How Brand Premium Influences Equipment Pricing
Brand premium is a metric known to pricing strategists and marketing professionals, but is often associated with luxury consumer goods. Understanding this metric in the context of equipment, however, allows equipment managers such as yourself to create effective, smart, and meaningful fleet strategies.
In this article, we will discuss what brand premium is and how it influences equipment pricing. By having a clear understanding of brand premium, you’re well on your way to making stronger equipment purchasing decisions for your organization.
What is Brand Premium?
At a high level, brand premium is a measure of a brand’s perceived value. It’s a metric that is designed to measure the relative price strength of a brand in used equipment markets at a given time. The analysis involves comparing thousands, or even millions, of observations from equipment resale and auction channels, keeping constant significant factors such as equipment age, equipment type, and market.
We then calculate the average prices by equipment type, size, category, model year, and sales channel. The resulting percentage of a brand’s average price versus the overall category’s average is what we call the brand premium.
How do brands calculate their equipment pricing?
As an equipment manager, you must first understand how brand name contributes to how a piece of equipment is priced, thus helping you decide which pieces to buy.
Many factors go into the pricing of any piece of equipment such as age, condition, size, strength, and brand name. Every year, millions of dollars are spent by original equipment manufacturers (OEMs) investing in advertising, marketing, and brand awareness to convince buyers that their name is better than the competition.
How does Brand Premium affect equipment pricing?
Note that brand premiums are different from normal price trends. Although they may sound synonymous, price trending usually contains a great deal of noise in the data, coming from differences in the equipment age, location, condition, and market. Brand premiums differ in that they can altogether cancel out that noise, which allows for a more accurate analysis of how a certain factor influences and impacts equipment pricing.
Brand premiums are also time-sensitive and are generally only relevant for a specific time. This means that, unlike other residual values, brand premiums should only be analyzed and interpreted specifically for that time period alone at which they were initially calculated.
Why is this helpful to equipment managers?
As with any information, putting this information to use will be unique to the equipment manager and fleet strategy. If your main consideration for purchasing equipment is its auction value, your priority could be to purchase brands with lower premiums on the resale channel and higher premiums on the auction channel.
If your concern is the longevity and value of the equipment, you may prefer to focus on getting equipment with a balance of the highest average age and a comparatively high brand premium. Ensuring these combined factors means you are securing equipment with a higher life expectancy and increases the likelihood of the equipment fetching a better price should you decide to resell in the future.
Another thing to consider is that certain OEMs can also carry multiple levels of premium across various equipment types. For example,a brand with a relatively high premium for loaders and excavators could have low brand premium for backhoes.
Different equipment managers have unique requirements and preferences, and it may be challenging to figure out which strategy works best for you. To answer this problem, we have researched and analyzed data from multiple heavy equipment categories such as construction, lift/access, and agriculture to give you real insights on how to implement brand premiums into your equipment decision strategies. Read more about it in our latest whitepaper, How Brand Impacts What You Pay for Equipment.
EquipmentWatch is the trusted source for heavy equipment data and intelligence. EquipmentWatch produces the leading database information products for the construction equipment industry and is the world leader in independent, third-party heavy equipment research serving more than 15,000 professional, high-volume users of construction, ag, and lift/access data. The EquipmentWatch products are valuable tools in decisions surrounding the purchase, valuation, operation, and equipment disposal.
For more than 60 years, EquipmentWatch has served contractors, equipment manufacturers, dealers, rental companies, lenders, insurers, and government agencies involved in heavy civil construction. EquipmentWatch owns The Rental Rate Blue Book. For more information, visit www.equipmentwatch.com.