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;
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
Significance of Brands
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.
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
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.
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.
27 March 2007