending millions of dollars to trademark a color. The ultimate goal of brand equity is for buyers to perceive a greater value from your product. This is particularly effective in consumer markets and has been used for quite a while.
Basically, brand equity represents a buyer’s “gut feeling” about a product, service, or organization. The brand is an implied promise, making any decision-making easy— you know what you are going to get!
Having a well-known and respected brand can increase the buyer’s perception of value and will often drive growth. Let’s say that demand slowed last year for your product. Rather than changing its product or lowering its price, you decide to increase its marketing and media investment. This may work in the short-run, but generally speaking, relying on brand equity too often does not lead to profitable growth. There are a few reasons for this:
The cost to maintain a brand is daunting.
Competitors can fight back with lower-cost unbranded offers.
There are too many strong brands, particularly in B2B.
It’s difficult to measure and therefore manage.
The Cost to Maintain is Daunting
When your growth is based on brand equity, the cost to maintain your position can become daunting. It is common for popular brands to “fight” their way to the number one spot, ultimately spending millions, or even billions of dollars, just to maintain share.
Competitors Fight Back
And while the top brands fight each other for brand equity in an advertising arms race, there are constant invasions at the bottom from comparable generic brands that compete by offering greater product equity because of their lower price. Think about the over-the-counter pain reliever in your medicine cabinet right now.
Did you buy Tylenol or the store brand? They’re both 500 milligrams of acetaminophen, so your asset is the same, but your liability is vastly different. The store brand costs $3, while Tylenol costs $6. The store brand offers two times the product equity, yet acetaminophen produces more than $1 billion USD in annual sales for Tylenol products alone. Why do they think they can charge $6 a bottle when the exact same thing costs only $3 under a different label? While Tylenol and the store brand have the same product equity, its maker, Johnson & Johnson, feels it delivers to buyers significant value via increased brand equity, at least for some buyers.
Basically, if you have the “real” Tylenol manufactured by Johnson & Johnson and not store-brand acetaminophen pills, you are “wasting” your money. Admittedly, that is what an awful lot of us are doing.
Of course, the Tylenol marketing team would argue that they’re selling reliability and safety, despite the product being the exact same. Over the years, J&J has spent billions of dollars on Tylenol advertising to create brand equity, ultimately making us believe that we should pay twice as much for their bottle of acetaminophen. Today, you can view Tylenol ads on television, online, in magazines, in newspapers, on billboards, in doctor’s offices, at bus stops— everywhere.
This can be applied to almost every B2C consumer product on the planet. There will always be a generic version of a product or service that’s cheaper than the branded version, but one brand will spend millions to promote some differentiated aspect of their product or service in order to justify the increased price. Sometimes it works, sometimes it does not.
Too Many Strong Brands
But, what about in B2B markets? Does spending money on brand equity work?
In B2B, relying on brand equity becomes even more difficult to argue because there are already too many strong brands. Since many brands are already well-established and reputable, none are truly “differentiated;” they are all average because they are equally good. No professional services buyer is willing to pay a premium price for one over the other.
The companies above are well-regarded and some of the most respected brands in their industry. When all offerings are equally good, they are all equally average and no buyer will pay more for one over the others. In other words, having a good brand is expected.
Difficult to Manage
Finally, even when brand equity is strategically important, it is difficult to measure and manage. Translating brand equity into business results, such as customer retention, expansion, and acquisition, is debatable. In fact, a survey of nearly 200 senior marketing managers concluded that only 26% found their “brand equity” metric very useful.
How has this article changed your perception of brand equity? Leave a comment down below! After that, follow us on Linkedin at “The Brookeside Group” and “Encompass CX!” Stay tuned for next week’s article!
Co-written by Alexis Audeh