Score to date: people 3, rationalists 0

In an August article headlined 'What are Brands For?', The Economist struggled to answer its own question. While accepting that brands “are the most valuable things that companies own, often worth more than property  and machinery”, it also described them as ‘ethereal’. Having conceded their importance,  the article went to say: “Yet arguments rage about how much brands are worth and why. Firms that value them come to starkly different conclusions. Most of the time they do not appear as assets on companies’ balance-sheets.”

For many shareholders,  financial analysts, fund managers, economists, academics and business journalists, there’s clearly something deeply unnerving about a company’s most valuable asset being ethereal. What’s less well recognised, I think, is that for 50 years or more, below the surface, it has also been unnerving for chief executives and financial directors. Given the choice between investing in capital equipment (reassuringly tangible, touchable, physical things) and an equivalent sum invested in advertising and promotion (expensive television advertisements that fizz like a fire cracker for 30 seconds before disappearing for ever) they are to be forgiven for favouring the tangible. Investing in equipment  is self-evidently prudent; investing in brands is not.

Since there’s still no consensus about the nature of brands, why they are so valuable or what they’re actually worth, the resolve to invest, in bad times as well as good, demands an act of faith at the highest level. And it’s in the nature of faith, as opposed to fact, that it can be more easily shaken. The justification for capital investment is solid as a rock. The justification for brand investment is alwayshalf-expecting to be found flaky.

When Which? magazine was launched in 1957, delivering the objective assessment of competitive products, there was a discernible flutter in advertising circles. I remember  one venerable adman saying: “Well, that’s it, isn’t it? The game’s up. It’s all over. We’ve been rumbled.” I’m pretty sure he didn’t mean it; but at the same time, I suspect he was saying it as a kind of exorcism. If he said it out loud, it might never happen. And he wasn’t the only one. The rationalists rejoiced that at last sanity would prevail and consumers would henceforth  choose only those products decreed by Which? as Best Buys and eschew all others.

It didn’t happen.
On 2 April 2 1993, Philip Morris, suffering badly from the growth of cut price generic cigarettes, announced a 20 per cent cut in the price of their Marlboro  brand – and the sky fell in. Not only did
Philip Morris stock drop by 26 per cent – but the stock price of all other brand companies, including Coca-Cola  and RJR Nabisco, plummeted  as well. The price cut was seen by observers as evidence that Philip Morris had surrendered, that their brand’s bluff had finally been called, and that from now on value-minded consumers, at long last embracing rationality, would forever call the shots.

It didn’t happen.
That August Economist article was prompted by a recent book, Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information. Arguing that, thanks to the internet, “For the first time in history consumers have the tools to assess the absolute value of things”, the authors confidently predict the decline of the importance of brands.

It won’t happen.
It must be dispiriting, being a rationalist. Every time your hopes are raised that the rest of humanity will finally come around to your way of thinking, they’re yet again cruelly dashed. Perhaps, some time soon, those who believe that, given access to perfect information,  all citizens will make perfect choices, will begin to ask themselves why most citizens so stubbornly don’t. Perhaps they might just begin to consider the possibility that the rest of humanity are right and that they’re in the wrong.

Perhaps they might just begin to concede that emotional, non-functional satisfactions (love, to mention  just one) are as real as functional satisfac- tions: and have been since man stood upright. Perhaps they might finally wake up to the fact that brands are not, solely, the fabricated products of capitalist propagandists  but are created, willingly and pleasurably, in the minds of millions (think football clubs, for example).

It’s true that any such conversion will be impeded by marketing people and their advertising buddies continually boasting about their skills in brand creation. We can be very good at helping to shape brands, certainly, and the values we can help imbue a brand with are as real and as legitimate to its users as its detergency capability. But real people have been creating brands in their heads since the arrival of choice. It just took until the middle of the 20th century for a word to emerge that described them.

This article was taken from the January 2015 issue of Market Leader. Browse the archive here.