How to Measure Brand Equity: Importance and Approaches

"75% of customers would choose their trusted brand even if there's a cheaper alternative!"

Why?

According to a recent study done by Edelman Intelligence, trust unlocks a deeper relationship between the consumer and the brand. But how do you turn your customers into high-trust consumers who excel in portraying loyalty, engagement, & advocacy to you?

Brand equity!

why don't we look into its meaning, importance, and ways to measure it?

Off we go!

What is Brand Equity?

When a brand has a strong, positive brand name and public perception, it gains added value, known as brand equity. In simpler words, it is the pulling power a brand has to stand out amongst its competitors and be a category leader. 

Measuring brand equity will help you study customer behavioral tendencies to maximize profitable sales. Brand equity is an influential factor when you're attracting new investors, and it can even affect the quality of employees you'll be able to recruit.

I agree that it may sound like yet another buzzword floating in the digital media. But the truth is, whether you're trying to simply sell your products at higher prices or introduce a new product, understanding brand equity is key!

For instance, think about a few world-famous companies and what they represent. "Photoshopped" has become a slang word and is synonymous with edited pictures.

In this blog, we will walk you through why it's important to measure brand equity & 6 ways to do it! 

Why Measure Brand Equity?

Providing valuable insights into how your target consumers perceive your brand, measuring brand equity helps your brand gradually become an industry leader, first in awareness, then in preference, and ultimately in market share.

The top 4 benefits of measuring brand equity are:

Assess brand strength

When done at regular intervals, measuring brand equity can provide you with a pulse check on your business health, enabling you to proactively intervene & resolve the misses before they become a major problem. 

Suppose you found out that your target audience doesn't perceive your brand positively. You can use surveys to identify what's driving negative customer sentiment against you and drive quick actions to fix it.

A brand perception survey can be used to identify customer perception about your brand personality. A brand awareness survey can measure brand recall. 

Here's a sample template you can roll out to your customers. Feel free to customize it, add your logo, align it with your brand, and see the magic!

Brand Awareness Survey Template

Preview Template

Use This Template

Gauge consumer behavior insights

Brands with high equity often prioritize delivering exceptional customer experiences, leading to increased brand trust and repeat purchasers. Measuring brand equity also presents a unique opportunity to segment & group your customers based on their interests and habits to help you deliver tailored marketing messages that resonate with them.

Increase your market value

Measuring brand equity will help you gain a competitive advantage, move into premium pricing, and be valued highly by investors. 

For instance, Apple is a company with a loyal customer base that helps them drive their market value. The strong brand equity has made them a strong presence in the market despite intense competition. 

Reduce risks

A company with strong brand equity will be more resilient to market fluctuations because your competitors can't easily sway loyal customers. Measuring brand equity helps you maintain customer confidence and mitigate reputation risks, even in a crisis.

Employee engagement

Measuring brand equity helps you build a company loved by its customers and employees alike. Working for a strong brand can boost employee morale and motivation. A positive brand reputation can also help you win the war for talent, & attract top talent to your organization.

Key Metrics to Measure Brand Equity

Whether you are a business owner, startup founder, marketer, or researcher, measuring brand equity is crucial to your brand. The customer perception of your brand will affect you more than you can imagine.

Whether they think of you, and more importantly, whether they'll think of you first when considering a certain product or quality, is how you become an industry leader.

When you have strong brand equity, it means your customers will be predisposed to choose you over your competitors and will be willing to pay more for products from your brand. 

To improve, one must measure it first. 

Here are some of the most common metrics used to measure brand equity.

Brand Awareness & Recall

Did you know that 46% of customers prefer to buy from brands that they are familiar with?

If your customers are unaware of your brand, how will they develop perceptions, prefer your product, or eventually become loyal customers?

You can rely on brand awareness surveys, sales data, focus groups, website analytics, and social media metrics to measure brand awareness. 

But it's not enough to roll out surveys; you must analyze them in detail to see the shift in customer preferences. This will allow you to pinpoint where you excel and make improvements in areas where you need to give a slight nudge! And you know that's exactly what SurevySparrow does (and more!)

A high awareness level implies that your brand has high visibility in the market and can be recognized by customers, which can be translated into increased sales and market share.

You can use aided and unaided brand awareness survey questions to estimate brand awareness and recall. For example, when you're asking your survey respondents to mention the brands they're familiar with in a category or industry, you get unaided recalls of the brands they're most familiar with. Whereas with aided recalls, you will ask your respondents to select the brands from the options you gave

Brand Relevance

This refers to the extent to which your brand is considered meaningful, relevant, and connected to your customers' lives. Insights on how customers perceive your brand's relevance will help you drive actions to foster stronger customer relationships, increase sales, and enhance your overall brand value.

Brand Loyalty

The make-or-break for any brand, loyalty, can be defined as the return visits, future purchases, and word of mouth that generates new customers.

There are various strategies to boost customer loyalty, such as emotional branding, that lets you build long-term customer relationships. A critical metric to measure brand equity and a classic tool to measure customer loyalty,  try NPS® surveys to measure customer sentiments accurately.

Website Analytics

You can analyze your website metrics to provide insights into a brand's equity by tracking user behavior & interactions on your website. The popular stats tracked are: lead generation costs, conversion rate, bounce rate, top pages, exit pages, total web traffic, and traffic source. 

You can easily go beyond analytics by including website feedback surveys in your strategy to measure brand equity and quantify your website as an asset to your brand.

Social Media Metrics

Analyze your social media marketing metrics to get richer insights into how your brand is perceived, engaged with, and valued by the audience. And in today's world, it's a beginner-friendly, one-stop solution to measure brand equity. With your social media marketing metrics you can:

• Measure brand awareness and reach by tracking how many people see your brand's content without promotion (organic reach), and how many it reaches with paid advertising (Paid reach)
• Track brand engagement by analyzing the level of interest and interactions from your audience such as clicks, likes & more.
• Assess brand sentiment by calculating the percentage of social media mentions that express positive & negative feelings about your brand.
• Track brand advocacy by identifying how often the audience mentions your brand and the enthusiasm to share your content with their network.
• Monitor brand reputation by quickly identifying and resolving negative sentiments about your brand before it grows big & damages your reputation.
• Measure brand loyalty by tracking the increase in followers and level of engagement with your brand's content.

Approaches to Measuring Brand Equity

Now that we've discussed the metrics you should consider to measure brand equity let's discuss the different approaches you could adopt. Though it's challenging to quantify qualitative data, you can use numerous ways to measure brand equity; each has its benefits, & focal points. 

The most popular valuation approaches are:

1. Cost-Based Brand Valuation

There are different methods within this:

Historical Cost Method

This method measures brand equity by considering the total value of your brand. That is the total of all the individual costs incurred towards creating your brand, such as advertising, campaign, promotion, registration, and licensing costs.

For example, if a company spent $10 million on advertising, $5 million on product development, and $2 million on legal fees to establish a new brand, the historical cost would be $17 million.

Replacement Cost Method

From market conditions to technology and competitive landscape, the total expenses and investment required to replace the brand with a new brand of equal value are considered to measure brand equity using this method.

Recreation Cost Method

The recreation cost method helps you eliminate the problems faced in the historical cost method to measure brand equity and calculates the current cost of recreating a brand using the current prices

Conversion Method

This method is based on the conversion model, which considers the level of awareness in customers that will trigger further buying. By adapting the model to measure brand equity you will estimate the level of awareness that is required to be generated to get to the current sales level. And the result will be used to estimate the customer acquisition cost, which is actually the cost of brand equity.

Customer Preference Method

This method leverages brand awareness to measure brand equity. Brand equity is calculated by observing the change in the market share when there is an increase in brand awareness. 

2. Market-Based Brand Valuation

Let's look at each of the methods...

Comparable method

To measure brand equity using the comparable method, you will compare your brand to similar brands with known market values. While choosing the brands to compare, pick the ones similar to your brand in terms of industry, market position, product offerings, and target audience to get accurate results. 

Equity Valuation Method

To measure brand equity using this method, we must consider two parameters. 

1. Returns generated from investments made to increase the demand for your product, such as advertisements, that can generate profit.

2. Savings in the marketing costs of their branded products. The cost saved during a new product launch, because you have an established brand, can also be included in the calculations.

Residual Method

In this method, you will subtract the value of the company's physical attributes of the brand from its overall market capitalization to measure brand equity. The physical attributes include tangible assets such as property or equipment, and identifiable intangible assets such as patents or customer lists.

3. Income-Based Brand Valuation

On to the different approaches...

Price Premium Method

This method measures brand equity by calculating the additional value customers are willing to pay for a brand when compared to a generic product. It's based on the idea that a strong brand can command a higher price in the marketplace.

Royalty Relief Method

One of the popular methods to measure brand equity, this method lets you calculate the royalty fees an organization has to pay for using the trademarks if it does not own the brand.

After estimating the appropriate royalty rate & the perceived value of the brand, you can forecast the potential royal income by licensing the brand over a specific period. 

Excess Earnings Method

The excess earnings method calculates the intangible returns of a brand to measure brand equity. Based on the idea that a strong brand can generate higher profits than a generic brand, you will first calculate the returns on all the tangible assets plus all the financial assets, which are then subtracted from the total returns of the brand. In simpler words, the method estimates the additional earnings attributable to a brand.

Competitive Equilibria

This is not a direct method for measuring brand equity. However, by analyzing competitive equilibria, we can understand how brands interact with each other and how consumer preferences shape market outcomes.

In this method, the brand earnings from the market share of a strong branded company are compared with that of a generic brand. 

So, Should You Measure Brand Equity?

Brand equity is what customers think and feel about your brand. It's what makes Coco-cola more than a carbonated drink, or makes Rolex more than a watch, or made Apple the most valuable company in the world, with a market cap of $3.48 trillion.

If you have strong brand equity, your profits are likely to be healthy, your customers will pick you over the competition, and you will have more pricing power. 

What's not to like?

To get started, learn how to monitor brand awareness using surveys!