Brand equity is the accumulated added value element of your brand. I often refer to as “emotional margin”. It’s frequently measured as the gap between the price your brand can command through its very presence because of the goodwill it has built up compared with how consumers value non-branded products in your category.
Like all market-driven elements, your brand’s pricing must be responsive to any number of factors, only some of which you can expect to control. Consumer confidence, for example, has a big influence on the inclination to spend, as does access to credit. But given that brand equity is the key financial motivation for building a brand in the first place, it’s too important to just be left to buyers to decide. You need to be consistently searching for ways to lift what people are prepared to pay.
Four ways to actively manage what your brands earn for you
Build distinctive products – It seems obvious, almost unnecessary, to include. But if you look in any market, so much of what is there is sound-alike and look-alike. Building distinctive products isn’t about engaging in a feature war. It’s about approaching what you make/sell in a manner that is different from, and more valuable to the buyer than, the standard industry fare. Basically, do things in ways that tilt the industry axis in your favour. Tesla builds electric vehicles that people want to drive and be seen in. Airbus and Boeing are locked in a battle to decide how the world travels – big or small.
Gaze deep into the eyes of too many product/service brands though and there is no shattering philosophy driving what they make. Because of that, much of what we see in any market is variations on bland. Brands too quickly confuse currency with equity. They think that meeting a fashion makes the brand more valuable. It doesn’t – when that idea is taken up by every participant, it simply makes it this year’s model. You don’t build a distinctive and valued brand through what you make. You can build a distinctive brand with distinctive products if you are truly prepared to think about what you make in terms that will delight and astonish.
Own ideas that people value – the true purpose of advertising in my opinion is not to advertise availability. It’s to promulgate ideas that people are intrigued by and to tie those ideas to the brand so that it stands for a wonderful point of view. Too often, brand association is something that never moves beyond a strategy deck. It becomes more than a bubble in a chart though when it comes to life in ways that have consumers reaching for their wallets.
There’s an interesting tension in this association. On the one hand, the idea must be clearly identified with the brand. On the other, it must be adoptable by consumers as something they value and want to engage with. The idea itself might revolve around changing the world or changing your life. It may simply make people smile and give them something to talk about. But the very fact that, as an idea, it’s something that people want to incorporate into how they live distinguishes it from the stream of visual and auditory noise that begs consumers to buy, buy, buy. Too often these days, we have succumbed to the temptation to invest in reach at the expense of building brand equity. Reach may interrupt people enough to drive up the numbers while a campaign lasts, but that bump in sales should not be read as a change in how people fundamentally value the brand. It’s just handy.
Think about how Lego owns the idea of play and how they continue to bring it to life in ways and through distinctive products that fascinate children. The very presence of the Lego brand elevates desirability and their price points (and profits) reflect that.
Limit accessibility – exclusivity remains a powerful way to sustain a premium price. By limiting what people can access, brands can push up desirability and therefore demand. It’s one of those wonderful quirks of human nature that people want what they can’t have if – and it’s a big if – it’s something they are deeply interested in and something they believe others can’t readily buy. Limited editions, collector sets, exclusives, one-offs … all of these scarcity-focused mechanisms enable brands to offer variations of their mainstream products at higher margins.
But the contribution to brand equity is not just in that premium pricing for those specific collections. Limited accessibility to parts of the overall range contributes to building brand equity because it has the halo effect of adding interest and intrigue to the brand overall. By driving up desirability for specific customer segments, the whole brand becomes more interesting and more consumers will be inclined to pay more for access at whichever price point they can afford.
Unfortunately, too often brands give in to the market demand for unfettered access to more product. They saturate the market with affordable versions of their key products and drive down their brand equity in the process. Gucci and Calvin Klein have both suffered from these miscalculations. The critical judgment in my view is to offer enough product to meet demand but not so much that interest slows.
Lock in the ecosystem – technology brands in particular have recognised that their brands are worth more if those same consumers become dependent on them for more and more of their needs. By integrating more of what they offer with what people are looking for, and providing them with greater benefits for linking with more of their products, brands drive up dependence and secure brand preference.
Apple of course are masters of this. By making those linkages at a range of price points, and consistently building strong margins into those offers, brands reinforce their role in consumers’ lives so that consumers only look for those marques. At first glance, this approach seems to run counter to limiting accessibility. On closer inspection, both limited accessibility and the cumulative ecosystem draw consumers in, and drive up brand value, because they reinforce the sense of ‘just for me’.
It’s not just about brand loyalty
Many of my favourite brand thinkers, including of course David Aaker, have written about this topic and most have emphasised brand loyalty as a key component of building brand equity. Increasingly, I see brand loyalty as an outcome of doing the above well but not necessarily an active agent for enhancing brand equity itself because I don’t think you can bank on it. Here’s why.
Brand loyalty has a relationship with brand equity, but I’m not certain it’s the active agent for enhancing brand equity many say it is
It’s absolutely true that brand fans will pay whatever they are asked to pay, but in many sectors such hard-core fans are a relatively small part of the overall customer base. Beyond that group, loyalty doesn’t always translate to higher pricing – but rather consistent buying, and often with the expectation of recognition through rewards or discounts that actually dampen margin. So you can have a group that is highly motivated to choose your brand over others, but who may also expect to make those purchases at below asking price.
The group that will pay more is the tranche of customers that is motivated enough to want to buy the brand but not so well established in that buying habit that they can confidently ask to pay less. That’s why brand attraction has a critical role to play in setting an anchor price for the relationship.
Brand loyalty itself is not steady. There’s plenty of research to show that brands cannot simply rely on their loyal customers forever. Consumers do pay more for the things they see as priorities but people also move on and their priorities change, along with their circumstances. For that reason, brands must continue to be attractive to even their most loyal customers rather than simply expecting them to stay on and fork out top dollar on the basis of the brand alone. No consumer lives in a brand bubble today.
Note: A version of this post has been published elsewhere under the title Actively Managing Brand Equity.