Thinking Space

In an experiment to test the brand effect two almost identical diamond rings were purchased, one from Tiffany & Co. for $16,600 and the other from Costco for $6,600. These rings were then given to an independent gemologist to assess the fair values. Gemologists assessed the Costco ring for around $8000+, an almost $2000 above the selling price. The ring from Tiffany was assessed at $10,500+.

How is it that Tiffany can charge a substantial price premium over the other sellers for an identical item? This can be explained by the brand power which in this example Tiffany has created since it was founded in 1837. Customers have a trust that you get what is being said and you don’t have to think twice about your purchase. Tiffany has carefully crafted this image. Tiffany’s signature blue box tout’s this message

Glimpsed on a busy street or resting in the palm of a hand, Tiffany Blue Boxes make hearts beat faster and epitomize Tiffany’s great heritage of elegance, exclusivity, and flawless craftsmanship.

Note: emphasis on the words in bold is mine.

As business strategist Hamilton Helmer explains, a business with branding is able to charge a higher price for its offering due to one or both of the two reasons

• Affective valence: The built-up association with the brand elicit good feelings about the offering, distinctive from the objective value of the good. For example, you might find the taste of two cola drinks the same, you might be willing to pay more for coke.
• Uncertainty reduction: A customer attains “peace of mind” knowing that the branded product will be as just as expected. For example buying as simple as paracetamol, you might choose a brand like Calpol and pay a premium over a local version.

However, brand sometimes can be self-limiting especially in the scenario of changing customer preferences. For example, Nintendo was known as a brand for family-friendly video games. However, when the video games demographic changed from children/family-oriented games to more mature games, Nintendo could not extend into this segment because of its brand image. Though, I always think, why Nintendo couldn’t spin out another unit dedicated to the mature games category and brand it that way when it had all the resources?

Most of the time this may be true for personal branding as well, pay attention to the strength and limitations of your brand.

Adapted and sources from Hamilton Helmer’s work on powers of business strategy.