The sources of brand equity typically are either financial, brand extensions or consumer-based perceptions. Identifying and measuring brand equity allows for better income and cash flows or converting the brand equity into goodwill. Goodwill is an asset that a company reports on its balance sheet, often when purchasing another business.
Financial sources of brand equity attempt to determine a product's price premium over other products. For example, a consumer might prefer to purchase a name-brand electronic item. Even though this item costs more money than an acceptable generic product, brand equity indicates that a consumer will pay the higher price for the name-brand product. This equity comes from the business’ ability to promote its products over others in the market. Measuring brand equity often comes from looking at the money spent to achieve these consumer purchases.
Brand extensions are other sources of brand equity. To achieve this type of brand equity, a company usually must establish a financial brand equity source. After a company establishes financial brand equity, it can use brand extensions when placing new products into the market. For example, a company that sells hair dryers and experiences financial brand equity might also want to begin selling curling irons. Brand extension equity indicates that the curling irons should sell as well as the hair dryers because of the company’s brand equity.
Consumer-based sources of brand equity are the final category. This brand equity type is often the hardest one to measure appropriately. Consumers might have feelings, beliefs or other intangible attitudes toward a product. No matter what products are available, consumers will often tend to purchase a specific brand. Strong brand equity often leads to brand loyalty, which means that a company will purchase just about any good from a certain company.
Different types of brand equity are often present in the market. These include single-product brand equity, multiple products from a single company, multiple product brands or products under different names from the same company. Companies must often identify which brand equity types affect their products. Steps must also exist for a company to protect its brand equity. These measures prevent other companies from stealing brand equity or attempting to woo away a company’s customers.