Brand equity

Used by marketers and financial analysts to describe the proportion of a company’s value due to its branding and other intangible assets.

During last year’s NBA finals, GM aired a commercial worth noting. Showing all their brands throughout the past they apologized for making their brand too confusing and plead with us to look into the future. Watch this commercial below to understand their struggle with brand equity.

GM trying to convince public

Brand Dilution

Brand dilution occurs when a brand’s equity declines from too much use or in the case of GM, too many cars are made from the same parts and the distinct feeling of a car is lost. For many reasons including the introduction of foreign competitors producing in the U.S. and labor management struggles, GM was forced to compete by cutting costs resulting in the overuse of similar car parts for their different brands.

To the public, GM was becoming an affordable brand to the everyday commuter so cheaper and identical inputs were needed. It’s kind of like me trying to cook a week’s worth of dinners but I only have three ingredients. I call them different plates, but I really just switched up the way I cooked my meals not giving anything substantially different. Oh yeah, and my time as a cook costs way too much so that is why I can only afford three ingredients.

Brand Endorsement

When seeing the power of a brand decline or dilute, one must also consider the consumer preferences changing in the market place and whether or not this is actually bad for the company. It raises an interesting consideration; are companies intentionally shifting their target market or just plain getting it wrong?

Gatorade launched an endorsement campaign with pop star Little Wayne leaving some confused what “That’s G” really meant. A rapper uses the word “G” to imply the adjective “gangsta” but the commercial features all kinds of monumental athletes so calling them G for Gatorade makes sense. Gatorade successfully shifted some of their brand equity to a mainstream drinker, much the same as other juice makers and cola companies do already. Their marketers may have identified that Gatorade is as common as juice so they must market it to common consumers (using pop artists).

Discussion

• Does anyone else believe GM can re-brand?
• Was GM’s commercial more targeted toward shareholders and taxpayers?
• Is Gatorade loosing its brand identity as a sports drink?

The basic accounting equation brings the balance to the balance sheet.  Essentially it depicts where the funding for assets came from.

Assets = Liabilities + Equity

For example, a new homeowner buys a house for $100,000.  $10,000 is paid with cash (equity) and $90,000 is a loan from the bank (liabilities).  $100,000house = $10,000cash + $90,000loan.

The equation can be expanded by breaking down equity into contributed capital (owner’s equity) and revenue.