when a company has positive brand equity customers willingly pay a high price for its products even though they could get the same thing from a competitor for less customers in effect pay a price premium to do business with a firm they know and admire 
because the company with brand equity does not incur a higher expense than its competitors to produce the product and bring it to market the difference in price goes to their margin the firm s brand equity enables it to make a bigger profit on each sale investopedia yurle villegasunderstanding brand equitybrand equity has a few basic components foremost is consumer perception which includes both knowledge of and experience with a brand and its products consumer perception relates directly to brand equity the perception that a consumer segment has of a brand results in either positive or negative effects for the company if the perception is positive the organization its products and its financials can benefit brand equity builds if the perception is negative the opposite is true these effects can turn into either tangible or intangible value if the effect is positive tangible value is realized as increases in revenue or profits intangible value is realized in marketing as awareness or goodwill if the effects are negative the tangible or intangible value is also negative for example if consumers prefer a generic product over a branded one the brand is said to have negative brand equity such willingness to ignore the branded product might exist if a company has a major product recall or causes a widely publicized environmental disaster brand equity is an extension of brand recognition but more so than recognition brand equity is the added value associated with a particular company brand equity s effect on profit marginsthe importance of brand equity s potential to boost profits and increase profit margins is demonstrated by the effort that certain companies make to support the high quality of their products 