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Defining Brand Equity

Brand equity is the added value endowed to products and services with consumers. It may be reflected in the way consumers think, feel, and act with respect to the brand as well as in the prices, market share, and profitability it commands. Marketers and researchers use various perspectives to study brand equity.13 Customer-based approaches recognize that the power of a brand lies in what customers have seen, read, heard, learned, thought, and felt about the brand over time.14

Customer-Based Brand Equity

Customer-based brand equity is the differential effect brand knowledge has on consumer response to the marketing of that brand.15 A brand has positive customer-based brand equity when consumers react more favorably to a product and the way it is marketed when the brand is identified than when it is not identified. A brand has negative customer-based brand equity if consumers react less favorably to marketing activity for the brand under the same circumstances.

There are three key ingredients of customer-based brand equity. First, brand equity arises from differences in consumer response. If no differences occur, the brand-name product is essentially a commodity, and competition will probably be based on price. Second, differences in response are a result of consumers’ brand knowledge, all the thoughts, feelings, images, experiences, and beliefs associated with the brand. Brands must create strong, favorable, and unique brand associations with customers. Third, brand equity is reflected in perceptions, preferences, and behavior related to all aspects of the brand’s marketing. Stronger brands earn greater revenue.16 Table 8.1 summarizes some key benefits of brand equity.

Customers’ brand knowledge dictates appropriate future directions for the brand. Consumers will decide, based on what they think and feel about the brand, where (and how) they believe the brand should go and grant permission (or not) to any marketing action. New- product ventures such as Cracker Jack cereal failed because consumers found them inappropriate brand extensions. A brand promise is the marketer’s vision of what the brand must be and do for consumers.

TABLE 8.1 Marketing Advantages of Strong Brands

Improved perceptions of product performance

Greater trade cooperation and support

Greater loyalty

Increased marketing communications effectiveness

Less vulnerability to competitive marketing actions

Possible licensing opportunities

Less vulnerability to marketing crises

Additional brand extension opportunities

Larger margins

Improved employee recruiting and retention

More inelastic consumer response to price increases

Greater financial market returns

More elastic consumer response to price decreases

 
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