I have noticed a disturbing trend recently, and it involves discounting. It seems that when the economy gets jittery, all sense goes out the window, at least where many brands are involved. What happens is that brand managers (or their bosses) fail to remember that certain brands allow for-–even demand–-a premium price. People are willing to spend more for a brand due to the perception it creates. The brand may generate a perception of quality, exclusivity, value, or even a sense of community. But this tenet gets forgotten, and companies wind up discounting brands for quick sales. The result: brand equity gets harmed in the long run. Short term gain = long term loss.

Before I get off and running, let's first go back a step. Just what is brand equity? Essentially, brand equity is the perceived worth of the brand and its image, and the strength of the brand to convey this to the marketplace. Or, in the words of David Aaker, “brand equity is a set of assets (and liabilities) linked to a brand's name and symbol that adds to (or subtracts from) the value provided by a product or service to a firm and/or that firm's customers.” Whew. And that is the simple definition!

One of the main things brand equity allows for, as mentioned previously, is the ability to command a premium price. The brand, its image, and its equity all allow the customer to perceive a promise of value, accept and buy into a suggestion of quality, and have confidence in the purchase decision. Together, the brand provides competitive advantages in the marketplace, one of which is the ability to have higher prices and larger profit margins.

So, knowing this, why do brand stewards--most likely in a moment of panic--toss all this hard earned equity out the window, and follow the route of discounting? After all, we all know that if people see a higher price, they tend to perceive a higher quality product or service--whether or not it'is actually true. And the marketplace shows us that people will pay more for quality, whether it is real or perceived, as well as pay more for the image of the brand, and what it says about them. For most consumers, quality and price are inextricably linked in their minds. You can not treat them as separate components that don't impact each other. Lower price = lower quality. Simply put, that is what discounts translate to in the minds of many consumers. According to a white paper from Killian & Company Advertising, “Research has shown that deep discounts do cause the consumer to believe that something is wrong.” The white paper goes on to say, “Frequent discounting serves to lower the value of the brand because of an almost subconscious reaction by the consumer who believes that quality has also been lowered (remember shirts with alligators on them?).”

None of this is rocket science, and as most of you reading this have a fair amount of experience in the marketing sector, you are probably saying to yourself, “Kristine, tell me something I don't know.” But knowing and doing are two entirely different things! And in the frenzy of trying to meet quarterly numbers, or to look good at review time, or whatever other reason, common sense is frequently the first thing to go out the window. Brand equity is a valuable asset, and must be managed as such. Discounting destroys equity, pure and simple. After all, equity implies investment (such as consumer goodwill, buying into the brand image, personality, etc.), and discounting flies in the face of this. Equity is something that enhances the brand, and discounting does the opposite. So why would you undermine the value that companies work so hard to create?

Brand equity is a relationship the brand has with the consumer. Therefore, the equity should be used to strengthen the relationship, not weaken it. If you have a high value and quality perception with the consumer, discounting is less of a factor in the consumer's purchase equation. As I mentioned, studies have shown that people will pay a premium for a brand--the ultimate example of brand equity in action. A McKinsey study, “Uncovering the Value of Brands,” from 1996 found that strong brands can “command a significant price premium.” In fact, the study reported that “on average, the price of the strongest brands (in terms of the brand's importance behind the decision to buy) were 19% higher than those of the weakest brands.” You do not need to lower prices to be competitive; you do need to utilize the relationship that brand equity creates and consistently deliver quality and value. People will almost always chose the known over the unknown, and quality and value over other attributes.

Brand is a key factor in the purchase decision of consumers. And this decision making process is not always rational--emotion plays a large part in the process. Brand equity, in its working form in the consumers mind and marketplace, is by and large an emotional asset. A consumer may know that any watch can tell time, but while a Rolex can tell time, it can also tell so much more. It tells of success, money, power…..that is brand equity at work. The allure of the “I belong” mentality that Rolex offers the lucky few who own one would be lost if discounting came into play. It would tarnish the brand reputation, and therefore its equity.

Deals and sales come and go, but brand equity can last, if properly managed and protected. So remember, use your brand equity, and don't lose it!