If we take the word "brand" at its original meaning (the trademark or distinctive name identifying a product), it seems fair to assume that brands can acquire some intrinsic value. Let’s see how this assumption holds up to logical scrutiny.
The value of a brand (brand equity) is a relative measure. You can only value one brand relative to another. Also, when products are not identical in every way, brand value is likely to be incalculable. Let’s imagine a case of true product parity. If two products were in fact identical, what is the theoretical value of each brand? That’s right; nothing. In an efficient market, customers will not be prepared to pay a premium for a product when there’s a truly identical alternative. If customers are currently paying a premium for a product when there’s an identical alternative, that brand equity is a temporary phenomenon, reflective only of market inefficiency. As share traders know, this kind of arbitrage opportunity tends not to last long.
This line of reasoning illustrates that a brand has no long-term intrinsic value. It also highlights that the premium a customer is prepared to pay for one product over another is directly proportional to the degree of differentiation of that product.
It’s time us marketers faced up to reality. If we are operating in the best interests of our organizations, we are not building brands; we are making sales. In the long run, the most successful products will always be the better products (those that provide customers with the greatest value). The fact is that business growth has little to do with brand equity today. And, if anything, its significance will reduce as time passes and markets become more efficient.
Justin Roff Marsh
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