A lot of time and effort that goes into building a brand. The company brand is what’s communicated and supported by the marketing plan, the website design, the content, the packaging… the list goes on and on. 

But as with all company-building activities that require time and financial investment, us business owners and entrepreneurs have to conduct a responsible cost-benefit analysis. That might leave you wondering – what is the benefit of building a brand in the first place? 

The answer is brand equity.

Here’s how this term is defined in the dictionary: 

brand eq·ui·ty

noun

  1. the commercial value that derives from consumer perception of the brand name of a particular product or service, rather than from the product or service itself.

In short, brand equity is when you reap the rewards of your marketing team’s hard work. Your customers are positively associating your products and/or services with the values and messaging represented by your brand. As a result, your company’s sales are up and your product rises within the market.

To understand what goes into branding, click here. 

For a bird’s eye view of the benefits of brand equity, take a look at this graphic taken from Marty Neumeier’s The Brand Gap.*

*Note: The Brand Gap is one of our favorite books here at Kairos, and a frequent reference around the office! Find it on Amazon here.

Illustration from The Brand Gap, by Marty Neumeier

Coca-Cola is a great example of how valuable brand equity can be! Even though it isn’t a physical asset, the perceived value of the brand doubles Coca-Cola’s market cap, especially compared to lesser-known, less well-branded competitors

What exactly makes brand equity so valuable? 

Here are five huge reasons why building your brand equity in the beginning generously pays off:

1. Capture Customer Loyalty

Your existing customer base found your product and/or service, and they’ve been loyally following your company for a while now. But there’s a lot of competition for their attention. If your brand (not your company, but your brand!) isn’t visible to or compelling enough for them, they may stray.

However, when your brand connects strongly with them, they’re much less likely to explore other options. Customers are great, but lifelong fans are the true backbone of a business. By investing in your brand, and capitalizing on your brand equity, you can count on steady sales and avoid large fluctuations in revenue for years to come.

For example, Starbucks has built an empire on brand awareness. They’ve capitalized on brand loyalty by employing such a great marketing plan that Americans often associate ‘Starbucks’ with ‘coffee’ without thinking. Although it’s a hugely successful company, Starbucks’ biggest asset is their brand equity. Without their calculated branding and marketing strategies, convincing customers to purchase their cup of coffee instead of the competition’s would prove more difficult.

2. Benefit from Organic Growth

A huge benefit of brand equity happens when your product is immediately recognizable to potential consumers. This breeds customer loyalty in your prospective clients. Additionally, as more consumers recognize the product, visibility increases in the market, resulting in even more sales!

Organic growth occurs when consumers are not only purchasing the product steadily, but also recommending it to friends and family. As friends and family recognize the product and see that their peers are using it, they’ll be more inclined to use it themselves.

Organic growth can also result from consistently positive online reviews. In fact, studies show that 91% of customers read online reviews prior to purchasing a product or service, and 76% of those customers trust online reviews as much as they trust recommendations from family and friends. 

The takeaway: if your loyal customers are leaving good reviews, your business may experience a snowballing and organic increase in sales!

3. Sell Based on Value – Not Price

Winning customers because of price means that you’ll inevitably end up losing customers because of price. There can only be one company with the lowest rates, so a business must offer something else of worth to differentiate their product or service from the competition. This is where the power of brand equity comes in.

Your ideal customers will work with your business because there’s something about what you offer that they value, whether that’s your mission, brand story, customer service, or great quality products. 

When these potential customers recognize your brand’s worth to them, and choose your business over the competition because of it, then congratulations! You’ve just benefitted from your brand equity.

4. Increase Your Market Share

As your business expands, it may dominate a bigger share of the market. Essentially, this means that you can grow larger than the competition, increasing your status and footing within the industry. This is ideal because it establishes your company as an authority in your field. When you’re regarded as a trade expert, you may benefit from the opportunity to network with similar businesses and profit from a referral network. Additionally, customers place an invaluable trust in industry leaders, and it’s a great way to earn their business for life.

As your brand equity increases, so can your market share. With a larger share of the market comes the benefit of earning market power. This gives your company a competitive edge, paving the way for increased brand awareness, a broader customer base, and even future expansion opportunities.

5. Capitalize on Expansion Opportunities

If you’ve ever thought about expanding into new markets, acquiring additional locations, or even taking on customers in new areas, you’ll be relying heavily on brand equity. Without the added value and positive reputation that your brand brings to the company’s operation, any growth ventures are sure to fail. On the other side of that coin, though, the advantage of having significant brand equity is sure to aid in the success of any new ventures.

At the end of the day, entrepreneurs and businesses fill a need, and so we do what we can to fill as many needs as possible. As a result, it’s not uncommon to aim for growth. The important thing to remember is that brand equity is going to play a huge role in any expansion projects that we take on, whether we account for it or not.

The Big Takeaway

Whether the intention is to secure customer loyalty or open up 10 new locations, brand equity is one of the biggest factors in the success of your future endeavors. 

If neglected, a lack of branding can have a negative impact on your market potential and even future bottom line.  However, when cultivated properly from the beginning, the benefits of brand equity are profound.

Need help building up your brand equity through strategy, marketing and design? Contact us today to schedule your free consultation!