Marketers and researchers use various perspectives to study brand equity. Most popular one being the customer based approach to brand equity.
The customer approach views the brand from the perspective of the consumer-either an individual or an organization. The premise of customer-based brand equity models is that the power of a brand lies in what customers have seen, read, heard, learned, thought, and felt about the brand over time.
Customer based brand equity can be:
- Positive – when consumers react more favourably to a product.
- Negative – if consumers react less favourably to marketing activity for the brand under the same circumstances.
There are three key ingredients of customer-based brand equity.
- Brand equity arises from differences in consumer response. If no differences occur, then the brand name product is essentially a commodity or generic version of the product. Competition will probably be based on price.
- Differences in response are a result of consumer’s knowledge about the brand. In particular, brands must create strong, favourable, and unique brand associations with customers, as have Volvo (safety), Hallmark (caring), and Harley-Davidson (adventure).
- The differential response by consumers that makes up brand equity is reflected in perceptions, preferences, and behaviour related to all aspects of the marketing of a brand. Stronger brands lead to greater revenue.
Benefits of Brand Equity:
- Improved Perceptions of Product Performance
- Greater Loyalty
- Less Vulnerability to Competitive Marketing Actions
- Less Vulnerability to Marketing Crises
- Larger Margins
- More Inelastic Consumer Response to Price Increases
- More Elastic Consumer Response to Price Decreases
- Greater Trade Cooperation and Support
- Increased Marketing Communications Effectiveness
- Possible Licensing Opportunities
- Additional Brand Extension Opportunities
From the perspective of brand equity, all the marketing dollars spent each year on products and services should be thought of as investments in consumer brand knowledge.