Brand value is the added premium that customers are willing to pay for a product of a well known brand instead of buying a generic equivalent.
Branding differentiates the brand name from the competitors’ brand names. It is the process by which companies distinguish their product offerings from the competition. The way in which a firm differentiates itself from rivals. Branding is a form of differentiating a firm’s products from those of its competitors.
What is brand value?
Brand equity is the value of a brand – the premium that customers are willing to pay for a brand name over and above the value of the product itself.
It is build upon strong brand awareness, perceived quality and strong product associations, high brand loyalty and a variety of intangible assets such as patents, trademarks, distribution channel relationships, etc.
In principle, businesses should attempt to achieve brand value.
How to create brand value?
Creating brand value means adding value to a product far beyond the functional benefits provided by the product through its features. Customers should be educated that the brand is well-known brand providing them with better value for money than less well-known products.
Mass promotion campaigns can help with creating brand value. Marketers try to improve brand value by investing money in brand development, e.g. by using persuasive advertising.
In addition to brand development, brand awareness and brand loyalty have a role in improving a firm’s brand value and none of these should be ignored. They all give customers reassurance that the branded product is genuine, reliable and of good quality.
Moreover, the value of brand equity can be realized by selling or licensing the brand.
Why is brand value important?
Customers tend to pay higher price for products with a reputable brand (a cup of coffee from Starbucks) than for the no-name product itself (a cup of coffee from an unknown fast-food restaurant). This is because they believe that a well-known brand has better value for money than products that are not well-known.
Brand value is important in attempts of expanding product line – a group of related products. When current products within the brand have experienced high popularity and success with customers, brand value can assure sales of new products that are closely related.
Additionally, intangible value of the brand can increase shareholder value through increasing value of tangible assets
Brand value also gives a high level of brand awareness and brand loyalty among customers.
Benefits of brand value
There are numerous advantages for businesses of increasing brand value:
- Higher market share. Products with high brand value tend to have high market share as there is a strong and positive relationship between a firm’s brand value and its market share. Brands with high market share enjoy the status of being cash cows for the business having tons of loyal customers.
- Premium prices. Having brand value gives a business the ability to charge premium prices for its products. Customers feel that they are paying for the added value that the brand carries expressed through, for example, such as the brand reputation. Prices on the market tend to be determined by the brand leaders.
- Higher barriers to entry. Brand value makes it more difficult for new companies to enter the market. When the firm such as The Coca-Cola Company, Nike or Toyota has loyal customers it creates huge problems for rival brands and deters new entrants to the market.
How to determine, if a brand has any value?
According to Aswath Damodaran, professor of finance at New York University’s Stern School of Business, a brand’s value is simply about the extent to which it can sell its goods and services at a premium price.
Damodaran believes that marketers often mistake attribute product quality, styling, service and reliability to a brand name’s value, when all brand value ultimately comes down to is pricing power.
If you as a company tell me that you have a brand name, I’m going to ask you a question: ‘Do you have the power to charge a higher price for the same product? If your answer is no, I don’t think you have a brand. You may think you do, but I don’t think your brand has any value.’
