November 24, 2008

Brand Equity

What is brand equity?

American Marketing Association defines a brand as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those competitors”(Kotler, 2003, p. 418).

In essence, to brand a product or a service is to create marketable differences to differentiate it from other similar products or services in order to derive excessive profits to the company providing the service or product.

Although marketing activities and other activities create an impetus for brand creation, a brand ultimately resides in the minds of customers. Thus for the branding to be successful, it is essential for the customers to be convinced that there are meaningful differences among brands in the product or service category.

Brand equity is the added value endowed to products and services. This value may be reflected in how consumers think, feel and act with respect to the brand, as well as the prices, market share, and profitability that the brand commands for the firm. Brand equity is an important intangible asset that has psychological and financial value to the firm.

Srinivasan et al. (2001, p. 1) defines brand equity as “the incremental contribution ($) per year obtained by the brand in comparison to the underlying product (or service) with no brand-building efforts.” Furthermore he outlines the sources of brand equity through (1) brand awareness, (2) incremental attribute perception biases and finally through (3) incremental non-attribute preferences.

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