Monday, 27 February 2012

Brands: A License to print money

There are two items that are always in my car: A GPS and a pair of shades.  The Garmin Nuvi GPS costed me $300.  My set of Prada sunglasses were $350.  The Prada's look cool and are actually well made, but still, it's little more than a piece of moulded plastic with a tint.  They protect your eyes from the glare of the sun.  The Garmin has a touch screen, voice navigation, speed camera warning system and an accurate GPS speedometer.  Wherever you may be it also highlights any surrounding points of interest like restaurants and malls.  You cannot compare the utility of the two.

Imagine the research and development that went into making the Garmin GPS unit.  Visualise teams of clever, highly educated scientists and engineers working, collaborating and fighting.  Think of the amount of testing each prototype needs to undergo: somebody has to actually get out there and drive huge distances to test the accuracy and reliability of the navigation function.  Someone else has to test the menus to ensure they're intuitive and user-friendly.  Remember too that they would have spent days recording the lady's voice which gets played back to you when the device is guiding you.  Finally, think of the utility it provides its owner: you can find your way out of almost any desolate place (just ensure your maps are updated).  You can be directed to the nearest service station when your vehicle is low on fuel.  This device can save you a lot of heartache and time.  It has become indispensable to millions.

Every pair of Prada's had someone designing them, sure.  But I will bet my home that the time, effort and costs involved aren't one quarter that of a GPS navigation unit.  It takes a team to design a Garmin, it probably takes one bloke to design a pair of shades.  Exotic materials used on the shades you say?  It's durable plastic with a tint, I assure you.  The GPS has a lithium ion battery, touch screen, GPS receiver and circuit board as its components.  The protective plastic casing is the only cheap thing about it.

Yet their price tags don't lie: the plastic sunglasses are officially worth more.  They say that value is a matter of perception.  People obviously therefore feel that a pair of stylish Prada's will add more value to their lives than a GPS designed by some nerds.  What value are the Prada's adding for $300-odd though?  It isn't sun protection for your eyes - a cheap pair of $20 shades will give you the same protection as the Prada's do.  Expensive shades have never been about protecting your eyes from the sun.  They are about making you feel good for buying a swanky, expensive accessory.  Take a pair of Police shades, stick a Bondi Blu label on them, and watch the value drop by 75%.

The right brand shows others what caste you fall in.  It is a symbol of your taste and wealth.  This is the main reason you pay top dollar for them.  A brand earns you approval and superficial respect.  If something can earn you approval it will usually fetch more money than something that is genuinely useful.  We value approval more than practicality.  With the right brand, your markups can be 700% and be perfectly acceptable to people.  Our widespread propensity to buy something mainly because of the label shows we are still irrational and emotional.  I too am periodically guilty of this (though I never take these vanity purchases on credit at least).

The brand and the product are inextricably linked.  This is applicable to fashion more than any other industry.  The association people have with names like Gucci, Gap and Calvin Klein are so powerful that it gives these companies the discretion to charge prices that budding competitors can dream of charging.  This is why brand names a given a value in the balance sheet of a company: because they are in effect a license to print money.

Subscribe by Email