Brand Equity

Marketing · 3 min read

The premium people will pay for your name on a product and the loyalty they'll show when you mess up.

Here's a thought experiment. Walk into any convenience store and look at the water section. The cheapest bottle and the most expensive bottle contain, chemically, the same thing.

Water.

Sometimes literally from the same source. So why does one cost four times more?

Brand equity.

Brand equity is the financial value of all the associations, feelings, and trust that have accumulated around a name. It's why people pay $200 for Nike sneakers when New Balance makes equivalent shoes for $90. It's why Apple can charge $1,200 for a phone that, on paper, isn't dramatically better than a $400 Android. It's why you reach for Heinz ketchup even though the store-brand bottle next to it is half the price.

Brand equity has two practical effects on a business. First, it lets you charge more for the same thing (called the price premium). Second, it makes customers forgive you when you screw up. A one-star Tesla review hits differently than a one-star Hyundai review, because Tesla owners have invested in the story.

The thing most people miss: brand equity is built slowly and destroyed quickly. Lululemon spent 20 years becoming the yoga-pants brand, and then their founder said something incredibly stupid in 2013 about women's bodies, and they lost an estimated $1.6 billion in market cap in three months. The water in the bottle didn't change. The story did.