24 Oct Effects of Brand Equity on Revenue and Sales of the Company
Learn how brand equity impacts sales and revenue for companies. Explore further the profound influence of brand perception on consumer choices
Building and maintaining a strong brand has become essential for companies looking to thrive and grow. Brand equity, which represents the value a brand adds to a product or service beyond its functional attributes, plays a significant role in influencing consumer choices and, consequently, a company’s sales and revenue. Further on, we will discuss the effects of brand equity on sales and revenue.
Defining Brand Equity
Brand equity is a multifaceted concept that encompasses a brand’s reputation, recognition, customer loyalty, and perceived value. It is the intangible asset that differentiates one brand from another in the minds of consumers. High brand equity implies that customers are not just buying a product or service but are also buying into the emotional and psychological aspects associated with the brand. The important questions that you should ask are given below…
The Role of Brand Equity in Sales
Increased Customer Trust : A brand with a strong reputation and positive associations enjoys a higher level of trust among consumers. Trust is a fundamental factor influencing purchase decisions. According to a survey by Edelman, a global communications firm, 81% of respondents said that they need to trust a brand to buy from it. Trust leads to a higher likelihood of conversion, thereby boosting sales.
A study by Nielsen found that 60% of consumers prefer to buy new products from brands they are familiar with, demonstrating the power of trust in driving sales.
Premium Pricing: Brands with higher equity can have the luxury of quoting premium price for their products or services. Consumers are often willing to pay more for a product associated with a reputable brand, even if there are cheaper alternatives available. This price premium directly contributes to increased revenue.
Brand Association : It stresses the importance of shaping consumer perceptions of a company’s offerings. You may influence consumers’ perception of your company and its products by helping them form favorable associations with them. The approach is predicated on a hierarchy of brand equity, with the first stage being the establishment of a brand’s identity and distinction and the second stage being the establishment of resonance and connection with target consumers.
It is explained simply by Kevin Lane Keller, a professor at Dartmouth in “The Equity Model of Brand Association by Keller”
Repeat Business and Loyalty : Strong brand equity fosters customer loyalty. Repeat purchases come from satisfied customers who have had a good experience with a company. They become brand advocates, recommending the product or service to others and contributing to a sustained revenue stream.
Reduced Marketing Costs : Established brands with high equity benefit from reduced marketing costs. They do not need to spend as much on advertising and promotions to attract customers because their brand already has a strong presence in the market.
The Impact of Brand Equity on Revenue
Market Expansion : Companies with strong brand equity have an easier time expanding into new markets or introducing new products. Their brand reputation precedes them, making it easier to gain market share and generate revenue.
Resilience During Economic Downturns : Brands with a well-established equity cushion are more resilient during economic downturns. Customers tend to stick with brands they trust even when facing financial constraints, ensuring a steadier revenue stream.
Merger and Acquisition Opportunities : Companies with strong brand equity are attractive targets for mergers and acquisitions. Acquiring a brand with a strong reputation can lead to substantial revenue growth for the acquiring company.
Research by Deloitte suggests that acquisitions of companies with strong brand equity tend to result in higher revenue synergies and increased market capitalization.
Cross-Selling and Upselling Opportunities : Brands with high equity find it easier to cross-sell or upsell related products or services. Customers who trust a brand are more likely to explore other offerings within the brand’s portfolio, leading to increased revenue per customer.
A study by Salesforce found that 75% of consumers expect companies to provide a consistent experience across multiple channels, making cross-selling and upselling more effective for brands with strong equity.
Customer Acquisition Costs : Strong brand equity also lowers customer acquisition costs. Customers are more likely to choose a brand they recognize and trust, reducing the need for costly marketing campaigns to attract new customers.
Brand Extensions : Brands with high equity can successfully extend their reach into new product categories. Consumers are more willing to try new products or services from a trusted brand, creating opportunities for revenue diversification.
Employee Morale and Productivity : Brand equity isn’t limited to external perceptions. It also has a profound impact on internal stakeholders, such as employees. A strong brand can boost employee morale and productivity, indirectly contributing to sales and revenue growth.
A Gallup study published in Forbes reveals that companies with highly engaged employees outperform their competitors by 147% in earnings per share.
Competitive Advantage : Brand equity serves as a formidable competitive advantage. It acts as a barrier to entry for new competitors and helps existing companies maintain their market position.
Brand Partnerships and Collaborations : Brands with high equity are more attractive partners for collaborations and partnerships with other businesses. These strategic alliances can open up new revenue streams and expand market reach.
Brand Crisis Management : Companies with strong brand equity are better equipped to handle crises. They have built up goodwill with their customer base, which can help mitigate damage during challenging times.
According to Edelman’s Trust Barometer, 65% of consumers trust brands they have a strong relationship with to do what is right during a crisis.
In the market where consumers are bombarded with choices, brand equity stands as a backbone of trust, reliability, and quality. It is not just a logo or a tagline; it is the sum of all the experiences, emotions, and perceptions associated with a brand.
Companies that invest in building and maintaining their brand equity reap the rewards in the form of increased sales, higher revenue, and sustained growth. They benefit from customer trust, premium pricing, repeat business, and reduced marketing costs. Moreover, they are better equipped to weather economic storms and seize opportunities for expansion and acquisition. So, to build your inevitable place in the market, back it with our marketing strategies, connect with us now!