What Is Brand Equity?


Quick Answer

Brand equity refers to the intangible value of a company or product name that causes consumers to pay more money than they would for a similar, competing product. High brand equity improves a company's ability to generate revenue and profit and offers customers peace of mind in purchase decisions.

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Full Answer

Brand equity is developed when a quality business, product or service is promoted effectively to a target audience. Over time, companies use advertising and promotion to generate buying. Consistent delivery of a quality experience reinforces the brand messages delivered through promotional activities.

When a company has high brand equity, it can often leverage that equity through brand extensions, which is a new business or product launched under the same brand name. The premise is that if consumers highly value the brand, they are likely to purchase from the new business or buy the new product as well.

After a company develops brand equity, it must continue to reinforce it through quality offerings. If a company builds a successful brand by promising and delivering exceptional customer service, for instance, that equity can get eroded if customers begin to experience poor service. Product recalls or negative publicity related to social or environmental scandals are additional factors that can negate a company's brand equity.

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