How to Measure Your Brand’s Equity
When consumers repeatedly go out of their way, when they willingly pay a premium for the set of benefits they attribute to a branded product, and when they encourage others to do the same, they deliver an economic advantage — brand equity — to the brand owner.
To measure brand equity, most brand evaluators assess a brand’s ability to achieve premium pricing, lower costs, and business strength and growth.
As a starting point in evaluating the worth of your brand, assess whether your sales are going up and at what rate.
Calculate the percentage of sales growth your brand has experienced for each of the past three years.
For example, if two years ago your sales totaled $3 million and last year they grew to $3.25 million, your business experienced one-year growth of 8.3 percent. (Sales were up $250,000, and $250,000 ÷ $3 million = 8.3 percent.)
Calculate your average sales growth over the past three years by totaling the growth (or decline) of sales over each of the past three years and then dividing that number by three.
For example, if you experienced 5 percent sales growth three years ago, 5 percent sales growth two years ago, and 8 percent growth last year, your three-year average growth rate is 6 percent ([5 + 5 + 8] ÷ 3 = 6).
Indicate if extraneous circumstances factored into the growth or decline of any of the past three years.
For example, if your business underwent a significant remodel that resulted in fewer customers and lower sales over a one-year period, note that factor and explain how the remodel contributed to brand worth even as it detracted from sales revenue.
Indicate if extraneous circumstances will affect the growth of sales over future years.
For example, if your business projects flat sales for the next few years as you complete development of a major new product, explain the development schedule and how the product launch will result in future sales and increased brand worth.
Unless you explain circumstances that affected your recent sales growth, it’s fair for brand evaluators to assume that your average sales growth over the past three years indicates the sales growth rate you’ll achieve during the next few years.
The size, growth rate, and composition of your market arena also affect your brand equity. Obviously, if the size of your market is decreasing, if consumer preferences are turning away from your brand attributes, or if new competitors are grabbing large slices of what used to be your share of market, the worth of your brand suffers. Measuring brand equity by marketing strength requires you to address the following questions:
Is your business arena one with growing or declining market interest? For instance, the home sewing industry, the ski industry, and the tennis and golf industries are arenas that have seen consumer participation decline over recent years. In contrast, pet ownership, wine consumption, and healthcare usage are all up.
To assess trends in your industry, go to a major public library reference area and consult the Lifestyle Market Analyst from SRDS and Nielsen. By obtaining your market area statistics for current and past years, you can determine whether the population of people who fit your customer profile is growing or declining.
Is consumer demand for your offering growing or declining? Are your inquiries, your new customer accounts, and your customer purchase rates increasing or decreasing? Then obtain information from publications that serve your business arena. Are their subscription and circulation counts on the increase? Does your business association show increased activity in your business arena? Your findings can help you make a case regarding the strength of consumer demand for your brand’s offerings.
Is your business arena getting more competitive, and is your brand faring better or worse in the competitive field? List your top competitors for each of the past three years, along with how you ranked in terms of sales against each one. Note whether competitors have gained or slipped in market share against your brand. The degree to which you’re gaining business from competitors is a good indication of brand strength and worth.
Your brand experience is the means by which customers form impressions about your brand, and as such, it links directly to your brand’s success. Also consider the following questions:
Are your brand’s distinguishing attributes clear and consistently conveyed?
Are the benefits your brand promises ones of increasing value to consumers?
Does your brand convey and keep its brand promise at every point of contact, whether with employees, prospects, customers, consumers, suppliers, investors, shareholders, or other stakeholders?
If necessary, conduct research to deepen your understanding of customer opinions and purchase tendencies. Use your findings to address the following questions. As you arrive at answers, realize that positive responses indicate that your brand value is strong, a mixed-bag set of responses indicates that your brand value is at risk, and a lineup of “no” answers indicates that your brand needs serious repair in order to restore its value.
Is your customer base growing?
Is your customer retention rate increasing?
Is your brand awareness level increasing? When prospective customers are asked to name the top few brands that come to mind in your business arena, how many cite your name, and has that number grown or declined over recent years?
Is your brand’s mindshare increasing? When prospective customers are asked to name the top brand that comes to mind in your market arena, how many cite your name, and has that number grown or declined over recent years?
Is your average sale price and profitability increasing?
The degree to which consumers pay a premium for your offering, from additional cents to big bucks, depending on the average price of your offering in the marketplace, is often viewed as a primary indicator of your brand’s market advantage and resulting equity.