011 min
A cola test that shows brand equity at work
Two colas can be nearly the same in the cup and still be far apart in a customer's mind. In 2004 a research team led by Samuel McClure tested this with Coca-Cola and Pepsi, two drinks with almost the same chemical makeup. Their question was how a brand name, which is a cultural message, combines with the real taste of a drink to shape what a person prefers.
The researchers served the drinks to volunteers in two conditions, one anonymous and one with the brand named. In the anonymous condition, a volunteer did not know which drink they were tasting. In the brand condition, the volunteer was given a cue that named the brand. Some tests were behavioural, which means the researchers recorded what people chose. Others used a brain scanner.
The anonymous results showed a plain taste response. Activity in one brain region, the ventromedial prefrontal cortex, moved in line with each person's stated preference. The brand condition changed the picture. Once the brand was named, that knowledge changed both what people said they preferred and how their brains responded, for one of the two drinks.
That gap between what is in the cup and what people believe about the name on it is the thing marketers call brand equity. The sections below follow one question: where did the idea come from, and what is it made of?
022 min
Where brand equity comes from
Companies had known for a long time that a famous name sold better. What they lacked was a shared way to describe that value and to manage it. David Aaker published the book Managing Brand Equity in 1991, setting out what brand equity is and how it creates value. He described it as the assets and liabilities that attach to a brand's name and symbol, and that raise or lower what a product is worth to its buyer.
Aaker's view looks at the brand as something a company owns. It asks what the brand adds to the firm and what could take value away. Two years later a second view arrived from the customer's side. In 1993 Kevin Lane Keller defined customer-based brand equity as the difference that knowing a brand makes to how a consumer responds to its marketing. The cola test above is built the same way: the unlabelled drink is the unnamed version, and the labelled drink is the brand.
Keller then gave a rule for the sign of the effect. A brand has positive equity when consumers respond better to its marketing than to the same marketing for an unnamed or invented version of the product, and negative equity when they respond worse. This is why a brand can lose equity as well as gain it, a point the Volkswagen case below makes concrete.
The unnamed-version test
The useful part of Keller's rule is the baseline. Equity is never a property of the brand alone. It is a comparison between the brand and a version of the same product with no known name. To check equity for any product, hold the product constant, change only the name, and see whether choice, price or rating moves. If nothing moves, the brand has no equity, however famous it is.
Researchers have described the field from two angles. Cognitive psychology looks at what buyers remember about a brand. Information economics treats a brand as a signal that tells buyers what to expect from a product they cannot inspect before buying.
032 min
What brand equity is made of
If equity is the difference a name makes, the next question is what creates that difference. Aaker names four sources of brand equity: loyalty, awareness, associations and perceived quality. Some lists add a fifth item, proprietary assets such as patents and trademarks, which keep rivals from copying what the brand has built.
| Source | What it means | How it shows in the cola test |
|---|---|---|
| Awareness | How easily a buyer recognises or remembers the brand | The volunteer knows the name on the cup at once |
| Associations | Ideas, feelings and images the buyer links to the brand | The name brings up a drink they have known since childhood |
| Perceived quality | How good the buyer believes the product is, whatever the facts | The labelled drink is judged better than an identical unlabelled one |
| Loyalty | The buyer's habit of choosing the same brand again | The volunteer reaches for the same drink next time |
Awareness is the base, because a buyer cannot hold a view about a brand they have never met. The ability to name a brand when a need comes up, called brand recall, is one measurable form of it.
Keller's pyramid
Keller later turned the customer view into a four-level pyramid. The first level is salience, how readily the brand comes to mind when a buyer has a need. The second is meaning, what the product does and what the brand stands for. The third is response, the judgments and feelings buyers form. The fourth is resonance, where buyers have a close, loyal relationship with the brand and often recommend it. Each level of Keller's pyramid depends on the one below it, so a brand has to secure the lower levels before it can reach the top.
042 min
Why brand equity pays
Equity matters because the difference a name makes turns into money in four ways.
- Price. A buyer who believes the brand is better will accept a higher price for the same product. This is the link to perceived value: equity raises what a buyer thinks an offer is worth before any feature is compared.
- Retention. Loyal buyers repeat purchases, so the company spends less to win them back. Customer lifetime value, the total profit one buyer brings over all their purchases, rises with every year a buyer stays.
- Extension. A trusted name lowers the risk a buyer feels toward a new product, so launches start from a better position. The good opinion carries over from one product to the next, a pattern close to the halo effect.
- Resilience. Buyers who trust a brand forgive a single mistake more easily than buyers who have no view of it.
Illustrative case: a founder of a subscription app has one product that matches a rival feature for feature. If the rival can charge more and convert more visitors, the gap between the two is the rival's brand equity, and no feature list will close it.
Customers gain too. A familiar name helps a buyer process information faster and feel safer about the choice. This is part of why social proof such as reviews and recommendations strengthens a brand: other people's experience adds to what the name already signals.
051 min
When brand equity turns negative
Equity is not a permanent stock. It depends on what buyers believe, and beliefs can change quickly. In September 2015 the US Environmental Protection Agency accused Volkswagen of falsifying emissions figures, and the company lost brand equity as the public stopped seeing it as trustworthy.
The company's cars had not changed in the showroom. What changed was the meaning of the name. Before the notice, the name carried promises about engineering and care for the environment. After it, the same name signalled that the promises were false. In Keller's terms, buyers now responded worse to the brand's marketing than they would to an unknown brand with the same cars. That is negative equity.
A recovery case
Negative equity can also be repaired. After the 1982 Chicago poisonings, Tylenol's market share fell from 35 percent to 8 percent and recovered in less than a year, a recovery credited to the company's quick and forceful response. The recovery shows that equity built over many years can survive a shock if the company acts fast and visibly on what buyers fear.
062 min
How to measure brand equity
There is no single instrument that reads brand equity, so practitioners combine three lenses. Each answers a different question, and each needs the same method repeated over time to be useful.
- What buyers think. Surveys ask which brands people can name without help (unaided awareness) and which they recognise from a list (aided awareness). They also ask how good buyers think the brand is. Net Promoter Score, which is the share of people who would strongly recommend the brand minus the share who would not, is often used as a sign of loyalty.
- What buyers do. Sales data shows price premium over a comparable unbranded or store-brand product, market share and repeat-purchase rate. A conjoint study, which asks buyers to choose between products with different mixes of features, brand and price, can estimate how much of a price difference the name alone explains.
- What the brand is worth in money. Valuation firms turn the first two lenses into a currency figure.
Companies also read social media posts and reviews as a running sign of what people say about the brand, which is called social listening. It is quick, but it covers only the people who post.
The first lens measures belief and the second measures behaviour. If they disagree, trust behaviour first, because a belief that never changes a purchase has not yet become equity.
How a valuation firm puts a price on a brand
Interbrand publishes a yearly ranking of the most valuable global brands. Interbrand's valuations rest on three parts: how the branded products perform financially, how much the brand influences what people buy, and how strong the brand is against competitors. In plain terms, it asks how much profit the branded business makes, how much of that profit exists because of the brand rather than the product, and how safe that profit is. The last question is where the brand's strength comes in.
Does the stock market see it?
Two academics tested whether brand measures explain share prices. They used the five measures of the Brand Asset Valuator, a survey model built by an advertising agency: differentiation, relevance, esteem, knowledge and energy. Mizik and Jacobson found in 2008 that the stock market overlooks differentiation, even though changes in it predict later accounting results. The finding is a warning for anyone who reads a brand score once: a trait that predicts the future can look unimportant today.
Other survey models exist. The BrandZ model, for example, takes a buyer through five steps from presence to bonding, from first familiarity to an emotional attachment.
072 min
How to build brand equity in order
The steps below follow Keller's pyramid, and each one depends on the one before it.
Make the brand easy to recall in the moment of need.
Without this step, nothing else is seen. Choose a few cues, such as a name, a colour or a sound, and use them every time.
Say what the brand is and what it does.
This is the work of brand identity: the name, look and promise the company sends out. It only works once buyers notice the brand at all.
Deliver, so that buyers form good judgments.
A promise that the product does not keep turns into negative equity, as the Volkswagen case shows. Judgments are earned through the product, service and price, not through advertising alone.
Invite a lasting relationship.
Communities, loyalty schemes and consistent service turn satisfied buyers into repeat buyers and advocates. This step fails if step 3 is weak, because a relationship built on a broken promise does not last.
Partnerships can speed up step 2. A co-branding deal with another company, or a paid endorser, lends the partner's associations to the brand. It helps only when those associations fit what the brand already stands for.
Two habits protect the result. Keep the visual and verbal style the same across channels, so each contact adds to the same memory. And measure on a schedule, using the same questions, so you can see whether equity is rising or falling.
082 min
Where brand equity stops working
A brand name is powerful, but three limits show up repeatedly. Each section below is optional for a reader who needs only the basics.
Equity does not move freely into new categories
A company that wants to use a strong name on a new product assumes the equity will follow. A 1990 study by Aaker and Keller found that consumers rated a brand extension higher when they saw a fit between the two product classes and thought the original brand was high in quality. The consequence is that a name which is trusted for one kind of product can add little in a distant category, and a poor extension can use up trust rather than add to it. A company can put one name on many products, which is called family branding, or give each product its own name. The shared name spreads equity across products and spreads any damage too.
Self-built brands are missing from the accounts
Brand equity can be large and still not appear in a balance sheet. Under the accounting standard IAS 38, a company cannot record a brand it built itself as an intangible asset. The reason is practical: the cost of building a brand is hard to separate from the cost of running the business. So estimates from outside, such as the valuation firms above, fill the gap, and different firms can reach different numbers.
Loyalty is not the whole story
Aaker counts loyalty as one source of equity, and it is easy to read a high loyalty score as proof of a strong brand. Researchers at the Ehrenberg-Bass Institute, a marketing research group at the University of South Australia, argue that the picture is more mixed. Jenni Romaniuk describes one pattern in their data. Smaller brands have fewer buyers and those buyers are slightly less loyal than the buyers of larger brands, a pattern known as the Law of Double Jeopardy.
The practical meaning is that big brands mostly differ from small brands in how many people buy them, not in how devoted each buyer is. A loyalty survey alone can therefore miss the main thing: how many people notice the brand and think of it at the moment of purchase.
091 min
Brand equity vs. nearby concepts
Several terms sit close to brand equity. The deciding question is whether the term describes what a company sends out, what a customer holds in mind, or what the result is worth.
| Term | What it describes | How it differs from brand equity |
|---|---|---|
| Brand identity | What the company chooses to show: name, look, voice, promise | An input the company controls; equity is the effect on buyers |
| Brand image | What buyers actually think of the brand | One part of equity; equity also includes awareness and the response in behaviour |
| Brand awareness | Whether buyers know the brand exists | One source of equity; a well-known brand can still have weak or negative equity |
| Brand value | A money figure that a valuer estimates | An estimate of equity expressed in currency |
| Perceived value | A buyer's judgment of one offer's worth | Equity is one reason that judgment is high or low |
The axis that separates them is cause and effect. Identity and advertising are causes the company controls, image and awareness are what happens in buyers' minds, and equity is the lasting difference those effects make to choice and price.
?3 questions
Questions people ask
Can a small company or a startup have brand equity?
Should I use Aaker's model or Keller's?
Can brand equity be expressed as one number?
§11 sources
Sources
Keller, K. L. (1993). Conceptualizing, Measuring, and Managing Customer-Based Brand Equity. Journal of Marketing, 57(1), 1-22.
Aaker, D. A., an essay by the author on Managing Brand Equity (1991), Prophet, 2013:
McClure, S. M. et al. (2004). Neural correlates of behavioral preference for culturally familiar drinks. Neuron, 44(2), 379-387.
Aaker, D. A. and Keller, K. L. (1990). Consumer Evaluations of Brand Extensions. Journal of Marketing, 54, 27-40.
Show all 11 sourcesShow fewer sources
Interbrand, Best Global Brands 2022 report (methodology note):
IFRS Foundation, IAS 38 Intangible Assets:
Romaniuk, J., interview on how brands grow, Ehrenberg-Bass Institute, in Marketing Week Greece (summary):
Mizik, N. and Jacobson, R. (2008). The Financial Value Impact of Perceptual Brand Attributes. Journal of Marketing Research, 45, 15-32:
Wikipedia, Chicago Tylenol murders:
Qualtrics, a guide to Keller's and Aaker's customer-based brand equity models:
Harvard Business School Online, a summary of brand equity:
