The Role of Brands in Consumer Markets; W. Stuart

These critics fail entirely in understanding the vital roles that brands serve in the modern, consumer-driven economy. Con sumers continue to purchase branded prod ucts not out of misguided or manipulated habits, but rather because the brand name provides them with two attributes critical to their mission as consumers: product infor mation and consumer protection. Brands as Sources of Information Imagine a consumer who wants to .pur chase an automobile in a market in which automobiles do not have brand names. There is no Taurus, no Cutlass Ciera, no Acura. Instead, her options are among a lot full of automobiles that have no manufac turer identity or brand names. She seeks information to aid her in making her pur chase. Some of the information she can William G. Stuart is a sales executive living in Cummaquid, Massachusetts. gather quickly; she can, for example, look at the various cars on the lot and determine which vehicles meet her preferences for size, style, and color.

Most of the other information, though, she cannot gather by sight alone. How reliable will the vehicle be over time? To answer this question, she must hire a me chanic to inspect the vehicle to determine how mechanically sound it is. The mechan ic's summary willtell her how sound the car is today, but he can only guess as he projects how it will petform over time-after all, he has no industry reports about the long-run petformance of specific automobile brands. Our consumer cannot gauge other aspects of vehicle petformance, such as quality of the ride over varying road surfaces and fuel consumption, without experiencing the car firsthand. Thus, she must take an extended road test (perhaps three or four hundred miles) to estimate fuel economy and expe rience vehicular performance in different driving conditions. The decision that she ultimately makes will be more of an art than a science. She simply will have inadequate qualitative and little quantitative information on which to base her choice. She may make a good choice, but that outcome will be more a matter of luck than of a solid conclusion based on sufficient evidence.

By contrast, let us shift to the current world, one in which vehicles are branded and positioned to appeal to a certain market 282 segment. As our consumer ponders the decision to replace her car, she begins to notice print and television advertising of automobile brands. As she assesses her needs, she is able to exclude many brands and models from consideration and focus on a few alternatives. Advertising, far from being the manipulative tool that its critics claim, actually transmits important informa tion to her. Advertising places the vehicle in a context (an economy car, a passenger van, and a four-wheel drive vehicle are posi tioned very differently in advertising) and exposes the consumer to important infor mation about the car (fuel economy, han dling, special features). Her next step may be to review literature in the popular press, including consumer magazines, to determine how the vehicle performs, how it holds up over time and how economical it is to operate. She can find qualitative information (such as the impres sions of professional test drivers) and quan titative information (statistical surveys of repair histories and fuel economy) of that brand. This information is statistically ac curate but impersonal. She may then choose to speak with a mechanic who services the brand and survey several friends who drive this vehicle brand to obtain their more personal testimonials.

All of these information avenues are avail able to her because the vehicles are branded. If there were no brands, nobody could compile information accurately. Con sumer surveys would be impossible, since there would be no way to distinguish one automobile from another. A mechanic would have no way of distinguishing his impressions of one vehicle from another. And it would be difficult to determine whether a friend or neighbor has the same vehicle as a potential buyer, since it would be difficult to distinguish among cars. The larger the dollar amount and the more complicated the product, the more impor tant the role that information plays. A con sumer purchasing rolled oats, for example, is far less interested in information than is a car buyer. Beyond the basic question of whether the oats are free from contami283 nants, the purchase is not complicated; a mistake results in a small monetary loss or less enjoyment than anticipated. In con trast, a poor decision about a computer, automobile, house, or business results in greater degrees of consumer discomfort or pain.

Brands as Consumer Protection A century ago, branding was in its in fancy. At that time, people still made most of the products that they consumed (such as food, soap, and clothes) or purchased them directly from producers who were their friends and neighbors. People had faith in the quality and safety of the products be cause they knew the people who made them. As our economy became more special ized-a trend that, as Adam Smith pre dicted, created an unprecedented degree of wealth-consumers were more removed by both distance and time from producers. The introduction of labor-saving machinery, which increased productivity markedly, also dictated the concentration of producers in a manufacturing area. Thus, the village silversmith or baker or cobbler was replaced by a factory that produced a high quality product at a more competitive price. Con sumers valued the potential quality consis tency and savings, but they no longer knew the people who made their products. Simi larly, as individual consumers became more specialized in their roles as producers, they themselves made even fewer of the products they consumed and relied increasingly on other specialists to meet their material needs.

In a large market, consumers do not care who makes their products. In this sense, the market is the great equalizer, as producers of all races, ethnic origins, religions, and genders unleash their creative energies to meet the needs of consumers. While con sumers do not care who makes the products, they care very much how the products perform. They want to know that the prod uct they purchase will meet their expecta tions. In this consumer environment, brands play a critical role. When consumers first 284 THE FREEMAN • JULY 1993 started purchasing more food and raising less themselves, they purchased items from a bulk bin. They had no information about what ingredients the products contained, how safe they were, and how they would perform. Branding created the protection that consumers demanded. The brand name signified a level of quality and consistency consumers could trust. Thus, Quaker Oats, Ivory Soap, and Levi's instilled in consum ers a degree of confidence that their un branded competition did not.

Defining Brand Expectations Brands are effective only when the prod uct delivers a consistent level of quality from product to product. McDonald's de livers the same level of quality regardless of location or time of visit. A consumer may choose not to dine there for a particular meal, but that decision is not a rejection of branding. Rather, it is an informed decision not to consume that expected level of qual ity on a particular occasion. Consumer confidence in brands varies with the type of product. Typically, confi dence in branded goods-such as automo biles, detergents, movies, and clothing runs extremely high. After all, standards can be defined and controlled strictly when the product is produced entirely in one central location and can be inspected before being presented to consumers. These brand names deliver the highest level of consumer confidence. The consumer may accept or reject the product; in either case, the deci sion is made with a clear expectation about the performance or level of quality of the goods.

Confidence in a product that is composed of a combination of both good and service is somewhat reduced because part of the out put cannot be controlled in advance. A McDonald's hamburger, bun, lettuce, and tomato can be inspected before they arrive at a particular franchise, but other inputs the actual cooking and preparation, the attitude of workers, the cleanliness of the facility-are presented live to consumers. The challenge the McDonald's manager faces in making his product the same from day to day and consistent with every other restaurant in the chain is the same challenge that the theater director faces making his live production uniform from show to show and consistent with other presentations of the play elsewhere. The managers who mas ter this challenge reap the spectacular re ward of a valuable brand identity, while those who do not perform so well find the brand image tarnished. For every example like McDonald's, which has mastered this challenge, there are many restaurant or lodging chains whose quality is not consis tent over time and location and thus whose brand name in consumers' eyes represents a range rather than a fixed point.

Products whose consistency varies from unit to unit have brand names of more limited value to consumers seeking confi dence. "Republican," for example, is a brand name about which consumers (voters, contributors, activists) can make some gen eralizations, but candidates running under the Republican label may have very differ ent perspectives on problems and very dif ferent approaches to solving them. The trend toward branding is expanding. Buoyed by the success of poultry market ers, beef companies and egg producers now are branding their products. More and more produce is wrapped and branded. Similarly, grocery stores that once sold "generic," no-brand products (packed in white pack aging with black lettering) are now applying their store name as a brand on more and more "house brands." These moves, far from being the wasteful, price-raising schemes that critics contend, are a response to needs that consumers in a more complex environment demand: infor mation and consistency. The trend toward branding products, identifying certain char acteristics with the brand and striving to ward uniform brand quality will continue as long as consumers continue to seek confi dence in the purchase decisions that they make. Brands continue to offer self-regulat ing, informed consumers both the informa tion and level of quality that they demand in the free market. D THEFREEMAN IDEASON LIBERTY FRIEDMAN AND NORTH ON VOUCHERS To the Editor: Re the article by Gary North in the February 1993 Freeman on "Educational Vouchers," may I call the attention of your readers to the following quotation from my wife's and my book Free to Choose (pp.

161-163): This plan [the voucher plan we propose] would relieve no one of the burden of taxation to pay for schooling. It would simply give parents a wider choice as to the form in which their children get the schooling that the community has obligated itself to provide. The plan would also not affect the present standards imposed on private schools in order for attendance at them to satisfy the compulsory attendance laws. We regard the voucher plan as a partial solu tion because it affects neither the financing of schooling nor the compulsory attendance laws.... The compulsory attendance laws are the jus, tification for government control over the stan dards of private schools. But it is far from clear that there is any justification for the compulsory attendance laws themselves. Our own views on this have changed over time. When we first wrote extensively a quarter of a century ago on this subject, we accepted the need for such laws on the ground that "a stable democratic society is impossible without a minimum degree of literacy and knowledge on the part of most citizens"

[Capitalism and Freedom, p. 86]. We continue to believe that, but research that has been done in the interim on the history of schooling in the United States, the United Kingdom, and other countries has persuaded us that compulsory attendance at schools is not necessary to achieve that minimum standard of literacy and knowl edge. As already noted, such research has shown that schooling was well-nigh universal in the United States before attendance was required. In the United Kingdom, schooling was well-nigh universal before either compulsory attendance or government financing of schooling existed. Like most laws, compulsory attendance laws have costs as well as benefits . We no longer believe the benefits justify the costs. The danger North raises that a parental choice scheme that made vouchers available for both government and private schools would lead to efforts to control the curric ulum of private schools is very real, but it is present now because of compulsory atten dance laws. Moreover, in a well-drawn voucher initiative, such as the one that will be on the California ballot at the next general election, provision can be made for avoiding that outcome. To quote from the California Parental Choice Initiative: Private schools shall be accorded maximum flexibility to educate their students and shall be free from unnecessary, burdensome, or onerous regulation. No regulation of private schools, scholarship-redeeming or not, beyond that re quired by this Section and that which applied to private schools on October 1, 1991, shall be issued or enacted, unless approved by a three fourths vote of the legislature or, alternatively, as to any regulation pertaining to health, safety or land use imposed by any county, city, district, or subdivision of the State, a majority vote of qualified electors within the affected jurisdiction.

In any local proceeding challenging such a reg ulation it shall have the burden of establishing that the regulation: (A) is essential to assure the health, safety, or education of students; (B) does not unduly burden private schools or the parents of students therein; and (C) will not harass, impede, injure, or suppress private schools. My ultimate objective is precisely the same as Gary North's, but I do not believe that we can get there from here without a transitional measure. That is what the voucher proposal is intended to provide. -Milton Friedman, Senior Research Fellow Hoover Institution, Stanford, California Dr. North replies: In his letter, Dr. Friedman cites his 1980 book, Free to Choose: "This plan would 285 286 THE FREEMAN • JULY 1993 relieve no one of the burden of taxation for schooling." This is the heart (and soul)of the problem with vouchers. The problem is not primarily one of economic efficiency;it is a problem far more fundamental: the locus of judicial authority over education. He who pays for schoolingis asserting this authority.

Here is the crucial question: Who is responsible before God for the education of children, their parents or the state? I con tend that it is the parents. I therefore reject educational vouchers on principle. But more to the point, I reject them even as a transitional tactic, for vouchers will reduce the freedom of sectarian parents to choose by reducing the supply of sellers who will supply sectarian education. When I wrote the first version of my essay "Educational Vouchers: The Double Tax" in 1976, I had Dr. Friedman's Capitalism and Freedom (1962) in hand. That book has become a classic in the literature of free market economics. But it has a flaw. It promotes educational vouchers (chapter 6), while denying the efficiency and the neces sity of occupational licensing (chapter 9). What I argued in my essay is that state funded vouchers are part of a program of state licensing. For the state to establish mandatory standards of performance in any profession is to proclaim its authority over that profession. Licensing involves the cre ation of legal barriers to entry against those who cannot meet the state's standards and also those who work in terms of rival stan dards. Similarly, for the state to establish subsidies for any profession is to proclaim its authority over that profession. Subsidies involve the creation of legal barriers to economic survival against those who cannot meet the state's standards and also those who work in terms of rival standards. So, I conclude, if there is no legitimate reason to license a profession, there is no legitimate reason for the state to create a voucher system to fund it.

There can be no state subsidies apart from criteria that restrict access to the subsidies; otherwise, there would be greater demand for the "free" money than supply of the "free" money. The state uses regulations to ration access to the "free" money. In Dr. Friedman's proposed system, all parents ("buyers") will have access to the state's "free" money (vouchers). I contend that all schools ("sellers") will not. Those schools that deny the legitimacy of the state's stan dards will be denied legal access to the money. Why? Because the money used to subsidize some schools at the expense of others does not belong to the parents; it belongs to the state. An educational voucher program enlists the parents as the state's agents in a program of judicial discrimination against those schools that proclaim state-disapproved standards. Vouchers are, in the vernacular, "hush money." Teachers are bribed with tax money to keep silent on certain topics most notably, the topic of God and his sovereignty over history. . . .

Here is our problem: Modern education rests on the myth of religious neutrality. Modern education asserts: "By means of a religiously neutral methodology, teachers and students can come to an accurate un derstanding of cause and effect." Any dis cussion of cause and effect which appeals to God's sovereignty over history is dismissed as "religious," and is thereby barred by the U.S. Supreme Court from any tax-funded classroom. Only a methodology which sys tematically ignores the question of God has legal access to a tax-funded classroom or educational program.... Thus, it is irrelevant that the language of a California voucher proposal appears to protect the authority of parents to choose any school they desire for their children. The U.S. Supreme Court has determined what curriculum standard must apply in state-funded education: a compelling secu lar purpose (see Lemon v. Kurtzman and Hunt v. McNair, 1971). Parents will be free to choose when they use the state's money, but their choices will be limited to state approved schools. They will be free to choose only what the state approves.

I learned all this from Capitalism and Freedom -excluding chapter 6. 0 Books The Twilight of Sovereignty: How The Information Revolution is Transforming Our World by Walter B. Wriston Charles Scribner's Sons. 1992 • 256 pages $25.00 Reviewed by Perry E. Gresham T his new book by Walter Wriston, The Twilight ofSovereignty, is a clear over view of our present predicament. We are in a global market without full realization of its implications. Petrarch and Boccaccio, Lorenzo and the Medici did not know they were in the Renaissance. The name was applied by historians who looked back on a previous time in world events. Nor did Adam Smith, James Watt, Alessandro Volta, and Thomas Edison think of themselves as the pioneers of the Indus trial Revolution. There were great disloca tions involved, but they were not under stood in perspective. As we look back at those eras, we see the periods as the great transitions which they were, and, we give them names.