Brand equity is the value of a company's name and reputation. From an accounting perspective, it is the difference between a company's total worth and the book value of its assets. In general, achieving strong brand equity translates to a higher value perception in the marketplace.
One of the strongest competitive advantages a company has is loyal customers. True loyalty often means customers pay more and go out of their way to buy from your company or to buy your products. High brand equity is a key quality to generate loyalty. Brands such as Oakley sunglasses, Gucci handbags and Apple have developed loyal followings on the strength of brands known for elite equality, unique designs and innovative leadership.
Brand equity, by definition, means a product line has greater value with your name or logo on it than it would with a generic or unknown label. Thus, high brand equity puts you in a better position to achieve high price points in the marketplace while maintaining or growing demand. With customers willing to pay extra for a name they trust or value, your gross profit should be strong relative to generic alternatives. Even with a slightly higher cost basis to achieve quality and service excellence, high brand equity allows you to generate strong returns.
High brand equity also puts you in the driver's seat for long-term growth. By leveraging the value of your brand, you can expand into new markets, extend your brand with new store concepts or products and increase your revenue streams. Apple has leveraged its brand equity in mobile technology to launch multiple tech devices and new generations of each every few years. Retailers such as Gap and Pottery Barn have extended their primary offerings with "Kids" branded extensions of their stores.
As a product reseller, brand equity also gives you a leg up in negotiating with manufacturers or distributions. Once vendors see customers clamoring for anything bearing your name or knocking down your store doors, they will want to work with you. This allows you to negotiate from a position of strength since your name is integral to long-term success of the product. Discount giants Walmart and Target carry significant bargaining power with suppliers because of their industry dominance.
