How to Calculate a Brand’s Equity
The equity of a brand is its monetary value. The monetary value includes the entire brand, including tangible and intangible assets.
It is important to know the equity of a brand for three reasons:
- To provide information for shareholders. Shareholders or investors may want a way to keep track of how their investment is doing. Keeping track of the brand’s equity will allow them to measure trends over time, and determine if the brand should change track.
- To determine value when the brand is bought or sold. Sellers will want to know what their brand is worth, and buyers will want to know approximately how much they should be paying.
- To attract investors. If someone is thinking about investing money in a brand, they will want to know how much it is worth, and preferably, how much it has been worth over the past few years. Investors will want to be able to see that the brand is growing in value, because then it is likely that they will see a return in their investment. If a brand’s equity is decreasing, or there is no information about it, then most investors will not want to invest in it because it will not be likely to increase their capital.
To determine the brand’s equity, the company must calculate the value of the different segments of the brand. There are many segments that must be considered, some of which may not be immediately obvious.
- Assets. These are the tangible objects that belong to a brand, and include its impact on the company.
- Associations. These are the business associations with the brand. They are important because other companies may use the company as a supplier, or be affiliated with it in another way that brings in revenue or business.
- Perceptions. These are the things that consumers associate with the brand. They are important because positive perceptions make people more likely to buy a brand, and negative perceptions make people less likely to buy a brand.
- Brand Awareness. This is how many people recognize a brand. It is important because it measures how much a brand is differentiated from its competitors. If brand awareness is high, then people know a brand from its competitors.
- Consumer Loyalty. This is how loyal a brand’s consumers are, or how likely they are to buy your brand over a competitor’s. In some cases, this is based on pricing differences, but some consumers prefer a more expensive brand based on quality, habit, or because it is their favourite. Consumer loyalty is important because it is a combination of perception and brand awareness with how much consumers are willing to do to purchase a brand over its competitor’s.
The non-monetary assets can be given monetary values, or evaluated separately. Once the business’s equity has been calculated, it can be used for buying, selling, and determining how well the company is developing over time.
Resources:
Great Ideaz provides secure online collaboration workspaces where you can calculate your brand’s equity. To see how we can help you, visit greatideaz.com.
Melissa Davis’s The Fundamentals of Branding
NetMBA’s ‘Brand Equity’ – http://www.netmba.com/marketing/brand/equity/
