COMPANIES ONLY DEVELOP BRANDS SO THAT THEY CAN CHARGE HIGHER PRICES Companies only develop Brands so that they can charge higher prices

Companies only develop Brands so that they can charge higher prices

Introduction

Consumers pay a higher price for brand-name products than for products that do not carry an established brand name. Because this involves paying extra for what some consider an identical product that merely has been advertised and promoted, brand names may appear to be economically wasteful. (Gregory, James 2003, 23-45)

It is quite true that companies only develop Brands so that they can charge higher prices. The impact of brands can be powerful, signalling positive or negative value to customers and other constituencies. "The problem with income- statement approaches to brand valuation is that they are static. They do generate a single number of brand value, but they don't tell you how to get more value from a brand, how to protect the value that you have, or which perceptions of the brand create most of the value." All else being equal, a strong brand enables a company to command a premium price for a product or have higher market share when charging the same price as a competitor. In other words, brands have the power to "shift demand." For (Gregory, James 2003, 23-45)

Explanation

For example, Harley-Davidson, which is an extremely strong brand in the motorcycle market, can charge up to three times the price of a competitor's product for a motorcycle with essentially the same engineering quality and performance characteristics as imitations. Moreover, Harley customers are willing to wait for months for a motorcycle, simplifying the company's inventory management. Only a Harley is a Harley. (Gregory, James 2003, 23-45)

Consumer reliance on brand names gives companies the incentive to supply high-quality products because they can take advantage of superior past performance to charge higher prices. (Gregory, James 2003, 23-45) showed that this price premium paid for brand-name products facilitates market exchange. A company that creates an established brand for which it can charge higher prices knows that if it supplies poor products and its future demand declines, it will lose the stream of income from the future price premium it would otherwise have earned on its sales. This decrease in future income amounts to a depreciation in the market value of the company's brand-name. A company's brand-name capital, therefore, is a form of collateral that ensures company performance. Companies without valuable brand names that are not earning price premiums on their products, on the other hand, have less to lose when they supply low-quality products and their demand falls. Therefore, while consumers may receive a direct benefit for the extra price they pay for brand-name products, such as the status of driving a BMW, the higher price also creates market incentives for companies with valuable brand names to maintain and improve product quality because they have something to lose if they perform poorly. (Fan, Y. 2006, 62-68)

Brand-name quality assurance is especially important when consumers lack complete information about ...