when customers attach a level of quality or prestige to a brand they perceive that brand s products as being worth more than products made by competitors thus they are willing to pay more for them in effect the market bears higher prices for brands that have high levels of brand equity 
yet the cost of manufacturing a polo shirt and bringing it to market is not higher at least to a significant degree for an established company such as lacoste than it is for a less reputable brand however because its customers are willing to pay more it can charge a higher price for that shirt with the difference going to profit therefore positive brand equity can increase profit margin per customer brand equity has a direct effect on sales volume because consumers gravitate toward products that either have great reputations themselves or come from companies with great reputations or both for example when apple releases a new product customers line up around the block to buy it even though it is usually priced higher than similar products from competitors one of the primary reasons why apple s products sell in such large numbers is that the company has amassed a staggering amount of positive brand equity because a certain percentage of a company s costs to sell products is fixed higher sales volumes translate to greater profit margins customer retention is the third area in which brand equity affects profit margins returning to the apple example most of the company s customers own not just one apple product but several plus they eagerly anticipate new releases apple s customer base is fiercely loyal sometimes bordering on evangelical the company enjoys high customer retention another result of its brand equity by retaining existing customers apple increases profit margins by lowering the amount it has to spend on marketing to achieve the same sales volume it costs less to retain an existing customer than to acquire a new one the concept of brand equity was first introduced in the 1980s by david aaker a marketing professor at the university of california berkeley examples of brand equitya general example of the importance of brand equity is when a company wants to expand its product line if the brand s equity is positive the likelihood that customers might buy its new product increases customers associate the new product with an existing successful brand for example if campbell s releases a new soup the company is likely to keep it under the same brand name rather than inventing a new one the positive feelings and trust that generations of customers already have for the campbell soup company established in 1869 and its products make a new product more enticing compared to a soup associated with an unfamiliar brand name 1here are some other examples of companies with significant brand equity manufactured since 1955 first by mcneil and then by subsidiaries of johnson johnson tylenol is a first line treatment for mild to moderate pain 2 tylenol has been able to grow its market with the creation of additional products that emphasize the brand tylenol extra strength tylenol cold flu children s tylenol and tylenol sinus congestion pain started in 1995 costco s kirkland signature brand has maintained positive growth and represents solid profit margins as well as a growing portion of the company s overall sales this is an example of consumers forsaking more expensive products from well known companies and flocking to costco s typically lower priced products because of their high quality and value 3kirkland signature encompasses hundreds of items including clothing coffee laundry detergent food and beverages costco also provides members with exclusive access to cheaper gasoline at its private gas stations recognized as one of the most admired companies in the world by fortune magazine in 2023 starbucks is held in high regard for its pledge to social responsibility 4 with 38 038 stores operating around the globe starbucks remains the premier roaster and retailer of arabica coffee beans and specialty coffees 5with profit margins from 23 32 coca cola is often rated the most valuable soda brand in the world 6 however the company brand itself represents more than just products it s symbolic of positive experiences and relationships a proud history involving consumers and even of the united states itself also recognized for its unique marketing campaigns the coca cola corporation has had a global impact on consumer engagement porsche a brand in the automobile sector with strong equity retains its image and reliability through the use of high quality unique product materials viewed as a luxury brand porsche provides owners of its vehicles not only with a high quality car but a memorable experience compared to other vehicle brands in its class porsche was the top luxury car brand in 2023 according to u s news world report 7tracking a company s brand equitybrand equity is a major indicator of company strength and performance specifically in the public markets investors and analysts can look to brand equity as a gauge for potential stock performance they may make solid and growing brand equity part of the criteria for investment selection often companies in the same industry or sector compete on brand equity for example two top companies home depot and lowe s home improvement consistently rank as the top two home improvement store brands as they did in 2024 8a large component of brand equity in the hardware environment is consumer perception of the strength of a company s e commerce business both lowe s and home depot are industry leaders in this category besides e commerce notability both companies have high overall recognition among consumers allowing them to further penetrate the industry and increase their brand equity 