The Value of Brands to Society Part 2 of 4

The following series is an excerpt about brands from the book Basic Economicsby Thomas Sowell:

Like everything else in the economy, brand names have both benefits and costs. A hotel with a Hyatt Regency sign out front is likely to charge you more for the same size and quality of room, and accompanying service, than you would pay in some comparable, locally-run, independent hotel  you knew where to look. Someone who regularly stops in this town on business trips might well find a locally-run hotel that is a better deal. But it is as rational for you to look for a brand name when passing through for the first time as it is for the regular traveller to go where he knows he can get the same things for less.

Since brand names are a substitute for specific knowledge, how valuable they are depends on how much knowledge you already have about the particular product or service. Someone who is very knowledgeable about photography might be able to safely get a bargain on an off-brand camera or lens, or even a second-hand camera or lens. But that same person might be well advised to stick to well known brands of new stereo equipment, if his knowledge in that field falls far short of his expertise in photography.

Many critics of brand names argue that the main brands “are all alike.” Even when that is so, the brand names still perform a valuable function. All the brands may be better than they would have to be if the product were sold under anonymous or generic labels. Both Kodak and Fuji film have to be better than they would have to be if boxes simply said “Film,” without any reference to the manufacturer. But, when film is sold with brand names on the boxes, Kodak knows that it will lose millions of dollars in sales if it falls behind Fuji in quality and Fuji knows that it will lose millions if it falls behind Kodak. When United Parcel Service first began to compete with Federal Express in overnight deliveries, UPS announced that it would deliver packages by 3 PM the next day. Federal Express immediately announced that it would deliver them by 10:30 AM-which both companies subsequently did.