Brands, Profits, and Marketing

I found this "Snowman Soup" activity online and it seemed like a good way to talk about profits, brands, and marketing. The activity as written is great for older kids (it has some worksheets for figuring out gross and net profit, etc.); I modified it a bit for the younger ones and put more emphasis on the packaging too. Sam is always talking to his college students about the importance of having an audience in mind when you create anything, and this is no different. We tried to think about WHO we were trying to appeal to, and what kinds of messages we could convey with our logos, fonts, packaging, etc.

Along with this activity, we discussed the economics of company branding. It's an interesting thing to think about! As someone who grew up in a household that always emphasized what a waste of money it was to buy "brand-name" products, I was interested to read this several years ago in Basic Economics:

(page 504) Brand names are often thought to be just ways of being able to charge a higher price for the same product by persuading people through advertising that there is a quality difference, when in fact there is no such difference. In other words, some people consider brand names to be useless from the standpoint of the consumer's interests. 

In reality, brand names serve a number of purposes from the standpoint of the consumer. Brands are a way of economizing on scarce knowledge, and of forcing producers to compete in both quality and price… 

Brand names are not guarantees. But they do reduce the range of uncertainty. If a hotel sign says Hyatt Regency, chances are you will not have to worry about whether the bed sheets in your room were changed since the last person slept there. If the camera you buy is a Nikon, it is unlikely to jam up the first time you wind the film… 

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 if 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 just as reasonable 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…

Well, there's more, of course, and all of it good. But I can't reprint the whole book here! One more section, though, that provided a jumping-off place for our discussion about profits:

(pg 514) The performances of non-profit organizations shed light on the role of profit when it comes to efficiency. If those who conceive of profit as simply an unnecessary charge added on to the cost of production of good and services are correct, then non-profit organizations should be able to produce those goods and services at a lower cost and sell them at a lower price, [thus] taking away the customers of profit-seeking enterprises and increasingly replacing them in the economy. 

[However,] increasingly the opposite has happened: non-profit organizations have seen more and more of their own economic activities taken over by profit-seeking businesses… that can do the job cheaper or better or both.

And

(pg 523) Markets are often criticized for permitting or promoting greed. High prices are often blamed on greedy sellers. But "greed" is seldom defined. Virtually everyone would prefer to get a higher price for what he sells and pay a lower price for what he buys. Would you pay a dollar for a newspaper that was available for fifty cents? Or offer to work for half of what an employer was willing to pay you? 

Would adding a string of zeros to prices or salaries change the principle or the definition of greed? It is hard to see why it should… If it refers to people who desire far more money than most others would aspire to, then the history of most great American fortunes—Ford, Rockefeller, Carnegie, etc.—suggests that the way to amass vast amounts of wealth is to figure out some way to provide goods and services at lower prices, not higher prices. 

Back in the nineteenth century, Richard Sears was ferociously determined to overtake Montgomery Ward, the world's largest retailer at that time, and worked tirelessly for incredible hours toward that end, sometimes taking business risks that bordered on the reckless. Sears sought out every way of cutting costs, so that he could undercut Ward's prices, and every way of attracting customers away from his rivals. He did all this, not because he did not have enough money to live on, because he wanted more—and he wanted his company to be number one. If that is our definition of "greed," then he was greedy. More important, in this case as in many others, it was precisely such greed that led to lower prices. 

See here for more (and read the book for even more!).