What Is Brand Equity?

Brand equity is the commercial value derived from the brand name of a company’s products, such as a product, service or service provider. A company creates brand equity in its products by making them more attractive to consumers than other brands on the market. This is due to the fact that the owners of known brand names generate more sales through brand awareness alone than consumers who perceive the products of these known brands as better than the less well-known brands and vice versa.

The initial phase of the value and building process is the creation of brand equity in a company’s product or service provider. In marketing, brand equity is the recognition of well-known brand names as better than other brands on the market. According to cognitive psychology, brand equity lies in the attributes and perceptions that are driven by brand characteristics and associations. Brand equity has been studied in a variety of fields, from psychology to economics, marketing psychology to business administration.

According to information economics, a strong brand name acts as a credible signal of product quality to an imperfectly informed buyer, generating a premium in the form of a return on branding investment. Brand equity is the price consumers are willing to pay when a brand is known, compared to the value of the benefits received. One perspective says that brand equity cannot be negative, and assumes that only positive brand equity will arise. The second perspective is that negative equity can exist in the form of sustained negative press and attention to a brand.

Brand equity refers to the value or premium a company generates from a product with a recognizable name compared to a generic equivalent. Colloquially, the term “negative brand equity” can be used to describe a situation in which a brand has a negligible influence on the product level when compared with the name of an own-brand product. If a company has a positive brand value, customers pay a higher price for its products than if they could get the same for less from a competitor. In fact, the customer pays a premium to do business with a company he knows and admires. A company can create a “brand equity” in its product by making it more recognizable and attractive to customers than its competitors. Brand equity is the value that customers assign to a company based on their perception of its quality. Companies with high brand value can charge more than competitors because buyers are willing to pay more for the label.

The difference in value is what we call brand equity when it comes to product pricing. This concept is not based on the concrete financial value of a company, but on the perceived value of the customer. Brand equity is therefore the value that a brand brings, something that influences purchasing decisions and something that consumers think, feel and act on account of their relationship to the brand. The addition of this final value is directly a result of the strengths that brands have acquired over time. Like price, market share and profitability are linked to brand equity. Brand equity is an extension of brand awareness, but more than recognition it is the added value of a certain name. Like all intangible assets, brand equity is an important asset for a company and corresponds to the psychological and monetary values of the organization.

When customers attach a level of quality and prestige to a brand and perceive it as more valuable than products from the competition. A branded product can have a strong reputation and high brand value in the minds of consumers, and customers are willing to pay more for it. In fact, the market has a greater interest in brands that have a high share of brand equity. This high level can be a factor in a customer’s purchasing decision, and companies that own branded products can therefore expect to gain an advantage in sales performance. The company that owns a brand can capitalize on the brand equity by raising the price of its products to a higher level than its competitors, even if the quality of the product remains the same.

The value and brand equity of the brand is determined by the perception and experience of the brand by the consumer. If consumers value a brand, it has positive brand values, and if it does not, it is considered negative brand values to the extent that consumers recommend avoiding it. From the perspective of any brand owner, the most accurate assessment of brand strength is reflected in the price potential buyers are willing to pay to acquire it. Indicators that determine brand strength from a consumer perspective are the emotional connection that consumers have with the brand and its products and services. Brand equity is measured by the number of positive and negative brand equity, as well as the quality of the product, service and experience.

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