What Is the Relationship between Brand Equity and Brand Value?

Brand equity and brand value are closely tied, as the more equity is built up in a brand, the more valuable it tends to be. The equity of the brand consists of the associations built up with the brand over time through the use of advertising, customer relations, and other tools to increase positive impressions of a brand. The value is the overall financial value of a given brand, considering its marketability, equity, and other factors that may make it more or less valuable. Companies study brand equity and brand value to make decisions about their product lineups, new acquisitions, and other issues.

It can be difficult to pin down brand equity. Brands that are more well known tend to have more equity, especially if consumers think of those brands first when they need to meet a given need. A brand can also become associated with social or class signaling; a luxury brand, for example, has more brand equity. Members of the public associate the brand with a specific image, and may want to purchase it in order to project that image.

Equity can include overall positive impressions of a brand, such as a reputation for good quality, affordability, or other characteristics. Companies use advertising to build up brand equity over time, creating a series of impressions for consumers as well as competitors. Equity can take an extended period to build, and it can also easily be destroyed. If a brand's reputation declines because of poor construction, bad customer service, or other issues, it may be difficult to regain consumer faith.

The value of a brand is closely associated with the equity. A brand with a lengthy and generally good reputation can be more valuable. The company may be able to charge more for branded products, an important aspect of the relationship between brand equity and brand value. The brand can increase overall company value, adding to the company's assets as part of its portfolio of products. It may appeal to stockholders and investors who are willing to sink more into a company to access the valued brand.

Companies consider brand equity and brand value when they decide whether they want to introduce new branded products, and what kinds of products they want to introduce. A firm with a brand of food products known for high quality, for instance, wants to be careful about what it adds to avoid introducing negative associations for consumers. Likewise, companies getting ready to buy, sell, or spin off brands need to consider the brand value when they set a price on those activities.