In economics, branding serves an important purpose. Brands allow people to economize on knowledge, a scarce resource. We make decisions with imperfect information, and brand labeling and trademarks help us navigate these decisions. As Thomas Sowell writes:
When you drive into a town you have never seen before and want to get some gasoline for your car or to eat a hamburger, you have no direct way of knowing what is in the gasoline that some stranger at the filling station is putting into your tank or what is in the hamburger that another stranger is cooking for you to eat at a roadside stand that you have never seen before. But, if the filling station’s sign says Chevron and the restaurant’s sign says McDonald’s, then you don’t worry about it.
He goes on to add that “brand names are substitutes for specific knowledge.”1 Thomas Sowell, Basic Economics: A Common Sense Guide to the Economy, 4th ed. (New York: Basic Books, 2011), 574–75.
You don’t know much about the particular bottle of ketchup you may be buying—the quality of the factory it was produced in, the farmer who grew the tomatoes, or the recipe used—but if it says Heinz on the label, you have a good idea of what you’re going to get. The need to economize on knowledge is so important that in the Soviet Union, people began to learn how to read barcodes to know whether or not they were getting products from reliable factories.2
In customer service industries, this is also the purpose of a uniform. Customers can quickly identify the person they need to talk to in a retail environment, and the uniform conveys certain expectations. The electronic retailer Best Buy dresses its computer technicians, called the “Geek Squad,” in comically cliché “geek” uniforms—white shirts and black clip-on ties—in an attempt to help customers distinguish the employees with specialized computer knowledge from those who sell televisions.
But brand names, trademarks, and uniforms don’t always convey the information that companies want them to convey. For instance, if a customer had a bad experience with an incompetent Geek Squad agent, they may see the uniform as an indicator of somebody whose computer advice should not be trusted. Similarly, McDonald’s famous golden arches may inform a potential customer about the consistent quality of their hamburgers, as Sowell points out, but some consumers may see this as a sign of where not to eat. People always economize on information, but not necessarily in the way that companies hope
This is why companies are so protective of their brand and trademarks. Any dilution of their reputation hurts the value of their product in the eyes of the consumer, not because the quality itself is lowered, but because when consumers face greater uncertainty in their economic decisions they are less likely to buy a given product.
As in the customer service industry, a police officer’s uniform conveys information to civilians. In the idealized vision of police, the uniform should convey security. Most of us were taught as children that if we get separated from our parents, we should avoid strangers but find a police officer. Even though the [ … ]