Whatever Happened to Brand Equity…?

Back in my days as a young, thrusting marketer, brand equity was all the rage. Defined by the AMA as:

“The value of a brand… based on consumer attitudes about positive brand attributes and favorable consequences of brand use.”

It seemed only a matter of time that the value of the brand would be put on a company’s balance sheet. Once and for all, everyone in the business would recognize just how important branding is.

Thirty years later this still hasn’t happened.

Part of the problem has been that no one agrees on how much brands are worth. Firms that value them use different methodologies and come up with starkly different conclusions. Apple, for example, was named the most valuable brand in 2022 in three popular rankings of brand value. Yet the calculated values varied from $947m (Kantar) to $482m (Interbrand) to $355m (Brand Finance).

Reaching a commonly agreed standard remains as elusive as ever.

Then, there’s a school of thought that brand equity has become less relevant. Since we live in a world of increasingly perfect information, our decision-making process is more rational and the role of brands diminished.

This seems highly unlikely. As Daniel Kahneman pointed out, our conscious brain can’t cope with the vast majority of the decisions we have to make every day. Brands provide a useful mental shortcut.

Rather, the idea itself of valuing brand equity on the balance sheet has become increasingly irrelevant. In a world where brands are built through customer experience rather than advertising, who can say where branding begins and ends? For example, Amazon’s huge investment in warehousing that enabled one day or same day delivery is as much about the brand as its Super Bowl advertising.

Pretty much every aspect of a company is now a part of the brand. They have become intertwined.

Strong brand equity offers a number of clear benefits

This is not to say that brand equity is of little value to companies. It’s rare today to hear a CEO who doesn’t talk about the strength of their brand. Brands that have built up strong positive memories gain a number of substantial benefits:

Strong brand equity provides certainty

It gives a level of comfort that next year’s sales should be fairly similar to today’s. The brand attracts repeat customers.

Strong brand equity increases profitability

This is traditionally considered to be the result of pricing power. Strong brands can charge higher prices for similar products, increasing margins.

However, discounters like Walmart, Aldi, and Amazon have shown that it can also be the result of volume power. They can generate higher sales volume for similar products, increasing economies of scale.

Strong brand equity drives growth

The brand attracts new customers, as favorable impressions are spread through word of mouth. And it’s easier to extend into new products and new markets using the same brand name.

Strong brand equity strengthens talent

It enables companies to attract and retain talented people. And it boosts motivation, as employees take pride in the brand and work harder to strengthen it.

Strong brand equity attracts partners

The degree of certainty is attractive for suppliers to invest behind, while customer favorability makes the brand desirable for partnerships.

Strong brand equity increases the value of companies

By itself, this explains why companies are interested in branding. A study by Ocean Tomo has shown that 90% of the market value of companies is accounted for by intangible assets, which are primarily a combination of intellectual property, talent, and brand equity. Quite how much the brand alone accounts for is unclear, as we’ve seen, yet every CEO and investor intuitively knows that it’s core to the company’s value.

Manage the brand as a strategic company asset

Given such powerful benefits, a brand should be seen as a strategic company asset, with investments made to build, shape, and continually refresh brand memories.

Yet there has always been a dilemma at the heart of brand management: how to prove the ROI of investing in branding.

When it comes to investment decisions, metrics that demonstrate definite, measurable returns are more attractive to businesses. So for marketers, investing in mechanics such as promotions and email campaigns that can demonstrate short-term ROI is a much easier sell.

This has led to a never-ending debate over performance vs brand marketing.

But much like valuing brands on the balance sheet, this debate has become increasingly irrelevant.

For a start, every interaction influences the brand memories in people’s minds, shaping their feelings towards the brand. This is true whether it’s performance or brand marketing.

More importantly, people now experience brands in many more ways than just marketing communication.

Branding today is about ensuring that every interaction a person has with the brand, however small, contributes to building a positive brand memory structure. As Disney is fond of saying, “Everything speaks”.

Rather than the balance of performance vs brand marketing, this means championing investment across customer experience and organizational culture as well as marketing communication.

Establish an agreed measure of brand strength

To support investment, it’s essential that the business has a clear view of how the strength of the brand is evolving.

While brand equity can’t be valued on a balance sheet, there are many ways to measure this: brand awareness, brand relevance, market penetration, brand loyalty, financial performance, etc. Or by utilizing the many proprietary methodologies for measuring brand equity on the market.

None are perfect. But I’ve always found it better to focus on a few simple kpi’s that are relevant and everyone in the business can agree on, rather than use a complex mix of metrics with a derived index that no one really understands.

An asset as important as the brand needs the buy-in of the whole business…