Define the term brand. What are the sources and benefits of brand equity?

A brand is the idea or image of a specific product or service that consumers connect with, by identifying the name, logo, slogan, or design of the company who owns the idea or image. Branding is when that idea or image is marketed so that it is recognizable by more and more people, and identified with a certain service or product when there are many other companies offering the same service or product. Advertising professionals work on branding not only to build brand recognition, but also to build good reputations and a set of standards to which the company should strive to maintain or surpass. Branding is an important part of Internet commerce, as branding allows companies to build their reputations as well as expand beyond the original product and service, and add to the revenue generated by the original brand.

When working on branding, or building a brand, companies that are using web pages and search engine optimization have a few details to work out before being able to build a successful brand. Coordinating domain names and brand names are an important part of finding and keeping visitors and clients, as well as branding a new company. Coordination of a domain name and brand names lends identification to the idea or image of a specific product or service, which in turn lets visitors easily discovery the new brand.

Branding is also a way to build an important company asset, which is a good reputation. Whether a company has no reputation, or a less than stellar reputation, branding can help change that. Branding can build an expectation about the company services or products, and can encourage the company to maintain that expectation, or exceed them, bringing better products and services to the market place.

Many people believe a brand only consists of a few elements – some colours, some fonts, a logo, a slogan and maybe  some music added in too. In reality, it is much more complicated than that. You might say that a brand is a ‘corporate image’.

The fundamental idea and core concept behind having a ‘corporate image’ is that everything a company does, everything it owns and everything it produces should reflect the values and aims of the business as a whole.

It is the consistency of this core idea that makes up the company, driving it, showing what it stands for, what it believes in and why they exist. It is not purely some colours, some typefaces, a logo and a slogan.

As an example, let’s look at the well known IT company, Apple. Apple as a company, projects a humanistic corporate culture and a strong corporate ethic, one which is characterised by volunteerism, support of good causes & involvement in the community. These values of the business are evident throughout everything they do, from their innovative products and advertising, right through to their customer service. Apple is an emotionally humanist brand that really connects with people – when people buy or use their products or services; they feel part of the brand, like a tribe even. It is this emotional connection that creates their brand – not purely their products and a bite sized logo.

The most valuable brands in the world

2007 Brand Rank	2006 Brand Rank	Change in Rank	Brand Name	2007 Brand Value $m	2006 Brand Value	Change in Value From Prev Year (in %)	Parent Company	Country
1	1	0	Coca-Cola	65,324	67,000	-3	Coca-Cola	U.S.
2	2	0	Microsoft	58,709	56,926	3	Microsoft	U.S.
3	3	0	IBM	57,091	56,201	2	IBM	U.S.
4	4	0	GE	51,569	48,907	5	GE	U.S.
5	6	1	Nokia	33,696	30,131	12	Nokia	FINLAND
6	7	1	Toyota	32,070	27,941	15	Toyota	JAPAN
7	5	-2	Intel	30,954	32,319	-4	Intel	U.S.
8	9	1	McDonald's	29,398	27,501	7	McDonald's	U.S.
9	8	-1	Disney	29,210	27,848	5	Walt Disney	U.S.
10	10	0	Mercedes-Benz	23,568	21,795	8	DaimlerChrylser	GERMANY

Source: Business Week, August 6th 2007

From the traditional branding point of view, the brand building process is best represented by the Brand Equity model (Brandt and Johnson, 1997) as follows:

According to Brandt and Johnson, "Brand equity is the unique set of real and/or perceived distinctions attached to a brand by customers…. Brand equity lives only in the hearts and minds of customers."

There are also several other models and descriptions of the product or service branding process. While they may differ in approach, a common thread of understanding runs through all of them. I have therefore condensed them into what I call the brand-building matrix.

“The tangible and intangible value that a brand provides positively or negatively to an organization, its products, its services, and its bottom-line derived from consumer knowledge, perceptions, and experiences with the brand.” — Susan Gunelius

This definition hits the three main points that define brand equity:

1.    Tangible and intangible value: This can be tangible value such as revenues and price premiums or intangible value such as awareness and goodwill.

2.    Positive or negative effects: The organization, products, services, and bottom line can benefit or suffer from brand equity.

3.    Consumer catalysts: Brands are built by consumers, not companies. Therefore, brand equity is built by consumers too.

Brand Equity Benefits

Positive brand equity can help a company in a variety of ways. The most common is the financial benefit which enables a company to charge a price premium for that brand. For example, the Tiffany’s brand has enough equity that a price premium isn’t just accepted, it’s expected.

Positive brand equity can also help to expand a company through successful brand extensions and expansions. And not only can brand equity help increase sales and revenues, but it can also help reduce costs. For example, there is little need for awareness promotions for a brand that has deep, positive equity. Marketing budgets can be more strategically invested in initiatives that will drive short-term results.

A company with strong brand equity is also positioned for long-term success because consumers are more likely to forgive bumps in the road when they have deep emotional connections and loyalties to a brand. Positive brand equity helps a company navigate through macro-environmental challenges far more easily than brands with little or negative brand equity can.

5 Stages of Brand Experience

Brand equity is typically the result of brand loyalty, and with brand loyalty comes increased market share. In fact, there are 5 stages of brand experience that lead to positive brand equity:

1.    Brand awareness: Consumers are aware of the brand.

2.    Brand recognition: Consumers recognize the brand and know what it offers versus competitors.

3.    Brand trial: Consumers have tried the brand.

4.    Brand preference: Consumers like the brand and become repeat purchasers. They begin to develop emotional connections to the brand.

5.    Brand loyalty: Consumers demand the brand and will travel distances to find it. As loyalty increases so do emotional connections until there is no adequate substitute for the brand in the consumer’s mind.

Once consumers reach the brand loyalty stage, your work isn’t done. The challenge is not only building brand equity to reach widespread loyalty, but also to sustain that loyalty and positive brand equity for years to come. And that’s exactly what the next part of the Brand Equity Basics series will discuss: how to build brand equity. Keep an eye on the AYTM blog on Monday so you don’t miss it!

This American Life even went so far as to ask Seattle-based Jones Soda to make up a batch of soda based on the recipe. They did so in collaboration with Sovereign Flavors of California. The resulting beverage was good enough to be preferred 6 to 4 in an informal taste test (although to be fair, heavy users of soft drinks all preferred the real thing).

So much for the secret you might think. But Coca-Cola’s company archivist, Phil Mooney, does not believe the recipe is the brand’s original formula, suggesting that this is just one of several such recipes in circulation. And maybe it does not really matter whether this recipe is the real one or not. The mystique around the secret formula remains.

And that is what matters when it comes to the brand. As the show reveals, the basic ingredients for making a cola are pretty well-known by those in the industry. It may not be possible to exactly duplicate Coca-Cola at home, (you would need to get hold of de-cocainized extract of coca for a start) but you can get pretty close. Even if you did make up a batch, however, it would still not be the same as real Coca-Cola. It could taste the same but it would not be the same.

The secret recipe may once have been the meaningful difference between Coca-Cola and other colas, but today it is just one aspect of a complete package of brand assets, that combine to evoke the all important memories and associations that make up the Coca-Cola brand.

Tangible assets like the recipe, logo and bottle are a means to an end. They can be valuable in their own right, but their true value comes into play when the subtle interplay between marketing and personal experience enhances their importance to the individual beyond simple taste, look or feel.

One of the most important roles that marketing plays is to create the “mental cement” that helps combine the basic building blocks of a brand into a compelling whole, a set of memories and associations that drives behavior. As Phil Mooney suggests in The American Life program, even if you duplicated the entire Coca-Cola production process, you could not duplicate the memories people have of the brand.

Last year, the Coca-Cola brand ranked fifth in Millward Brown’s BrandZ Top 100 Most Valuable Global Brands ranking. As best we can estimate, the brand is worth $66 billion in current and future earnings to The Coca-Cola Company, about half the total value of the brand.

The brand value, its equity, is derived from people’s willingness to pay a premium for the brand and an unwillingness to accept substitutes. The secret recipe may not be so secret. It may not even be unique. But the memories associated with the brand are, and that is what makes the brand so much more valuable than other colas. Tangible and intangible assets combine to create financial brand equity.