Brands and The Economics of Information

We would like to touch on a subject that is ubiquitous to everyone - brand - which comes to my mind today when we talked about which cinema we should go to watch Finding Dory from my favorite animation studio: Pixar. Some of my favorite Pixar films are “Up, Toy Story 3, Wall-E, Ratatouille and many more. Enough of my praise for Pixar and I will focus instead on coffee, since it’s something that many people know and relish.

The common misconception for many people is that they consider “brand” as something that is of high value and high value and it is a label on a product. While it’s true to a certain extent, it doesn’t completely cover what brand really is. When you think that your co-worker is very genuine and helpful, that’s a brand you attach to your co-worker. Perhaps you think that your co-worker is a hypocrite and manipulative, that’s also brand with which you associate your co-worker. You see, brand goes beyond the label on the product. Brand can extend toward a person, service, a religion and a country. Brand is more than the label per se. Brand basically is the “perception” or “image” you have representing a certain product/service and everything. Even my country Cambodia is putting a lot effort in “rebranding” our country’s image.

Source: https://d.ibtimes.co.uk/en/full/1455968/finding-dory-movie.jpg?w=400 http://funnyand.com/wp-content/uploads/2014/12/Starbucks-Coffee.jpg

There is a reason why a market researcher asks a respondent to tell the researcher the words that come to the mind of the respondent immediately after hearing the name of a product. It goes something like this “What three words come to your mind when you think of Starbucks?” Take 30 seconds to answer this very question yourself. Well, some internet users would comment “Overpriced, Overrated, Overhyped”. Some might say “Quality, Hip/Cool, Cozy/Relax”.

But what brand has anything to do with economics? Well, as I told you in the previous post, you can feel the force of economics almost everywhere you go. Brand has many things to do with the economics of information. Let’s say you drive to a faraway place and you are in need of some caffeine and your favorite drink is hot latte. You have two choices: you can buy your latte at a local coffee shop or at your well-known Starbucks. More often than not, you would get your latte at Starbucks. But why is that? It doesn’t necessarily mean that Starbucks latte is always highly superior to the local shop’s, but you know what to expect of Starbucks latte and service. The local shop’s coffee might be a lot better than the population cafe chain like Starbucks, but we do not have the luxury of having this piece of information. Brand can exerts confidence and quality to the mind of a consumer. This is why a company can spend considerable amount of money on marketing campaign to convince consumers that their products are different than the competitors’ in terms of quality, experience, satisfaction and so on. By planting a particular brand image and perception inside the mind of the consumers, the company of such branded product can design a monopoly (a monopoly is a market situation where there is a single producer of a product and the producer can set a price- price setter) for its own niche market and set the price accordingly.

Normally, a branded product costs more than a generic product. But is it worth it to pay extra for a branded product? Well, if you ask me, I would give a classic reply “it depends”. (Economind, great mind thinks alike) Different people have different perception on a branded product. If you think highly of Starbucks and you derive high utility from consuming Starbucks and you consider the benefits are higher than the cost of Starbuck’s latte, you should go for it. If you are a person who rate Starbucks very low and your utility derived from drinking either Starbucks’ or the local coffee shop’s is the same, then perhaps you would go for the local coffee shop.

Now you know the framework for analysis inside the mind of economists. Just in case you are curious which cinema we are going to watch Dory, it’s Legend. Why? Because our utility derived from either Legend or Major isn't very different and we also gather enough information to make this decision.