Introduction to Economics                                      Lesson  4 / 07



Definitions of the term ‘brand’ are many and varied, often reflective of the definer’s interest or background, such as economics, marketing, advertising, psychology or sociology.  Some definitions include;

  • “A name sign or symbol used to identify items or services of the seller and to differentiate them from those of competitors ”.

  • “ Simply put, a brand is a promise.  By identifying and authenticating a product or service it delivers a pledge of satisfaction and quality ”.  

  • “ A brand is a collection of perceptions in the mind of the consumer”.

  • “ The name of a product plus characteristics that add value to a product. “.

  • “ A brand is a product, service or concept that is publicly distinguished from other products, services or concepts so that it can be easily communicated and usually marketed.  A brand name is the name of the distinctive product, service or concept.  Branding is the process of creating and disseminating the brand name.  Branding can be applied to the entire corporate entity as well as to individual product and service names “.


Brands began to assume major significance in the 19th century, particularly in connection with marketing and advertising.  However their use is considerably older than that.  Some famous brands, and their place and date of origin are as follows; 

Stella Artois Belgium Brewery 1366
Lowenbrau Germany  Brewery 1383
Beretta   Italy                           Firearms 1526
Sumitomo  Japan Conglomerate 1630
Royal Delft  Netherlands Porcelain 1653
St Gobain         France  Conglomerate      1665
London Gazette   England  Newspaper 1665
David Jones                                   Australia   Retailing     1838
Lindemanns  Australia Wine 1843

Economic Significance of Brands

Brands help facilitate the working of the market.  In the real world, consumers lack information about the goods and services available for purchase.  Acquiring the information and expertise required to survey and determine the item from those available and which best satisfies their particular need or desire, is a cost in time, money and effort that in many instances is not justified.  Faced with an array of possible choices, consumers can choose a branded product or service in reliance on the reputation and trust associated with that particular brand, without having to make an investigation before they buy.

The effect of branding a product is to differentiate it from its possible competitors and as far as possible to make it unique.  The effect if successful is sometimes said to create a situation akin to a monopoly or, in any event, reduced competition, thereby enabling the proprietor of the brand to exercise market power and achieve a premium price. 

Branding is typically but not always associated with advertising and brand promotion.  Although it is possible to advertise or promote a good or service, such as coffee or meat, generally –eat more meat, drink more coffee- typically advertising is specific or brand orientated such as Bushells Coffee or Safeway for Meat. 

Some critics of branding [and advertising] suggest that branding is unfair since, it is alleged, it favours the bigger producer or supplier over the smaller.  Also that it is misleading because in many instances it suggests a difference that does not exist.  The result, it is alleged, is to enable the proprietor of the brand to control and exploit the consumer and exact an unjustified profit.

The idea that product differentiation diminishes competition, and hence is anti-consumer, stems in large part from confusion surrounding the concept of Perfect Competition.  Perfect Competition is an analytical tool or assumption used sometimes by some economists to analyse and explain the market.

It presupposes that consumers are omniscient; that is that they know everything there is to know about what is being offered on the market.  Also that what sellers are offering for sale within the market for a particular item are all the same.  It follows that the selling or market price for all suppliers would be the same, since if a seller raised his or her price even a fraction all potential purchasers would go elsewhere.  In such a situation branding would be unnecessary and potentially detrimental, since it would suggest a difference in the product that did not exist.

In reality, perfect competition does and can not exist.  Consumers do and can not know everything about a particular market and not everything for sale therein is the same.  We live in a world of Imperfect Competition.  Branding enables the products of different suppliers to be more readily distinguished.  This is information consumers are willing to pay for.

Following the Russian Revolution in 1917 branding of products was banned and all products deemed to be the same were sold at the same price.  Consumers were thus forced to make their own inquiries about the source and quality of any particular product being offered for sale, a personally costly and frustrating process.  Moreover producers had no incentive or need to maintain the quality of their product or to work to improve its value. Eventually products were required to carry production marks, which enabled producers of sub-standard products to be sourced, but still provided no incentive for producers to improve and did not enable consumers to select the likely better or more satisfactory products.

The use and development of a brand by a producer or supplier has the effect of creating a valuable property, which can feature prominently in a producer or supplier’s list of assets.  In many instances the brand is the business.  Purchasers of a business are likely to pay a significant amount for a brand, particularly a successful one.  It has been suggested, for example, that when Phillip Morris purchased Kraft in 1988 it paid 6 times what the accountants calculated it was worth, in order to secure the brand.

It is the value inherent in its brand that causes a producer or supplier to strive to maintain its reputation for quality or for otherwise desirable features and to work constantly to improve them.  This ultimately works for the benefit of the consumers.


                                          David Sharp

                                              27 March 2007



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