Brand Equity

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What is 'Brand Equity'

Brand equity is the value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. Companies can create brand equity for their products by making them memorable, easily recognizable and superior in quality and reliability. Mass marketing campaigns can also help to create brand equity. If consumers are willing to pay more for a generic product than for a branded one, however, the brand is said to have negative brand equity. This might happen if a company had a major product recall or caused a widely publicized environmental disaster.

BREAKING DOWN 'Brand Equity'

The additional money that consumers are willing to spend to buy Coca Cola rather than the store brand of soda is an example of brand equity.

One situation when brand equity is important is when a company wants to expand its product line. If the brand's equity is positive, the company can increase the likelihood that customers will buy its new product by associating the new product with an existing, successful brand. For example, if Campbell's releases a new soup, it would likely keep it under the same brand name, rather than inventing a new brand. The positive associations customers already have with Campbell's would make the new product more enticing than if the soup had an unfamiliar brand name.

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RELATED FAQS
  1. Why is brand equity considered an intangible asset?

    Brand equity is an intangible asset because the value of the brand is not a physical asset and is instead determined by consumer ... Read Answer >>
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    Learn how having positive brand equity enables companies to make a higher margin on sales and spend less money on marketing ... Read Answer >>
  3. What are some examples of companies or products that have outstanding brand equity?

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