A marketing professional might answer the question “How do you value a brand?” by using surveys, market share, and other metrics to measure what marketers call brand equity—a concept linked to financial value.
Legal scholars explore this question to weigh the benefits of intellectual property protection against antitrust issues. Economists approach this from a macroeconomic, industrial organization perspective, assuming worlds with producers maximizing profits and customers maximizing utility.
Let’s take a look at this, but first go back for a moment to the world without brands. The former Soviet Union removed all brands and belief in brands. Mother Russia was the only brand in which to believe and know. If any country could achieve this, it would be a strong state-controlled environment in which the price of any given service or item would be its cost after the state took its cut. Everything was price controlled and the names (what we would call brand names) would be owned by the state. The name wouldn’t matter because everything would be priced the same. If there were a shortage of one item, we would be required to replace it with another (toilet paper for paper towels or running shoes for slippers).
There was no motivation to innovate, and since factory managers could be shot if they missed quotas, they simply promised small amounts of goods while requesting larger amounts of vodka. This describes the situation before the Berlin Wall fell. Soon after the fall, great demand for brands opened up as Russian citizens made visits to the United States, coming back with Levi’s and Gucci.
What do we learn from this example? Without brands, people will buy products and customer utility exists. Life does go on, but not with the same deliciousness as a life with brands. Without free markets and brands, innovation is nonexistent and the price of poor quality goods is high. Brands are part of our lives and there’s no way around it. It also appears that the desire for status is woven into our DNA. And if brands and people occupy the same space and time, economic value is created. This value we have yet to precisely define.
People want to purchase and consume products and services within the constraints of income, savings, or available credit. Producers sell at prices that are designed to maximize profits, given cost constraints. People pay attention to competing producers’ offerings and prices. As time moves on, producers play a “game” to adjust their prices in response to competitors’ prices to try to increase profits. If competing products and services are identical and there are no economies of scale, then brands will not matter. Without differentiation, brands don’t really exist, and without brands and intellectual property, innovation withers.
This leads to another path in thinking of an unbranded world: a world with no innovation or scalable price advantage. Someone said, “Everything that can be invented, has been invented”—or maybe not. Though this quotation is commonly attributed to either Charles Holland Duell or Henry Ellsworth, ironically, both past U.S. Patent Office commissioners, it turns out that it is unlikely either of them actually said it. Nevertheless, the world this orphan quote depicts is a world in which brands can’t survive. Without new innovations or producer value added to offerings, brands can’t exist. Yes, the names and even trademarks exist, but because no new utility is added by producers. People only have price to make decisions.
These two theoretical paths to an unbranded world offer contrasting lessons: (1) Humans need brands nearly as much as we need fellow humans. (2) If brands don’t provide added value to customers, those brands will disappear. (3) Without brands, there is no motivation to innovate or achieve scaled economic advantages.
Fortunately, we don’t live in a future designed by Karl Marx or one in which we’ve hit our maximum invention potential.
Contributed to Branding Strategy Insider by: Aaron Keller, Renée Marino, and Dan Wallace, Excerpted from The Physics of Brand: Understand the Forces Behind Brands That Matter with permission from HOW Books, an imprint of F+W Media, Inc.
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