Why Brand Positioning is Crucial for Building Brand Equity

The most important step when building any great brand is to find and establish a strong market position. Everybody knows this, but few people understand the reason behind it. Why is brand positioning so important, really? How is it connected to brand equity? And why will a strong market position pave the wave for greater campaigns with greater returns on your marketing investments? Let us explain why with actual insights from our latest research provided by our EnergyTracker.

But first, let us give you some background.

Since March 2022 we have been tracking the Swedish energy market using our BrandTracker. We have collected data about the consumers and the major brands operating the energy market. The goal is to provide the electricity companies with a holistic understanding of their market and brand so they can recognize what needs to be done to stay on top of both new trends, and competition. 

In addition to the energy tracker we have also analyzed the energy market with our product Pulse. Pulse uses eye-tracking technology to tell brands which ads people actually see. – i.e how many people actually see a specific ad, and how long they look at it. Together, by combining the EnergyTracker and Pulse, we provide a comprehensive framework for brands to understand new customer behaviors, their own and their competitors' brand performance, and into which channels they should focus their brand building efforts.

To read more about the research and general findings on the Swedish energy market, click here. From here on out, we are going to focus on the relation between brand equity and brand positioning. But before we get too invested, let's go over the basics.

What is brand equity?

Brand equity is the simple difference between the value of a branded product and the value of that product without that brand name attached to it. At least according to marketing professor Richard Rosenbaum-Elliot.

Consequently brand equity represents the value of a brand and we argue that the true value of a brand can only be defined as an immaterialistic value, by defining brand equity as the positive mental space in the consumer's mind. A brand with high brand equity therefore occupies a larger positive space in the mind of consumers compared to the competitors. 


What is brand positioning? 

When we talk about brand positioning, we usually try to describe how a brand can be relevant to consumers by occupying a certain place in the mind of a customer. With relevant, we mean that the position must be aligned with important consumer needs.  Accordingly, the word "positioning" can be most aptly explained as; a distinct and relevant position in the minds of your potential and existing customers. 

Where is the connection - how do brand positioning build brand equity? 

Well, brand positioning in itself does not build brand equity. You must also create brand attention. Because if your brand is not seen, your position won’t matter; without attention, no brand equity. 

Does this mean that the answer to building brand equity is just to invest heavily on marketing? Because if you spend more on marketing, if you talk louder than everybody else, shouldn't you be able to dominate the conversation, regardless of your position? Our research suggests you wouldn’t, so the answer is a resounding no. 

You see, attention alone doesn’t cut it, you also need to be positioned right; without a good brand position, no attention, and thus no brand equity. In the marketing world brand positioning and attention are so to speak the  the two sides of the same brand equity coin. 

So, high attention and a distinct position is the brand equity building formula? Again, sorry but not really.

You need to be different

Another important element to building brand equity is brand differentiation, which basically means that your brand has a different position compared to your competition. This also means that you can have a strong brand position, but if it is not different from its competitors, it won’t be building any brand equity.

On a surface level it’s pretty easy to understand why brand differentiation plays an important role for building your brand equity. Because without a unique offering and/or an unmistakable unique value proposition - you'll not be able to separate yourself and therefore never be able to establish a meaningful position. Instead, you’ll just blend in with the rest and your communication and marketing efforts will have a substantially lower effect. 

Adding everything together, this means that the magic formula for building brand equity consists of all these elements - brand positioning, brand differentiation and attention - combined. But, the process always starts with finding a distinct position. 

The proof is in the pudding

If we look at the electricity companies involved in the study, the ones that managed to dominate the conversation, and in turn increase their brand equity the most, were not the ones that splurged on marketing and ad spend. They were the ones that communicated from a distinct brand position to a defined target audience. 

This suggests that the return on your market investments with regards to brand equity will be greater if you have established a strong and differentiated market position, as the likelihood of receiving effect from your human attention (marketing spend) – increases with your brand equity – creating a positive spiral effect.  

To speak plainly, what the evidence suggests is that the relative value for every dollar spent on marketing will always be higher with a distinct brand position, as you’ll retain higher advertising efficiency, than with a more neutral or bland position.

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