Thursday, February 25, 2010

Value of Brands

I was having a conversation with someone about whether or not advertising has value to society. Advertising clearly has a big impact on our industry. In fact, advertising pays for so much that we take for granted: TV, radio, google... And yet, from a system level, advertising doesn't create anything. Sure, advertising can be effective in promoting one product over another, but from a macro-level, no goods or services are created from advertising (and the argument that it consumes goods and services is not enough of a reason for being). Now just so we're clear, the money that pays for your free TV comes from you. You pay for it in higher costs for the products that sponsor your shows. The inefficiencies means that overall, you are paying MORE in product costs for advertising than you would if you just paid for the shows directly.

Now really there are two types of advertising (and stuff in the middle). One, is the instructional kind, and I thing there IS overall societal value in that. Those ads teach you about products or services that you may want but don't know about. In fact, many government and non-profit agencies advertise to raise awareness on key issues.

Then there is purely brand-based advertising. This is for commodities that have no real functional differentiation (think Coca Cola). Here the advertising tends to be less informational and more based on evoking some emotion or identity.

Of course there are many things in between these two extremes, but overall, it seems to me that there is a whole lot of money going towards swaying people's opinions about what widget to buy over some other fundamentally identical widget. And yet 35 million people suffered from hunger (or "food insecurity") in 2006 IN THE US. And moreover, it seems that brand awareness and marketing are only becoming more important rather than less.

Here's an interesting graphic showing the "Value" of the top brands. That's right. The value of Coca Cola's brand is $68 BILLION dollars. That's larger than the GDP of many countries (including Cuba, Luxemburg, and Libya). Remember, that's just the brand, not its products, factories, trucks, or anything else.

It also strikes me that I don't feel that a lot of advertising out there is effective. Do those multimillion dollar ads work? What do you think?

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