Brands aren't worth as much as we thought

This month's Wired has a stunning article by James Surowiecki about the failing currency of brands as a form of intangible corporate asset. This is a timely piece because the rhetoric of branding has been used to make unprecedented incursions against privacy, competition and speech.

It used to be that trademarks were intended to protect "consumers" (that's us) from being tricked into buying goods under false pretenses. If it said "Coca-Cola" on the can, there had better be Coke inside, and not Pepsi or Crazy-Bob's-Discount-House-of-Soda brand. When a competitor of Coke's shipped a bottle of stuff that was misleadingly packaged or labelled, Coke's authority to sue its competition derived from its need to protect us, not its bottom line. It didn't get to sue because it owned Coca-Cola, but because it was acting as a proxy for its customers, who were being decieved by con-artists who mislabelled their goods.

That meant that Coke's trademarks couldn't be used to go after anyone except competitors and then only when they were deceiving the public. If I started the Coca-Cola Brake and Lube Shop and there was no likelihood that a customer of mine would spend his money at my premises because they thought the fine quality of Coca-Cola Beverages would be reflected in my workmanship, then I was OK.

It also meant that if I made a product like Coca-Cola (say, Pepsi Cola), I could use the word "cola" to signify that if you like Coke, you should try Pepsi. Trademark didn't protect Coke from Pepsi's proudly announcing that they had goods that were similar to Coke's. A court actually found that "cola" was a generic term ad that Coca-Cola couldn't stop other "cola" makers from using it.

But as time went by, trademarks stopped being about us and started being the embodiment of brands (which, as Surowiecki points out, are on the wane and were probably never as important as we thought to begin with).

This meant that trademarks weren't just things that helped the public know what they were buying — they are a kind of pseudo-property. Pseudo-property that could be defended on the basis that it "belongs" to a company, who need to be protected from having the value of their marks "diluted" or "tarnished."

So now you have Visa going after — a company that helps you get travel visas — and Air Canada going after shareholders who used the Air Canada logo on communications about problems with Air Canada management. Disney's one of the worst, of course, going after daycares that paint Mickey on the walls — even though there's not an instant's danger that anyone will mistake a nonprofit daycare center for a Disney operation and be misled into patronizing it. Most recently, of course, some of Nintendo's lawyers got a wild hair up their ass because someone mentioned some game titles on a profile-page on a porn/community site and freaked out because the association might damage their brand.

All these new and exciting uses of trademarks — shutting up critics, blocking new entrants into the market, and controlling the speech of private individuals — are justified by the importance of brands.

But if brands just aren't that valuable, maybe it's time to rethink this stuff. I'm all for trademark laws that punish people who defraud me by misrepresenting their goods — but trademarks used to create and maintain a market position just mean that it's harder for the "consumer" (that's me) to find out about competitive offerings and failings in goods and services. That kind of "right" doesn't do me any good at all.

Undoubtedly, there are strong brands that can still command a premium. In one recent survey by Landor Associates, 99.5 percent of people said they'd be willing to pay more for a Sony. But the size of that premium is smaller than ever. Five years ago, Sony charged 44 percent more for its DVD players than the average manufacturer. Today, Sony DVD players cost just 16 percent more than the average. And yet, even though the price of Sony's most expensive DVD player fell 60 percent between 1999 and 2003, CyberHome, maker of absurdly cheap DVD players, has knocked off Sony to become the biggest DVD-machine seller in America. Similarly, in the fashion industry, a stronghold of brand identity and obsession, prices fell an average of 9 percent between 2001 and 2003. At least part of the reason is the uptick in private-label sales, which now account for almost half the market. The rise of retailers like Zara and H&M, which make their own cheap but nice designer knockoffs, and the emergence of a high-low aesthetic (in which top designers no longer dictate taste) have weakened the power of fashion brands and fragmented the industry into myriad small ones. Sure, superbrands like Louis Vuitton and Prada can still command a heft price premium. But they're increasingly the exception…

Look at Nokia. In 2002, it had the sixth-most-valuable brand in the world, valued by the consultancy Interbrand at $30 billion. But the very next year, Nokia made a simple mistake: It didn't produce the clamshell-design cell phones that customers wanted. Did consumers stick around because of their deep emotional investment in Nokia? Not a chance. They jumped ship, and the company's sales tumbled. As a result, Nokia lost $6 billion in equity. How about Krispy Kreme? In 2003, Fortune called the doughnut maker America's "hottest brand." Then came what might prove to be the hottest name of 2004: Atkins..

The truth is, we've always overestimated the power of branding while underestimating consumers' ability to recognize quality. When brands first became important in the US a century ago, it was because particular products – Pillsbury flour or Morton salt – offered far more reliability and quality than no-name goods.


(via Kottke)