Brand equity is the intangible value added to a product by the effective use of promotion and other marketing tools. On dimensions like image, distribution and physical design, it can provide strong competitive advantages in product categories where most alternatives provide the same benefits. The only serious disadvantage of building brand equity is its cost, as building up a brand's reputation generally doesn't come free.
Building brand equity has a positive impact on brand image, product design and distribution. These benefits come at the expense of heavy advertising costs, however.
Brand image is the “personality” that people associate with a product. It adds to brand equity by creating an emotional connection between consumers and what they buy. When people can relate to a brand, they tend to stay loyal to it over time. This advantage is hard for competitors to overcome, even with strong price discounts. For example, women who want to feel alluring are more likely to buy lipstick with a sexy image, whether or not the product looks better or lasts longer than alternatives.
Another dimension of brand equity is the value that consumers associate with the stores where the product is available. This offers a particularly significant competitive advantage for a premium brand, which can be showcased on its own in specialty or luxury retail outlets. Distribution can also build a brand's equity by making it more accessible than alternatives. This is why some supermarkets offer home delivery, while snack food firms seek to place vending machines in as many locations as possible.
Often brand equity is expressed in a product's distinctive physical design, adding value by being innovative, easier to use or more attractive than alternatives. For example, e-reader brands compete by offering color screens in smaller and lighter devices. Antiperspirant, soap and other functionally similar toiletries often try to set themselves apart on the basis of unique packaging and/or dispensing mechanisms. Department stores build brand equity in part by offering on-site services like valet parking or in-store coffee shops.
The disadvantage of a firm's commitment to building brand equity is that it requires a heavy investment, particularly in promotion. While marketers can choose among many promotional tools, advertising is generally the most powerful in creating a brand image. Effective advertising, however, usually involves a significant media presence over time and it is more expensive than alternatives such as public relations and direct marketing. To bring down this cost, more and more companies are experimenting with social media as a replacement for traditional mass media exposure.
Amy Handlin has been writing about government, business and politics since 1999. She is the author of "Be Your Own Lobbyist" and "Government Grief: How to Help Your Small Business Survive Mindless Regulation, Political Corruption and Red Tape." She is also a state legislator and associate professor. Handlin graduated from Harvard and holds advanced degrees in marketing from Columbia and New York University.