Are We Really Paying for the Brand?

November 17, 2016

 

Brands fulfill higher-order needs...Brands can substitute or complement human passions and desires. Brands have become the symbol of high quality. People assume brands can buy them status or esteem and are willing to pay a high price for them. Not surprisingly, more the price consumers pay for a brand, more they perceive being elevated in the society. Such is the magical spell modern marketing has cast on us.

 

It is true that better quality products enjoy good reputation and command better prices. No doubt, several branded goods and their pricing reflect the value and the segment-positioning that they are designed to reach. However, for many branded products, from an economic and business point of view, there is a disconnect between the actual worth of the product and the pricing charged on the product. The disconnect is often due to a range of paraphernalia or furnishing associated with the distribution, packaging and advertising and shopping mall showrooms and display. 

 

For last few weeks, I was doing window shopping for suits and ties. In a typical high-end shopping mall, the branded suits are priced in the range of $400 to $2000 and some in the range of $9000. I am not comparing apples and oranges. They are all branded items with good brand recognition. I was perplexed by the range of prices for suits in the same shopping mall. The brands boast designer collections, new styles and cuts, and unique colors, and place of origin (like Italian..). But almost all of them are made of 100 percent wool and in fewer colors and of same quality. If you remove the label, no one can tell, what brand of suit it is despite a huge price difference observed across brands. Interestingly, most of them were manufactured in the same foreign country. Not only for suits, the same thing goes for many branded dress-wear for men and women. 

 

As a professor of business strategy, I completely understand the branding, differentiation, positioning and location based pricing strategies. However, given the size of inventory carried in stores for each unit sold, and the number they are selling, I doubt the real worth of the brands as their prices indicate. With huge inventory only a few are sold everyday. 

 

Then I looked around. High dazzling lighting, massive play ground size shopping mall with huge air-conditioners/heaters humming in the background, mosaic floors, architecturally appealing pillars rising to moon roof ...and so on. Then of course, branded goods require special gift wrapping and packages. No doubt, all these furnishings added some excitement to shopping experience which may be part of the branding strategy, no disagreement with that. However, I guess, more than 40% of the price charged on the tags of the branded goods are the costs associated with inventory, logistics, packaging, display, and energy cost. Surprisingly, I have noticed the same thing with leading automobile brands in dealerships...

 

While branded fast moving consumer goods like carbonated drinks, beer, food, snacks may be closer to their respective pricing realities (brand values), the worth of durable luxury goods like cars, jewelry, wrist watches, suits, ties, shoes may be disconnected from the prices they command. What I mean by that is one could buy these most cherished brands for at least 30% less if they are sold in the right scientific way. Of course, achieving volume also will help reduce the price of durable luxury brands. 

 

While shopping, I was attracted to a branded suit priced at $700. A week later, I bought the same brand - same suit for less than $150 under discount in another store saving me $550. I bought a branded perfume for $85 dollars furnished with all the special wrapping and gift accessories - all these furnishings are just thrown away in trash just after reaching home. I agree, all these furnishings and product augmentation are part of shopping experience of the brand what the consumer is willing to pay. We have to recognize on the other, there are quality and brand conscious consumers who would like to pay only for the real worth of the brand. 

 

Given the intense competition and the high costs associated with the paraphernalia of retailing, consumers need to be given the choice of not paying for these furnishings. Online marketing and retail will certainly challenge the inefficiency in brand pricing. There must be ways to reduce the packaging, logistics, energy costs, inventory costs and so on which are not really part of the brand consumption process, which will make the brands more competitive and accessible and will extend the customer base for quality goods - making the brands what they are really worth.

 

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