Brand Equity

Two products might be almost identical, yet customers may willingly pay more for one because they trust, recognise or admire its brand. That additional willingness to pay, and the loyalty that comes with it, is brand equity.

Strong brand equity brings several benefits. A company can charge premium prices, launch new products more easily under the same name, keep customers loyal and negotiate better terms with retailers. For example, a well-known brand of bottled water might sell for twice the price of a supermarket own-brand, even though the water is very similar.

Brand equity is built over time through consistent quality, marketing, customer experience and reputation. It can be damaged quickly by scandals, poor quality or bad customer service.

In accounting, the value of a company's own brand usually does not appear on its balance sheet, because internally created brands are not recorded as assets. When one company buys another, however, the value of acquired brands is often recorded as an intangible asset. Brand valuation specialists use various methods to estimate how much brands are worth.