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Brand equity models represent business processes by which a company measures its product effectiveness and branding. These models are necessary in order to assess how well a company finds its popularity among consumers. The basic brand equity models include financial, brand extensions, and consumer based. Brand equity can increase cash flow, allow for more predictable profits, and result in goodwill when selling the business. Accountants may have a part in the measurement of brand equity.
Financial brand equity models determine a company’s brand equity based on the price charged for goods or services. For example, a company may be able to charge more money than the average market price for a product. Consumers who purchase these products at the higher price do so because they prefer the product over others in the market. The premium allows a company to assess how much more a company can charge for their products and services. Advertising costs may be necessary to achieve financial brand equity.
Brand extensions represent a base from which a company can start new product lines. For example, a company that is successful at selling televisions may also be able to sell DVD players. The success derived from television sales and brand loyalty with consumers allows the company to launch other products. Brand equity models that include brand extensions help a company define the probability of success for new products. This model often works in tandem with financial models as they overlap in certain areas.
Consumer-based brand equity models represent the measurement of consumer attitude to a company’s products. Though a company may produce high-quality products, consumers may be unwilling to purchase them. Strong customer loyalty comes from an individual’s perceptions related to product quality, attributes, and other aspects. Companies may need to conduct surveys or other studies to determine the amount of loyalty customers exhibit toward the company’s products. Multiple product brands may require the use of different brand loyalty measurement techniques.
Companies can outsource some brand loyalty management processes if necessary. These third-party companies help create various brand equity models to ascertain a business’s customer loyalty. While a company can certainly create internal models for this activity, it may have inferior abilities for conducting this process. Having a solid brand equity measurement process also ensures a company can place an accurate dollar figure to this intangible asset. Accountants record brand equity as goodwill, which a buyer would pay for the business over and above the company’s tangible assets.