Brand equity is the commercial value of all associations and expectations (positive and negative) that people have of an organization and its products and services due to all experiences of, communications with, and perceptions of the brand over time. This value can be measured in several ways: as the economic value of the brand asset itself, as the price premium (to the end consumer or the trade) that the brand commands, as the long-term consumer loyalty the brand evokes, or as the market share gains it results in, among many others. From an economist’s perspective, brand equity is the power of the brand to shift the consumer demand curve of a product or service (to achieve a price premium or a market share gain).
To use a metaphor, brand equity is like a pond. People may not know how long the pond has been around or when it first filled with water, but they know that it supports life, from ducks to deer. It also may provide recreation, irrigation, even human drinking water. Clearly it is a valuable resource. But many people take the pond for granted. It seems as if nothing can diminish its supply of water, yet we sometimes notice that it rises with the spring rains or lowers after a long drought or overuse for irrigation.
Similarly, brand equity is a reservoir of goodwill. Brand building activities consistently pursued over time will ensure that the reservoir remains full. Neglecting those activities or taking actions that might deplete those reserves will reduce the reservoir, imperceptibly at first, but soon all too noticeably until it is too late and all that is left is mud.
This illustrates a chronic difficulty in brand management. Brand equity is critically important to a company’s success, yet because of its reservoir-like nature, it is often taken for granted, overly drawn upon, and not adequately replenished, especially in times of crisis or to meet short-term needs.