What impact does brand equity have on profit?

When consumers attach quality or prestige to a brand, they realize that the brand’s products are worth more than the products their competitors make, so they are willing to pay more. In effect, the market carries a higher price for brands with higher brand equity. The cost of making and marketing a golf shirt is not higher for Lacoste than the lesser known brand. However, as its customers are willing to pay more, that shirt can charge a higher price, and the difference goes to profit. Positive brand equity increases the profit margin for each customer because it allows a company to charge more than a competitor, even if it is received at the same price.

Brand equity has a direct impact on sales volume because it attracts consumers to the best reputable products. For example, when Apple launches a new product, consumers line up around the block to buy it, even though the price is higher than similar products from competitors. One of the main reasons why Apple's products are selling on such a large scale is that the company has amassed an incredible amount of positive brand equity. Since a certain percentage of a company's cost of selling products is fixed, higher sales volumes translate into higher profits.

Customer retention is the third area in which brand equity affects profit margins. Returning to the Apple example, most of the company's customers do not own only one Apple product; they own several, and they eagerly anticipate the next one's release. Apple's customer base is fiercely loyal, sometimes bordering on evangelical. Apple enjoys high customer retention, another result of its brand equity. Retaining existing customer’s increases profit margins by lowering the amount a business has to spend on marketing to achieve the same sales volume; it costs less to retain an existing customer than to acquire a new one. 

Negative brand equity has the opposite effect of retaining customers and, as a result, profit margins. The company lost several customers after the BP oil spill. Its profits plummeted and BP had to spend millions of dollars on a full-fledged advertising campaign to restore its image.

Take qualitative and quantitative approaches to collecting brand equity data

Reproduction will include brand equity quantitative qualitative and quantitative approaches. Focus groups can provide a good forum for finding customer sentiment and motivation. Reveals Key Consumer Decision Making Processes for Cogent Analysis.

It plays a crucial role in the development of the brand strategy and supports the analysis of the brand strategy and ultimately the investment. Bringing us full circles to the economic effectiveness perspective on broad equity.