What is Brand Equity?
Brand equity is a marketing term that describes a brand’s value. That value is dependent on consumer perception of and experiences with the brand. If people think highly of a new, it’s positive brand equity. When a brand always under-delivers and disappoints to the stage where folks recommend that others avoid it, it’s negative brand equity.
Positive brand equity has value:
- Businesses can charge more for a product with a lot of brand equity.
- That equity could be moved to line extensions — goods linked to the brand which comprise the brand name — a company can make more money from the brand.
- It can help boost a firm’s stock price.
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How Brand Equity Develops
Brand equity grows and grows because of a client’s experiences with the brand. The procedure typically involves that client or consumer’s natural connection with the brand that unfolds after a predictable model:
- Awareness — The brand is introduced into its target audience — frequently with advertisements — in a way that makes it noticed.
- Recognition — Clients become knowledgeable about the brand and recognize it in a shop or elsewhere.
- Trial — Now that they recognize the brand and understand what it is or stands for, they attempt it.
- Preference — If the customer has a fantastic experience with the brand, it will become the preferred option.
- Loyalty — Following a series of very good brand experiences, users not only recommend it to others, it will become the only one they will buy and use in that class. They think highly of it that any product related to the brand benefits from its positive shine.
Examples of Positive Brand Equity
Apple, rated by one organization as”the world’s most popular brand” in 2015, is a classic example of a brand with positive equity. The business built its positive reputation with Mac computers prior to expanding the brand to iPhones, which deliver on the brand promise expected by Apple’s computer clients.
On a smaller scale, regional supermarket chain Wegmans has so much brand equity that when stores open in new lands, the brand recognition creates crowds so large that authorities have to direct traffic in and out of store parking lots.
Examples of Negative Brand Equity
Fiscal brand Goldman Sachs lost brand value once the public learned of its role in the 2008 fiscal crisis, automaker Toyota endured in 2009 when it needed to remember over 8 million vehicles due to unintended acceleration, and gas and oil company BP lost significant brand equity following the U.S. Gulf of Mexico oil spill in 2010.
Achieving positive brand equity is half the job; keeping it consistently is another half. Since Chipotle’s 2015 food poisoning crisis indicates, one negative incident can almost eliminate years of positive brand equity.
Barrier to Entry
What’s Barrier to Entry?
A barrier to entry is a high cost or other kind of barrier that prevents a company startup from entering a market and competing with other companies. Barriers to entry can consist of government regulations, the demand for permits, and having to compete with a large corporation as a small business startup.
For instance, the large company can produce a great deal of goods efficiently and more cost-effectively than a business with fewer resources. They have lower costs as they’re able to buy materials in bulk, and they have lower overhead since they’re able to generate more under one roof. The smaller firm would simply have difficulty keeping up with this, which may result in them avoiding entering the industry altogether.
Barriers to entry may have a negative impact on prices because the playing field isn’t level and competition is limited. It is not really an ideal situation for anybody except the huge company that holds the monopoly. However, barriers to entry aren’t always completely prohibitive. In actuality, many small business startups encounter some type of barrier to entry that they need to overcome, whether that is initial investments, acquiring permits, or obtaining a patent — it is just part of doing business.
Resources of Barriers to Entry
Barriers to entry come from seven sources:
- Economies of scale: the decrease in the cost of operations due to higher production volume
- Product differentiation: the brand strength of this product because of successful communication of its benefits to the target market
- Capital requirements: financial resources necessary for operating the company
- Shifting costs: one-time costs the buyer must incur for making the change to another product
- Access to distribution channels: does one firm control them all, or are they offered?
- Cost disadvantages independent of scale: when a firm has benefits that Can’t be replicated by the competition, such as proprietary technologies
- Government policy: controls the government has put on the market, such as licensing requirements
Building Barriers to Entry
Some companies want there to be high barriers to entry in their market because they would like to limit competition or hold on to their location on top. Therefore, they will attempt to keep their competitive edge any way they could, which may make entry even harder for new businesses. They may do something like invest an inordinate amount of money on advertising (in other words, on product differentiation), since they have it and they could, and any new entrant wouldn’t be able to do this, giving them a substantial disadvantage.
When starting a business, assessing all possible barriers to entry is an essential step in determining whether or not to enter a selected market.