Brand equity and brand value are measures that estimate how much a brand is worth. The difference between the two is that brand value refers to the financial asset that the company records on its balance sheet, while brand equity refers to the importance of the brand to a customer of the company.
Brand value is easier for a company to estimate. The company can determine the fair market value of the brand by asking other companies what price they would pay to purchase the brand. The company can also add up its costs of hiring marketers, consultants and advertising experts to develop a brand it already owns, or estimate the cost for the company to produce a new brand for its products.
Brand equity is more difficult to estimate because it relies on customers' beliefs. The company does not know whether a customer makes a purchase because he recognizes the company's brand or whether the customer uses other criteria, such as price and convenience, to make his decision. According to the University of Georgia, the company can attempt to estimate its brand equity by sending surveys to its customers to see if they recognize the brand.
A brand may have a positive value on the company's books and still lack brand equity. When the company begins a new branding project, the company pays its employees while they work on the brand, but customers do not know about the brand yet. The company records these brand value development costs, establishing brand value before the brand gains equity.
A company needs to develop brand equity past a certain point in a customer's mind before it becomes effective. The customer may watch several advertisements on television and radio, see the product in the store and buy the product several times before he recognizes the brand. This threshold effect complicates the valuation of brand equity because the equity suddenly goes from zero value to a high value.
Once the company establishes brand equity, brand equity can increase the value of the brand. If the customer likes a shirt because of its brand name, he might also purchase a pair of pants with that brand name or buy cologne that uses the brand name. The company can use the future revenue it expects to collect by using the brand on these other products because of this equity to calculate the current brand value.
