Comments on: Brand value – for whom?

By: Jemma

Jemma — Wed, 30 Nov 2005 16:42:54 +0000

I’m not an economist or a marketing expert, but at the end of the day consumers are still free to make choices whenever they enter the supermarket to purchase goods. No one holds them at gunpoint, so if choosing a brand other than an unbranded good suits them (and not just financially- everybody knows brands cost more, thats no secret), but because of the quality, the ‘risk reduction’ factor or just simply emotional or sentimental reasons, then thats okay. I’m an advocate of limited government intervention in markets forces and I would not agree that taxing advertising is an appropriate measure for two reasons:
1) Free market forces will determine the level of competition- who is to say that a free market that becomes dominated by just a few companies is ‘unnatural’ or ‘unbalanced’ and therefore a target for govt. intervention? After all, it was consumer choice in purchasing the goods that made these companies successful that created the situation!
2) Consumers should be given credit for being intelligent beings, free to make their own choices. Rather than the government intervening by taxing advertising for the sake of ‘protecting the poor little consumer from evil compnies holding them to ransom by coercing them to buy expensive branded products that are really no better than the unbranded one’, I think a much more proactive approach would be to advocate independent consumer groups who provide unbiased information to allow people to make informed decisions. There seems to have been an assumption made in these discussions that a better awareness about the different products would convince consumers to choose the cheaper product that is supposedly no different from the brand. I’m not convinced this would be the case- I honestly believe that even with more information, many people would still choose to buy the brand. I believe this is largely because of the ‘risk reduction factor’ which is linked to product quality. Having vast experience in comparing brands with ‘own label’ myself, nine times out of ten, brands are better quality. Not just becuase they say they are. Not just because the adverts convince you to think that they are. Not because the pretty packaging makes you perceive that they are- because they actually are!!
On the baked bean issue. Yes Heinz do manufacture baked beans for supermarket own label, but they do not use the same recipe or quality of beans. Why would they put their prize product into an own label and undermine the very quality that makes the brand so popular!
People know that when they pay for brands they are paying for more than just the increase in quality, or the unique tangible benefits that it provides compared to the competition. But if they are happy to do so, then why take that away from them?

By: Nicky

Nicky — Tue, 08 Nov 2005 15:23:18 +0000

What no one has discussed so far is the critical value brands provide to consumers in reducing risk.

When consumers try a new products, there is a risk of it being different than what they want or expect. Buying a branded product is a way for consumers to increase the likelihood that the product will be of quality or consistent with positive experiences in the past.

It’s a form of trust built up over time. Also, products with heavy branding ads that stand the test of time are indicators of success and suggest that if so many other consumers liked it, maybe you would too.

Reducing risk is something valuable.

By: ricardo

ricardo — Fri, 04 Nov 2005 11:07:00 +0000

Talking of chutzpah: you admit that the 20% figure is ‘invented’ (although ‘in the right ballpark’), and then further down in your comment treat it like it’s the product of some careful empirical work.
It’s not like there hasn’t been any research on this. Not my field, but here’s a fairly recent informal survey: http://www.columbia.edu/~kwb8/advertisingintrofv2.pdf. It would be nice to see some of these papers discussed.
Re the comment (subsequently dissed) about there not being an attainable competitive equilibrium, pehaps the commenter was thinking along Grossman-Stiglitz lines (see http://ideas.repec.org/p/nbr/nberre/0121.html). Parallel here: if info is costly to obtain, in any perfectly competitive market I would free-ride on others’ information-gathering. Everyone would do this, so in equilibrium nobody would gather the info; therefore p.c. can’t happen. Would have to model this in the context of advertising/market structure (no doubt someone has; again, not my field), but presumably the result would be that there MUST be some imperfect competition (and therefore profits/rents somewhere) for any information-gathering to occur. In a Repo Man world with tins labelled merely ‘food’, we would have no idea which tins were any good. Not even if some of them said ‘tasty food’.
And as for doubting the government’s ability to intervene being mere ‘ideology’, one could presumably throw that one right back atcha. Inviting the state to dictate which informational exchanges are pernicious and which are beneficial is dangerous. Better to let the private sector do it: if a company is making misleading or even just irrelevant claims re its product, let another company call them on it.
Put it another way: if the government believes that a particular industry is rife with this sort of destructive behaviour, there’s no need to tax. Why not just tell consumers this is the case? If Big Fashion’s jeans are over-priced and there are better ones to be had at Aldi, have a junior minister point it out. This would also encourage other firms to enter, safe in the knowledge that the government would ensure a steady flow of customers. Of course, in order for their pronouncements to be believed the government would need a reputation for competence and good judgement, as well as for thorough knowledge of their subjects’ utility functions. Which, presumably, would be a form of branding.

By: Tim Worstall

Tim Worstall — Fri, 04 Nov 2005 10:52:47 +0000

Rent Seeking Behaviour.

Owen Barder had a piece over at The Sharpener where he claimed that advertising and branding were simply rent seeking, thus a distortion in the economy, one that should be removed by heavy taxation. Well, hhmm. A fairly standard lefty

By: Tim Worstall

Tim Worstall — Fri, 04 Nov 2005 10:52:33 +0000

Phil,
“I wouldnÃ¢â‚¬â„¢t describe either as rent-seeking, IÃ¢â‚¬â„¢d reserve that term for Ã¢â‚¬Å“Pay me more because IÃ¢â‚¬â„¢ve bribed the government so you have toÃ¢â‚¬Â.”

So what Owen describes is not rent seeking?

By: Phil E

Phil E — Fri, 04 Nov 2005 00:50:22 +0000

Ã¢â‚¬Å“If consumers had perfect information and had a choice to buy identical but unbranded goods, most would.Ã¢â‚¬Â
Some do and some donÃ¢â‚¬â„¢t as the experience with supermarket own brands shows us. Some people value the information that branding gives them and pay more for it. Others do not and donÃ¢â‚¬â„¢t.

Er, no – self-evidently, “the experience with supermarket own brands” doesn’t tell us what would happen “if consumers had perfect information”.

By: dearieme

dearieme — Thu, 03 Nov 2005 23:42:43 +0000

When you say “government”, Owen, do you mean some Socratic ideal government, or Messrs Blair, Blunkett, Mandleson, Byers etc?

By: Phil Hunt

Phil Hunt — Thu, 03 Nov 2005 18:31:58 +0000

Some brand-building certainly is about deliberately giving a false impression so that misinformed consumers pay more for a product. A good example would be the “Intel inside” campaign which seeks to give the totally erroneous impression that a computer with an Intel processor will be able to do more somehow than one with a competing x86 processor, such as one manufactured by AMD.

Where advertising seeks to give a false impression, perhaps prosecution for fraud might be appropriate.

By: Phil Hunt

Phil Hunt — Thu, 03 Nov 2005 18:28:16 +0000

Tim Worstall: Fair Trade is definitely branding even if it is not rent seeking (although I would argue that it is rent seeking. Pay me more because IÃ¢â‚¬â„¢m a poor guy is just as much rent seeking as pay me more because your jeans have a cool label on them.).

I wouldn’t describe either as rent-seeking, I’d reserve that term for “Pay me more because I’ve bribed the government so you have to”.

By: Tim Worstall

Tim Worstall — Thu, 03 Nov 2005 15:04:18 +0000

Fair Trade is definitely branding even if it is not rent seeking (although I would argue that it is rent seeking. Pay me more because IÃ¢â‚¬â„¢m a poor guy is just as much rent seeking as pay me more because your jeans have a cool label on them.).

Owen, conjouring up 20% of the economy is like if my grandmother had balls sheÃ¢â‚¬â„¢d have been in jail (pre-Wolfendon you see).

The reason IÃ¢â‚¬â„¢m blase is rather because of the other point…that as consumers do value brands, otherwise theyÃ¢â‚¬â„¢d ignore them, then we donÃ¢â‚¬â„¢t have this huge distortion you speak of.

The proof of which is:
“If consumers had perfect information and had a choice to buy identical but unbranded goods, most would.”
Some do and some donÃ¢â‚¬â„¢t as the experience with supermarket own brands shows us. Some people value the information that branding gives them and pay more for it. Others do not and donÃ¢â‚¬â„¢t.

So we appear to have an increase in choice as a result of branding. IsnÃ¢â‚¬â„¢t this supposed to be a good thing?

And could you explain further how restrictions on advertising would not entrench the current suppliers, new entrants not being able to inform consumers of their offerings? ItÃ¢â‚¬â„¢s a fairly standard part of the analysis on the tobacco advertising ban that the large current suppliers love it for exactly that reason.