A2 Brand as an Asset
Unit 28: Branding
Assets are resources that add value to a business by allowing it to reap future benefits.
Current assets, which include stock and debtors, are expected to be converted into cash within the next year. Fixed assets are items that are expected to be used by a business in the long term and include property, equipment, and vehicles. Assets are recorded on the balance sheet.
Tangible assets are valuable items that have a physical form and can thus be touched and seen. They can be valued using a range of methods such as the current market price, replacement cost or an appraiser’s valuation. Their value may depreciate over time as their physical condition deteriorates.
Intangible assets are items that add value to a business but are not in physical form. They have a monetary worth because they are expected to bring future returns to the business, but this is difficult to value because the future benefits are uncertain. Intellectual property such as licenses, trademarks and brand equity are all examples of intangible assets.
Brand Equity
Brand equity is the difference a brand makes to customer perceptions of a product or service. When faced with a range of brands, consumers will make judgements on product quality which will make an impact on their purchasing decisions.
Brand value - The total monetary worth of a brand if it was to be sold.
Customer equity - The average value of each customer multiplied by the number of customers.
Positive brand equity is when customers perceive a brand to be of higher quality than generic equivalents. This leads to them being more likely to choose the brand over rivals and pay higher prices. Firms that have achieved positive brand equity may therefore enjoy higher revenue and profits than rival brands. Firms with positive brand equity may enjoy greater success in launching new products under the same branding as they assume similar quality standards will be delivered.
Apple, Starbucks, Lululemon and BMW are firms that enjoy the benefits of positive brand equity with high sales levels, customer loyalty and the ability to charge premium prices.
Firms can build positive brand equity by ensuring customer experiences with the brand are positive and memorable. This creates good perceptions of the brand, repeat custom and positive work of mouth. Good customer experiences can be achieved through high quality products, researching and responding to customer needs and good customer service. Memorable and recognisable branding can create positive customer associations with all products under that branding.
Negative Brand Equity
Negative brand equity can result from customer experiences of brand under-delivering on quality. This leads to customers choosing rival brands based on the assumption that they will be of better quality. Firms with negative brand equity may need to lower their prices as customers perceive them to be of lower value and invest in strategies to improve their brand image. This can result in lower revenue, higher costs and in turn reduced profits.
Negative brand equity may result from poor quality products, faulty products, poor customer service and product recalls. Negative press and word of mouth can create negative perceptions of a brand in the mind of customers who have not experienced a brand’s products themselves.
Examples of incidents that caused negative brand equity include the Volkswagon emissions scandal, the 2010 BP oil spill, Samsung Galaxy Note 7 fires and Malaysia Airlines missing planes.
