Brand equity can be a complex attribute associated with your company that adds value to the product you offer, to your target consumers. Many people may even say it is even complicated. This is one of the reasons why business owners and entrepreneurs starting up a business do not view brand equity as anything usable.

I felt it necessary to illustrate the advantages and disadvantages of brand equity, as it is quite necessary when you are about to establish a brand, knowing the advantages and disadvantages will help you make more informed business decisions that will affect your business.

What is Brand Equity?

The brand equity definition: It is the intangible value added to a product by the effective use of promotion and other marketing tools.

On dimensions like image, distribution, and physical design, it can provide strong competitive advantages in product categories where most alternatives or substitutes provide the same benefits. The only serious disadvantage of building brand equity is its cost, as building up a brand's reputation generally doesn't come free. ‘Ceteris Paribus - Advertising and sales promotion will take place anyway, so why work with brand equity in mind from the start? Let's map it out!

Strong Customer Loyalty:

This is by far the best advantage of brand equity. Every company wants a loyal consumer base. There are multiple reasons for that. For instance, loyal customers spread good and great word-of-mouth for your branded value and equity. If you have a strong brand presence and awareness, consumers would prefer you more. They are fierce loyalists, who will advocate your brand, its products and service.

Lower Customer Retention Cost

Consumer retention is an ongoing process to maintain a brand and a business for a point of discussion. It’s one of the prime focuses when you create mass marketing campaigns.

But there are proven examples by industry leaders such as Coca-Cola, PepsiCo, Samsung, and Apple. These brands spend less cost on consumer retention because their immediate focus is on giving a better experience to the consumer in the first place.

The consumer can be new or old, it does not matter. What matters to the brand is that each consumer should enjoy the experience from one to another. When that process of your brand promotion delivering on its promises is fixed, your brand equity rises, therefore your marketing cost is eventually optimised and cut down, sometimes to half.

Better Profit Margins

A company’s ultimate goal is to generate sustainable profits. without profit, no company would survive. Therefore when your company has strong brand equity in the marketplace, your brand enjoys the advantage of better and higher profit margins.

Think of: Samsung vs Oppo. Both smartphones use Android technology and similar features, but Samsung is consistently positioned as a premium product, therefore generating higher profits.

What does it conclude? It shows your brand too can reach the premium brand positioning in a customer’s mind or perception. For that, you need your brand vision and strategies to be clear. When the foundation building phase is complete, these consumers will pay a higher amount for your brand too.

Higher customer lifetime value:

With stronger, sustainable, stable, and successful brand equity in the competitive market, you earn higher and longer customer lifetime value. With this prestige, your customers trust your brand and its products more.

They will continue to consume every other product you launch. For example, Nestlé is one the largest food companies in the world as per its revenue and other metrics stated on Wikipedia.

Higher Customer Lifetime Value (CLV)

A high customer lifetime value indicates the ‘people who shop a lot with you’. They seem to be satisfied with the service and quality so your products must be good. And most importantly, they are brand loyal so you have a chance for growing even more. This is something investors love to hear if you decide to seek funding.

If you ask me, you cannot put a value on CLV! Customer lifetime value will be the attribute that is constant, reliable, and will back you up in bad times and reward you in good times. Meaning, when customers have an option to buy a substitute for what you do, people more often than not will continue to support you. When you look at a struggling brand or a business that is not properly branded, more often the customer can switch from one company to another.

Brand Consistency

Brand consistency seems like such an easy thing to do and when you search for this topic, there isn’t a lot of information available. But from a practical day-to-day work experience brand consistency is a big issue. Usually in smaller businesses and start-up ventures. Don’t be fooled ABSA and MTN have both recently had blundered. It is unfair to compare many brands to the iconic Apple, Samsung, Microsoft, IBM. On a practical note, brand consistency is not fully achieved because ‘corporate identity documentation is not available, there is little focus on the brand itself, Marketing Managers like to leave their mark and change the brand core identity by logo design change without an in-depth analysis. Brand consistency is cleverly achieved by simple CI documentation and employees who stick to it.

Pivot to Changes in the Marketplace

A disadvantage of any brand is the ability to radically change with market forces. For example, being a travel agency may find it hard with the name of ‘Mike’s Travel Agency’ to change to a transport business, due to COVID restrictions. That’s a negative but also a strong point, as it forces us to think long and hard at what the brand name and branding needs to look like but using a bit of ‘foresight’. Look into the future at the horizontal and vertical product/service integration that may take place in the next 20 years. This thinking will have a profound effect on branding.

Data-driven and Metrics-driven Strategic Process

A profound advantage to focusing on brand equity means everyone in the company, including the financial head of the department, will value the research required to elevate brand equity, no matter how small or new, or large a firm is. Brand auditing, market research, and monitoring of all website and customer experience metrics will be valued and will produce more informed strategic decisions to create a much better marketing strategy for the strategic marketing plan with the brand and digital strategy all working as one. This means the firm will become more streamlined and agile in day-to-day business. Built to tackle almost all issues in its stride. Want to what is a brand audit click here to read about it in my last news post.

If brand equity can be a focus point, we will see more firms upskilling their employees in marketing and fewer knee-jerk reactions from marketing, who will ultimately deliver a constant stream of great work derived from data/science while appealing to the right audience you need to make a profit.

Intangible Asset Value

I challenge the Owners, CEOs, CIOs, CFOs, and CMOs to investigate how you can add brand equity as an intangible asset value to your bottom line performance. It will not only create a harmonious workforce with one objective - Build a solid foundation. This will also help establish a value, other than using goodwill, venture capital investors will see immense value in investing in a brand that is proving to grow.

This will, in turn, ensure the investors that you have the right processes in place, which is followed by having the right employees, who add value not only in selling but help in building a brighter, better future for your firm. It is a win-win.

Why Building Brand Equity is Important

Building brand equity has a positive impact on brand image, product design, and distribution. Although an intangible asset, your brand’s performance can be tracked financially. If you did you may think twice before radically altering a brand image, or not advertising your products or services with a consistent message. For more information Click here.