Branding and brand building are important activities in marketers’ jobs and brands are important for consumers, too. Yet, there is, in my own view, a considerable fuzzy area on what exactly does branding mean and why consumers choose branded services (and products) over non-branded ones.
From the business’ point of view, brands are seen as identification means, differentiation means, assets etc. The process of branding (building a brand) is very well defined and structured in various stages.
From a consumers’ point of view, brands are cues for certain expectations, while the process of branding is a learning / memory process.
Maybe one day I will write on memory and branding, but for now I want to focus on why people choose branded services over non-branded ones.
The key to this preference is in Prospect Theory (click here if you want to read about PT).
Let’s see the issue of choosing between a branded and non-branded service as a gamble (in prospect theory terms). For simplicity we will use the example of restaurant services.
A person has to choose between Restaurant B – a restaurant belonging to a well-established corporate chain – and Restaurant P – a privately owned, single location restaurant.
Eating at Restaurant P is seen as a gamble with the following probabilities and outcomes:
There is a 10% chance that the food & service will be great (+100).
There is a 80% chance that the food & service will be average / acceptable (+50)
There is a 10% chance that the food & service will be terrible (-100).
Eating at restaurant B is seen as a certainty (100%) for as the food and service will be average / acceptable (+50).
Eating at restaurant P can be translated as:
EV Restaurant P = W(0.1)*100 + W(0.8)*50 + W(0.1)*(-100*λ)
Based on prospect theory, we will consider:
W(0.1) = 0.17;
W(0.8) = 0.55;
λ = 2.1;
EV Restaurant P = 0.17*100 + 0.55*50 + 0.17*(-100)*2.1 = 17 + 27.5 – 35.7 = 8.8.
Eating at restaurant B can be translated as: