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Published: Fri, 02 Feb 2018
Globalisation and branding
CHAPTER ONE GENERAL INTRODUCTION
This paper analyses the power of trademarks to attract consumers and how it has led to the evolution of brand-based marketing as a distinct form of economic activity. The essay will also expatiate on how it is a distinct form of economic activity in the global economy. Trademarks, and the brands they signify, have the power to lure consumers into buying marked products. The economic theory of trademarks’ marketing power underlines the view that trademarks give consumers a “guarantee” concerning the “quality” of marked products. Trademarks can also transmit product information to consumers, reducing “search costs”. The strength of branding as a marketing tool has caused controversy and this has led to the emergence of the diverging views from the Harvard and Chicago economic schools of thought.
As a result, this has led to the rise of the post modern corporation where brand-based marketing and production are carried out as two separate economic activities. The power of branding has also led to an economic phenomenon known generally as “franchising”, the increase in third-party marketing and also the recent rise in “ambush marketing”.
Resulting from the above, this research seeks to answer the following research questions: How do trademarks and brands attract consumers to the marks they signify? How has brand-based marketing evolved as a distinct form of economic activity? Is the rise in such marketing activity as a direct of result of the power of trademarks? Finally, how is brand-based marketing a distinct form of economic activity in the global economy?
In addressing these questions, this research will use qualitative methodology which will involve reference to relevant books, journals, internet sources and newspaper articles to substantiate the issues and analyse the extent to which the power of trademarks has contributed to the rise in brand-based marketing as a distinct form of economic activity.
1.2. RESEARCH STRUCTURE
The research is structured into four chapters: The next chapter will look at the framework of trademarks. Chapter three will then analyse the evolution of brand-based marketing and set out how it is distinct from other forms of economic activities. The fourth chapter will focus on the power of trademarks and brands in attracting consumers. It will also discuss the controversy created due to the power of branding and the arguments of the Harvard and Chicago schools of economics. Finally, the fifth chapter will conclude the research and summarise the findings.
CHAPTER TWO TRADEMARK FRAMEWORK
2.1. INTRODUCTION TO TRADEMARKS AND BRANDS
Trademarks provide the main legal platform for the brand-based marketing of products. Along with patents and copyrights, trademarks are one of the three most important forms of intellectual property rights. A trademark is a distinctive sign or indicator which can be used to identify to the consumer the unique source of the goods or services bearing the mark. There are three distinct qualities of a trademark: it must be a sign, which is capable of being represented graphically and is capable of distinguishing goods or services of one undertaking from another.They may consist of words, designs, letters, numerals or the shape of goods or their packaging.
Furthermore, trademark rights are territorial in nature and it is possible to file applications for registration in just about every country of the world; this allows brand owners to focus their marketing on particular audiences. For example, whilst it is usually the case that a company would register their trademark in multiple countries, car manufacturers, Vauxhall, export 79% of their production, most of which is sold under another brand owned by GM motor’s, called Opel.Trademark law has also been harmonised, particularly within the EU; the UK Trade Marks Act 1994 reflects and implements provisions of the European Trade Mark Harmonisation Directive.
The term “brand” does not have a recognised legal meaning, neither is it statutorily provided in the act. The primary use of the word “brand” now has a commercial application. Historically, trade buyers would use brands as a means of distinguishing between the cattle of one farmer from another. Therefore, brands were used as a guide to choice; a role that has remained unchanged to the present day.
A “brand” can be described as the distinctive identity that a trademark signifies. However, Marty Neumeier, a well known brand collaboration expert, feels that a “brand” is not an identity; it is a person’s “gut feeling about a product, service, or organization.”He emphasises that brands are defined by individuals and “not companies, markets, or publics.” Therefore, the company holding the trademark is not the one that defines their brand; it is based on consumer perceptions.
One may refer to their trademarks as their “brand”. A trademark may consist of a name, logo, mark, symbol or any other kind of sign. However, a logo is not in itself a brand. Also, packaging does not make a brand; packaging, much like the trademark, is an identifying system used to bring conformity.The role of a brand is to create an “indelible impression.”Therefore, brands are typically intrinsically striking.
CHAPTER THREE THE EVOLUTION OF BRAND-BASED MARKETING
Having established the reasons why trademarks and brands are effective marketing tools, we are now left with the question: how has the power of trademarks and brands contributed to the evolution of brand-based marketing as a distinct form of economic activity? This section will seek to answer this question by first looking at the ways in which brand-based marketing has developed into a distinct form of economic activity in the global economy.
The evolution of brand-based marketing has been associated with two key developments in the organisation of economic activity. Firstly, there was a rise of mass production and the modern corporation which led to manufacturers using trademarks to communicate with consumers. Also, there was the evolution of flexible structures based on contractual arrangement and the separation of the production of goods from marketing, leading to the rise of the “post modern corporation”.
3.1. BRANDING AND THE RISE OF THE MODERN CORPORATIGON
The importance of marketing has increased sharply with “globalisation”. Consumers have access to many more products due to globalisation and industrialisation. Therefore, brand-based marketing has evolved in many economies around the globe to help consumers distinguish between the large number of products available to them.
The industrialisation of productions has allowed the modern corporation to take advantage of “economies of scale” and expand the scale of production. However, this alone does not guarantee an increase in profits. An increase in profits would depend on whether consumers would buy the firm’s products and at a reasonable price. This would depend on the “search costs” that consumers would have to incur.
The neo-classical economic analysis of firms argues that firms exist because they can reduce or avoid the high transaction/search costs which occur in market transactions. However, industrialisation is likely to further increase such costs; there is an increase in complexity of products, and it is also difficult to inspect the manufactured products due to packaging restrictions. Furthermore, firms would find it difficult to establish a direct relationship based on reputation due to the greater “distance” between the industrialised firm and its consumers.
This is where trademarks (and therefore brands) come into play. With the help of trademarks and brand-based marketing, industrialised manufacturing firms could “reach over the shoulders” of retailers and directly establish a good reputation with its consumers. Manufacturers could use the power of trademarks to attract consumers to marked products to reduce or avoid search costs, and limit the difficulties caused by globalisation to sell their products.
3.2. BRANDING AND THE POST-MODERN CORPORATION
“The most publicly successful modern businesses are those… that have abandoned making things in favour of making ideas and images for their brands and their real work lies not in manufacturing but in building up their brands.” Naomi Klein (2000)**
Branding, through the use of trademarks, allows firms to abandon making ‘things’ in favour of making ‘ideas’. Firms are able to engage in product differentiation and “niche marketing” without necessarily having to limit the scale of its production activities.
During the production process, a brand owner would be looking to seek an optimal balance between minimising the costs of production and also maximising the return from the branded products. Both activities can be separated.
3.2.1. The evolution of Franchises
Firstly, the firm can seek to organise production externally and not be directly involved in the process. It would then be able to concentrate on the marketing and the management of intellectual property rights; its resources will be being spent on brand-based marketing.
This has led to an economic phenomenon known generally as “franchising.”
Franchising became popular as it allows firms to achieve the optimal balance between marketing the goods/services of a company and actually providing the goods/services locally. A franchise has a unitary identity signified through the use of trademarks. Franchisees are given a license to sell the branded products/services of the franchisor. This phenomenon allows the franchisee to benefit from the centralised brand-based marketing carried out by the franchisor.
Franchising allows those best suited to ensure customer satisfaction at the point of delivery to focus only on the production element. The consumer is assured of the quality of the product because it is bearing the franchisor’s trademark, despite the products not being produced by the franchisee.
Due to the efficiency of this process, the potential profit for both franchisor and franchisee are huge; this explains the rise of “private label” or “own label” products in supermarkets and other retail-related branding.
3.2.2. Corporate Branding
We have seen a rise in corporate branding. This is where the company use their brand name to increase its product brand recognition. This technique allows for one advertisement campaign to be used for several different products, leading to economies of scope.
To successfully use corporate branding there must be a holistic approach to brand management; all members of an organisation must behave in accordance with the desired brand identity.Therefore, brand managers try to communicate their brand’s purpose and core values to employees clearly, in order to inspire them and guide their behaviour. Although each brand has a unique set of values, Harris et al argue that it is the “consistency of theperception of those values, as well as the nature of those values, that is animportant characteristic of successful brands.”
For that reason, corporate marketers plan their strategies and incorporate both internal, pan-company marketing as well as the traditional, external marketing, resulting in optimising consumers’ satisfaction.
Virgin has been able to create a strong brand which it can use for the different services it has to offer. Within three years of its 2002 launch, Virgin Mobile USA attracted several million subscribers in a highly competitive market. It has done this by focussing its services on young consumers with simplified pricing and no contractual commitments etc., but also by the “irreverence of the Virgin brand.”Also, Virgin Atlantic has attempted to transmit an image that their service is different, informal and friendly compared to its competitors. Virgin has managed to successfully build a strong corporate brand image for its services which it can use in its brand-based marketing campaigns.
3.2.3. Third-party marketing
Secondly, firms may concentrate on the production element and allow third-party marketers. For example, third-party marketing is a consulting service offered to hedge fund managers who need the expertise of seasoned marketing professionals.The core expertise of hedge fund managers is usually in managing the portfolio for investors and not growing new relationships with them. The experienced investment marketing and sales experts can raise assets for hedge funds through their relationship with distribution channels, broker-dealers, financial advisors etc. These marketers can bring in the big money and it allows the firm to seek an optimal balance between focussing on production and marketing.
3.2.4. Ambush marketing
During the evolution of brand-based marketing there has been a rise in ambush marketing. This is due to the spiralling costs of corporate sponsorship for large sporting events. According to Sandler and Shani, ambush marketing commenced in 1984, when the Los Angeles Olympics became the first Olympic Games to market sponsorship in an overtly commercial manner.
Griffiths, in his article on ambush marketing, focuses on the marketing used to promote the 2010 football World Cup in South Africa. He describes ambush marketing (also referred to as “guerrilla” or “parasite marketing” by its opponents) as “any attempt by an unauthorised marketer to associate theirbrandwith an event, sports team or individual, thereby gaining a benefit from that association, for example through increased public awareness and reputation of thebrand.”
In a high-profile event such as the Olympics, trademarks are hugely important in marketing tactics. However, brand-based marketing is sometimes used by non-sponsors to take advantage of the exposure and confuse audiences into thinking they are an official sponsor. This is unquestionably something that should be stopped and thereis already adequate legislation in place to cover this under UK consumer law.However, there is another type of ambush marketing, where local firms are just trying to get additional exposure for their own products and services. Ethically, it may be argued that this type of marketing is a legitimate part of the firm’s marketing armoury.
However, the Act does not allow such marketing.In an effort to protect the rights of the official sponsors, brand-based marketing will be prohibited ‘in the vicinity of’ stadia.
From the above analysis on ambush marketing, it is clear that trademarks have a great deal of power in promoting the brands they signify. It is also clear that because of this power and the effectiveness of brand-based advertisement, firms are continuously looking for new ways to use this technique. It is the power of trademarks which has allowed the emergence of ambush marketing.
4.1. TRADEMARKS AS MARKETING WEAPONS
There is no doubt that the most important ‘weapon’ in a brand owner’s armoury is a comprehensive portfolio of trademark registrations.But what makes trademarks so important to brand-based marketing campaigns?
It is the ability to register the trademark for use in trade which provides the main legal framework for establishing and protecting “brands”. This can be achieved through a system of registration, or in some cases through the use of the sign over time. Unregistered trademarks may still be protected in the UK under the common law action in ‘passing off’. Because only the registered undertaking can benefit from the trademark’s marketing power, it has an incentive to maintain or increase the trademark’s marketing power by developing a strong brand for consumers to link to the trademarks.
Next, for a brand to be an effective marketing tool, it is important that the trademark is effective in distinguishing the brand. Trademarks must be “capable of distinguishing goods or services of one undertaking from those of other undertakings.”The ‘power’ of trademarks to be intrinsically striking makes them perfect for marketing purposes.
Furthermore, the ability for a firm to register many different trademarks allows it to signify its brand through several trademarks used in different combinations. Certain trademarks may signify specific pieces of information about the company’s brand.
Under the doctrine of exhaustion, the trademark proprietor may not prohibit the use of its trademark for further marketing of its marked products with the EEA. Therefore, for example, the brand-based marketing by retailers could contribute to the manufacturing firm’s overall efforts to raise brand awareness through marketing. We will see later how this has allowed the evolution of the modern corporation.
4.1.1. The Economic Theory of Trademarks
The influential economic theory of a trademark’s marketing power, as endorsed by the ECJ, underlines the view that a trademark must constitute “a guarantee that all products which bear it have been manufactured under the control of a single undertaking to which responsibility for their quality may be attributed.”
This “guarantee” of quality is not a legal guarantee, but a guarantee that one undertaking is given complete control over the quality of their goods or services. If the undertaking varies the quality he “does so at his own risk and he – not his competitors – will suffer the consequences if he allows the quality to decline.”
4.2. THE POWER OF BRANDING
“A company’s advertising is pointless with no name to promote.” It is agreed that branding is a very effective marketing strategy. But why exactly is branding so hot? The ECJ has recognised that trademarks perform a distinct “advertising function” in addition to their “essential function.” and that the owner of the trademark can use it in promotional material to generate or strengthen specific demand for the marked products.This increases their effectiveness as communication devices.
Brands rely on their distinctiveness and the harmonious combination of trademarked names, symbols, shapes, colours etc. On the whole, consumers have too many products with similar quality and features to choose from but too little time. Also, as humans, we are intuitive and emotional driven. Therefore, consumers tend to base their buying choices on trust; trust is the foundation for any brand. Neumeier defines trust as: “Trust = Reliability + Delight.”
Taking Coca-Cola as an example, consumers can trust the drink will have the same great taste, it will give them that feel good factor and it is going to quench their thirst. This is because we know the brand and it always meets our requirements. However, if Coca-Cola fails to meet their own high expectations even on one occasion, our trust will be negatively affected and it will no doubt damage the value of the Coca-Cola brand, which is currently valued at $70.45 billion.
4.2.1. Harvard Vs Chicago branding
The use of trademarks to promote brands through advertising has been controversial and the assumption that trademark’s marketing power is beneficial has been questioned. The ‘Harvard School’ of competition law argued that large firms can use trademarks in persuasive advertisement campaigns to insulate themselves from the competition by giving false impressions that their goods are superior.
Investigations by the UK Monopolies and Mergers Commission and the European Commission into a variety of consumer goods industries have found the strength of established brands a major bearing on the decision to block mergers, and in finding abuses of market power.
The market power of established brands and their ability to raise prices above the competitive level, may be due to two main reasons.Firstly, some consumers have entrenched preferences for established brands making them reluctant to try new or minor brands. Secondly, the costs of marketing for new or minor brands may be too high if it is to compete with the brand-based marketing of major established brands.
There are two aspects to the marketing power referred to by the ‘Harvard School’ which can help the firm insulate itself from the competition: the ability of brands to take advantage of the consumers emotional and psychological feelings, and their ability to influence the behaviour of consumers for reasons that cannot be explained in terms of rational decision-making.
All the strongest brands we know today are built on a non tangible human feeling/emotion towards the brand. “Brand Management” is about controlling this emotion. Brand managers would prefer their brands to be ‘charismatic’. A charismatic brand is one which attracts and retains a group of loyal followers who would go to extremes before switching brands.These followers (customers) would often go out of their way to recommend the brand to others.
For instance, Apple has managed to capture people’s emotions with not only their great products, but also through their effective brand-based marketing. Before Apple entered the scene, advertising technology was about technicalities and specifications. Apple, however, created a product people ‘wanted’, not one they needed. This is a feat that all brand managers would be aiming for, because when you ‘want’ something it’s an emotional response, it’s a purchase out of emotion or an impulse. In recent years, a subculture has developed around rumours about new products and services from Apple; the company enjoys a cult-like following.Apple has truly captured people’s imaginations and hearts, allowing them to increase the price that they command on the market.
Other theories, such as the theory of “sensational transference” suggest that the concerns of the “Harvard School” may have had some substance. Louis Cheskin, a marketing pioneer of the early20th century, observed that people’s perceptions of products and services are directly related to aesthetic design. He felt that consumers did not consume a product, but the totality of the product, including the packaging. Cheskin suggested that margarine be artificially coloured yellow to look more like butter and be wrapped in foil to give the impression of quality. His tactic worked and sales boomed.Furthermore, cognitive science suggests that encountering a salient trademark can trigger a reaction in the minds of consumers within a fraction of seconds. The salience of trademarks could be regarded as giving firms an unfair competitive advantage over their competitors and new entrants.
However, as discussed earlier, trademarks have an economic value which is consistent with the economic theory of trademarks. The ‘Chicago School’ of economics is aimed at refuting the concerns of the Harvard School. It argues that trademarks in fact facilitate competition and competitiveness by reducing the search and communication costs.
Consumers may lack significant information about the quality and other characteristics of goods or services available on the market; as most markets are not ‘perfectly competitive’, purchasers do not have perfect information about the products nor do they always have the expertise needed to discover it and evaluate the products.
Trademarks can be reference points for information. Consumers can use trademarks to link products on the market with their experiences. If they can link the products to the reputation of the brand they can be a source of reassurance for consumers.
CHAPTER FIVE SUMMARY AND CONCLUSIONS
Trademarks provide the legal platform for brand-based advertising. Because only the registered undertaking can benefit from the trademark’s marketing power, it encourages firms to develop their trademarks into a powerful weapon which can draw in consumers. Also, the trademark’s ability to be intrinsically striking makes it an effective tool to use in distinguishing the goods of one undertaking from another. Finally, a firm may register a combination of trademarks in order to create an appealing brand.
However, the power of branding is a controversial subject, split into two economic schools of thought: the ‘Harvard School’ and ‘Chicago School’. The ‘Harvard School’ advocates that firms, in “attracting consumers to marked products” can insulate themselves from the completion due to the power of its brand; through a powerful combination of its brand’s reputation and persuasive marketing, it can give the false impression that their goods are superior. However, the ‘Chicago School’ refutes this view and asserts that trademarks facilitate competition and competitiveness by reducing the search and communication costs.
As a result of the effectiveness of trademarks in attracting consumers, the evolution of brand-based marketing as a distinct economic activity began. Firstly, due to the industrialisation of production globally, there was the birth of the modern corporation. With the help of trademarks and brand-based marketing, industrialised manufacturing firms could “reach over the shoulders” of retailers and directly establish a good reputation with its consumers.
The post-modern corporation split production and marketing into two separate activities and allowed one business to take care of the marketing, whilst the other dealt with production. This can be illustrated by the increase in franchising and third-party marketing.
Looking back at the research questions set out at the beginning of this paper, this research has clarified that the power of trademarks and brands to attract consumers has contributed to the evolution of brand-based marketing as a distinct form of economic activity.
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