ON THE LEFT: Tuning into power of branding
Brands are an important aspect of everyday life. Consumers have strong preferences for which smartphones offer the best functionality, which airlines provide the best service, which fashion accessories garner the most attention from friends and colleagues.
Brands help consumers to exercise their preferences in the marketplace. They come with a reputation for quality, functionality, reliability and other attributes, ultimately enabling consumers to exercise choice in their decision-making.
Equally important, they come with a certain image – whether for luxury, trendiness or social responsibility – which consumers care about, and which in turn influences which goods and services they purchase.
For companies, in turn, brands are valuable strategic assets and a source of competitive advantage. Accordingly, companies have gained rich experience in determining how their branding choices affect their sales and profits. A large volume of academic studies across a variety of disciplines offer many insights into successful branding practices.
Numerous specialised consulting firms stand ready to offer advice – whether on broad questions of branding strategy or narrow questions of advertising effectiveness.
By comparison, evidence on the economy-wide implications of branding is still limited. For example, how much do companies invest in branding relative to other tangible and intangible assets? In which ways are there markets for brands? How do branding choices affect the functioning of market competition?
Do branding activities affect the pace of product innovation? For policymakers, it is important to understand the ways in which branding activities interact with the broader economy. Branding investments affect consumer welfare and, in the long term, can influence the rate of economic growth.
In addition, governments have some influence on the branding activities of companies – including through the protection of trademarks. In order to promote consumer choice and maintain vibrant competition in the marketplace, governments need to assess the effectiveness of existing policies and adapt them in light of the evolving needs of the marketplace and new evidence on the behaviour of companies and individuals branding is no longer the purview of companies alone. Increasingly, individuals, civil society organisations, as well as governmental and intergovernmental organisations are adopting an active approach to branding.
Notwithstanding a generally complementary relationship, branding activities can, under certain circumstances, substitute for product innovation. Firms may prefer to invest in introducing products that are based solely on image, and are independent of any technological improvements. This can happen when firms benefit from strong consumer goodwill and are able to leverage this goodwill to promote their image-based products.
Relatively few research studies have analysed how branding activities may substitute for product innovation, especially in the case of vertical product differentiation, where firms introduce higher quality products to rival their competitors. Given that these types of innovative products tend to have experience attributes, it is possible that firms may engage in additional branding activities aimed at persuading consumers about the quality of their products, rather than investing in innovative activities to achieve the same objective.
But, the question is, what circumstances in the real world would lead to this outcome? Do the same circumstances apply across all industries? In other words, at what point do branding channels, such as advertising, become more effective at selling firms’ goods or services than the introduction of new innovative products?
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