What is Brand Equity and Why Is It Important?

Brand equity refers to the value and strength that a brand adds to a business’s product or service. It is made up of the perceptions, associations, and attitudes that consumers hold, which significantly impacts the brand’s performance. This makes brand equity a key component to a business’s success. There are numerous benefits to pursuing brand equity, which include:  

  • Consumer recognition 
  • Customer loyalty
  • Competitive advantage 
  • Premium pricing 
  • Employee morale 
  • Partnerships & collaborations 
  • Market resilience 

Brand equity is particularly crucial for the franchise business model as it establishes customer trust and contributes to the overall sustainability and growth of the franchise system. Both franchisor and franchisee will benefit when there is an emphasis on brand equity.

Brand Strength Analysis – 10 Ways to Calculate Brand Equity

What type of methods do companies use to measure brand equity? While it’s not as tangible as “how much money did my company net this year”, there are still several ways to measure the components that go into brand equity. 

#1 – Brand Audits 

This refers to a comprehensive assessment of a brand’s position in the market. It includes examining the following areas:

  • Brand awareness – How well do consumers recognize the brand?  
  • Brand associations – What attributes, values, and emotions are linked to the brand? 
  • Brand perception – What is the brand’s reputation? 
  • Brand loyalty – How strong is the brand’s relationship with its customer base? 
  • Brand consistency – Does the brand have cohesive messaging and visual elements across all platforms? 
  • Brand positioning – Does the brand’s position align with its target audience and business objectives? 

The following points will offer practical ways to go about measuring these various components. 

#2 – Surveys and Questionnaires 

Issuing consumer surveys and questionnaires allows you to gather quantitative data on overall customer perception and associations with the brand. Here are several examples of the types of questions that might included on a brand equity survey: 

  • How familiar are you with [Brand Name]?
  • How familiar are you with [Brand Name]?
  • How would you describe the personality of [Brand Name]?
  • To what extent do you trust [Brand Name] compared to other brands in the same category?
  • How likely are you to choose [Brand Name] over competitors for your next purchase?
  • Have you recommended [Brand Name] to friends or family?

While concepts such as brand perception might seem difficult to measure at first, consumer surveys are a tangible way to hear directly from the source. This information is invaluable as it helps direct a business’s strategy moving forward. 

#3 – Focus Groups 

A focus group is a qualitative research method that involves a small but diverse group of individuals brought together to discuss and provide insights about a brand. It allows for the following: 

  • Exploring perceptions 
  • Uncovering emotions and attitudes
  • Probing brand associations
  • Testing messaging and imagery  
  • Capturing unfiltered feedback  

A focus group is particularly useful for exploring the nuances of brand equity since it is a research method that involves face-to-face questions and interactions about the brand. 

#4 – Customer Feedback and Reviews 

Monitoring customer feedback on various platforms allows you to understand the overall sentiment towards your product and identify areas for improvement. These reviews provide direct insights into the real-world experiences and perceptions of those interacting with the brand. A few ways to go about understanding your customers’ experiences include: 

  • Monitoring online review platforms (website, Yelp, Facebook, etc.)  
  • Analyzing social media mentions 
  • Using tools for sentiment analysis that categorize feedback as positive, negative, or neutral, which helps you identify trends 
  • Using online review to assess product and service quality 
  • Identifying and address customer pain points 

#5 – Brand Tracking Studies

Measuring brand equity is not a one-time task or project. It’s important to have a structured approach that consistently monitors the various aspects involved in brand equity. 

A brand tracking study makes use of various brand equity calculation methods, and it aids in measuring the changes in brand awareness, perception, loyalty, and more over time. It’s a practical way to evaluate the effectiveness of your marketing strategies. This leads to actionable insights and informed decision-making. 

#6 – Net Promoter Score (NPS) 

You’ve likely encountered the Net Promoter Score more than once as a consumer. The NPS is a widely used metric that measures customer loyalty and satisfaction with one simple question: “on a scale of 0 to 10, how likely are you to recommend our product/service/company to a friend or colleague?” The responses are categorized into the following three groups: 

  1. Promoters (Score 9-10) 
  2. Passivess (Score 7-8)
  3. Detractors (Score 0-6)   

The NPS is then calculated by subtracting the percentage of Detractors from the percentage of Promoters. The exact formula is: 

NPS = (% Promoters) – (% Detractors)

An NPS can range from -100 to +100. Perhaps it goes without saying that the higher the score, the more likely the brand is to have a positive impact on customer loyalty. 

Furthermore, the NPS categories are as follows: 

  • NPS between +50 and +100: Excellent (High customer loyalty and advocacy)
  • NPS between +30 and +49: Good (Solid customer loyalty)
  • NPS between 0 and +29: Room for improvement (Moderate customer loyalty)
  • NPS between -100 and -1: Needs attention (Low customer loyalty and potential issues)

Both the numerical score and the qualitative feedback from an open-ended survey lead to actionable insights for a business as they seek to grow brand equity. 

#7 – Social Media Analytics

We live in the age of technology, which means there are even more ways to tangibly track brand equity. Social media in particular presents a solid opportunity for understanding brand equity. In fact, 72% of Americans use some type of social media and the number will only continue to rise (Pew Research Center). Social media platforms provide numerous metrics to analyze that will help you gauge brand mentions, engagement, and sentiment across various platforms. 

#8 – Purchase Behavior Analysis 

This method involves studying consumer purchasing behavior and patterns to understand the impact of the brand on buying decisions. This analysis will give insights into the brand’s relationship with its customers. There are several behaviors you can analyze including:

  • Repeat purchase behavior (indicates brand loyalty) 
  • Customer retention 
  • Success in ability to cross-sell and upsell 
  • Brand switching behavior 
  • Response to marketing efforts 
  • Customer advocacy  

All of the information gained from a purchase behavior analysis can then be used to inform business strategies that will contribute to a positive brand-consumer relationship. 

#9 – Brand Valuation

Understanding the brand as a monetary asset is another way to evaluate brand equity. A brand’s financial worth reflects on its brand equity. While there are different ways to approach assessing the the financial value of a brand, you should consider the following: 

  • How much did it cost to create and build the brand? This includes advertising, trademarking, licensing, etc.  
  • How much is the company worth if it was put on the market to sell? 
  • How much income did the company net or how much money did the company save by building the brand? 

Keep in mind that a comprehensive understanding of a brand’s worth often requires collaboration from financial analysts, marketing experts, and legal professionals. 

#10 – Competitor Benchmarking 

Performing a competitor analysis to compare a brand’s performance against competitors will give valuable insights into the brand’s relative strengths, weaknesses, and overall standing in the market. What your competitors are doing will have an impact on your brand, whether they’re doing a poor job or doing well compared to you. Competitor benchmarking can help determining brand equity because it provides insights on: 

  • Market position
  • Brand awareness 
  • Brand perception
  • Customer loyalty 
  • Market share
  • Product and service quality 
  • Pricing strategy
  • Social media presence
  • And more

Ready to Invest in a Franchise Brand? 

Are you ready to invest in a franchise that focuses on brand equity? FranNet is here to help. Our expert franchise consultants can evaluate your specific goals and abilities to find a franchise brand that’s right for you. We will provide you with all the resources you need to make an informed decision and walk you through the process from start to finish. All of this comes at no cost to you. Schedule your free consultation today to get started! 

Jan 29, 2024