Commercial Ink - The Value of Brand Equity

The Value of Brand Equity

A brand is a name or trademark connected with a specific product or company. Most people do not think much of them but the truth is that brands are becoming increasingly important components of culture and the economy. Strong brands generate a sense of trust to consumers, who usually purchase products based on the views they have of a specific brand. That is why it is especially critical to ensure all aspects of your brand are conveyed correctly and in a positive way. But how exactly can you measure the success of you brand? To answer this question, let's consider the ways to value brand equity and take a look at a few prime examples.

Brand equity refers to the marketing effects or outcomes that come from a branded product, versus that same product without the brand name. Imagine a drink that is part high-fructose corn syrup, part carbonated water, and holds no nutrition value whatsoever - doesn't sound too appetizing, but when someone asks you if you'd like a Coke the situation changes.

There are several ways to measure brand equity at all levels. First is at the firm level. This measures a brand as a financial asset. At this level, firms calculate how much a brand is worth as an intangible asset. Secondly, at the product level, price is compared between a no name or private label and an "equivalent" branded product. Assuming all other things are equal, the difference in price is due to the brand name. The final measurement tactic is at the consumer level. This approach aims to figure out which associations consumers have with a specific brand. It measures awareness and brand image. The Corporate Branding index, after tracking corporate brands for many years, had shown that the average contribution of a company's brand to its market capital is seven percent, but it varies in each industry.

A great example of the value held within a company's brand is Coca-Cola. In the first quarter of 2006, its brand equity as a percentage of market capital was twenty-one percent; converted into dollar value, that's $20 billion. In other words, even if Coca-Cola stopped selling its product, its brand alone would still create revenue. Pepsi-Co is a close second with nineteen percent brand equity, which is equivalent to $19 billion of its market capital. In the food industry, General Mills is the leader with nineteen percent and $4 billion, followed by Kellogg, which is at nineteen percent brand equity and $3 billion in market capital. These companies knew the value of branding and are perfect illustrations of what can happen if you brand your company or product correctly. Although you may not be the next Coca-Cola or Pepsi, improving your business' brand value and presence can lead to increased sales and a higher valued product or service.

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