Why do we pay more for branded products?
Branded products are those which are ahead in terms of competition in the market due to the value they possess, their inherent quality and trustworthiness.
Therefore, by definition itself, it’s clear why we are willing to pay more for them. Let’s do a micro-level analysis.
Sociologically , branded products convey a status symbol. In Death of Class, Pakulski and Walters argue that class is passe and outdated as a social category. They say that it makes more sense to see social categories based on cultural (consumption, belief, identity, etc.) rather than economic differences. While Marxists would refute the agreement, there is some sense in what Pakulski and Walters say. For example, in India, marriage is a big status symbol. Farmers are driven into massive indebtedness while trying to borrow money for their childrens’ marriages.
Coming back to the case of branded products, by paying more for our consumption, we are sending a signal to the rest of our society. People who notice Lee jeans or Armani jackets on you, get to learn about your taste or preferences. This may prime their behaviour towards you. Therefore, we see such differentiation happening in society, based on cultural differences.
Economically, it makes more sense to pay for branded products because information asymmetry is almost nil. You know that Armani jacket is going to be the same everywhere you go. Therefore, the buyer has more than the average information about the product, and knows almost precisely what she is going to get — in terms of quality and value. The standard deviation tends to zero (how much the product differs from the mean product).
On the contrary, if you were going to a flea market, where different types of products are sold, you have very little information about them. In other words, you do not know if the price if fair and how much you’d have to bargain; you can’t trust the quality as it may not be certified, so on.
I had this experience when I went shopping in Cambodia and Vietnam. I bought a few fridge magnets from a flea market in Cambodia feeling satisfied that I had bargained well to get it at that price. However, I realised that the quality was not up to the mark. Therefore, when I went to Vietnam (during the same trip), I decided I’d buy only from genuine souvenir shops. It turns out my decision was right. The magnets that I had bought at Cambodia cracked when they fell to the ground as I fumbled while extracting them out of my backpack.
In other words, the information asymmetry cost me dearly. Does that mean one should not buy from flea markets or one should not buy products from local markets? No, that’s not my implication. They should no doubt be encouraged to make products as this is essential for inclusive development. At the same time, the governments must ensure these sellers get their products certified and verified through affirmative action.
The above situation is very common in India. Traditional products such as handlooms, works of pottery, brassware etc. are made by local artisans. Unfortunately, given the prevalence of information asymmetry, there is market failure as they are unable to carry out trade to their fullest potential. To overcome this, both the Union and State governments have been taking steps such as giving them subsidies, ensuring branding and marketing of their products so that development is universal and inclusive.
Till the uneven level-playing field between local manufacturers producing ‘unbranded’ products and others producing branded products is not attained, the latter will continue to be preferred. Ultimately, capitalism while being amoral to the producer has benefitted the consumer the most. As Gandhiji rightly said, consumer should always be the king.
