Brand equity is created through strategic investments in communication channels and market education and appreciates through economic growth in profit margins, market share, prestige value, and critical associations.
Generally, these strategic investments appreciate over time to deliver a return on investment. Brand equity can also appreciate without strategic direction.
Firm Level: Firm level approaches measure the brand as a financial asset.
In short, a calculation is made regarding how much the brand is worth as an intangible asset.
According to information economics, a strong brand name works as a credible signal of product quality for imperfectly informed buyers and generates price premiums as a form of return to branding investments.
It has been empirically demonstrated that brand equity plays an important role in the determination of price structure and, in particular, firms are able to charge price premiums that derive from brand equity after controlling for observed product differentiation.
The difference in price, assuming all things equal, is due to the brand.
In industrial markets competition is often based on differences in product performance.
It has been suggested however that firms may charge premiums that cannot be solely explained in terms of technological superiority and performance-related advantages.
A booming tourism industry in Jerusalem has been the most evident indicator of a strong ROI.
While most brand equity research has taken place in consumer markets, the concept of brand equity is also important for understanding competitive dynamics and price structures of business-to-business markets.
When a brand's promise extends beyond a particular product, its owner may leverage it to enter new markets.