Brand Equity vs. Economics 101

The law of supply and demand: the only thing many people remember from Economics 101. When demand goes up, prices increase. When demand goes down, prices decrease.

Branding
“Branding,” Creative Commons license. | Credit: Flickr by Limelight Leads

The law of supply and demand: the only thing many people remember from Economics 101.

When demand goes up, prices increase. When demand goes down, prices decrease.

But according to the recent New York Times article, “Why Surge Prices Make Us So Mad: What Springsteen, Home Depot and a Nobel Winner Know,” strict adherence to this economic principle can be detrimental to a brand. Playing the long-game of building and maintaining brand equity is often more important than maximizing short-term gain.

Bruce Springsteen priced tickets for his one-man show on Broadway at $75 to $850 and implemented a system to thwart scalpers from buying up and reselling tickets at a profit. Lottery-winning ticket buyers-turned-opportunists priced their show tickets at $1,200 to $9,999 on StubHub. So Bruce could have made a lot more money by following the simple law of supply and demand, selling tickets at the price the market would bear, and filling the theater with his wealthiest fans. But at what cost to his brand?

One of my colleagues used to say, “You can always get tickets. It just depends on how much you’re willing to pay.” The aftermarket for sold-out concert tickets and sporting events can exceed 10 times the face value of the tickets, especially for premium seats. Yet hot acts and championship teams are reluctant to be viewed as price gougers in order to maintain the goodwill of their fan base.

“A good rule of thumb is we shouldn’t impose a set of rules that will create moral outrage, even if that moral outrage seems stupid to economists,” says Richard Thaler, a recent Nobel Laureate in Economics, as quoted in the Times on Oct. 15. Stories of bottled water selling for $24 in Puerto Rico after Hurricane Irma certainly produced universal moral outrage.

Contrast that with how mega-brand Home Depot responds to hurricanes. The chain has a corporate policy against price-gouging following a disaster, and it deploys emergency logistics to meet the demand of its customers in a disaster area with additional supplies of plywood, tape, etc. This approach meets demand by increasing supply, maintains stable pricing and boosts revenue. More importantly, it creates goodwill and trust in the brand.

So the economic law of supply and demand is not universal when it comes to brand equity.

“If you treat people in a way they think is unfair, then it will come back and bite you,” Mr. Thaler said.

Score one for the Brand.

Postal Delivery: Which Will It Be—5 Days or 6 Days?

I just had a great exchange with my letter carrier while at my mailbox today. Of course, I brought up the likelihood of five-day delivery come August, to which she gave a candid response, “Well, we’ve been losing money.” That’s why it’s easy to be indignant when some members of Congress, perhaps predictably, jumped onto the current appropriations bill with mandates for six-day delivery. Yet, one has to ask, where are the means for real relief from some of the costliest demands of the 2006 postal reform law?

I just had a great exchange with my letter carrier (as I sometimes do) while at my mailbox today, and I wonder how many times a day my carrier is interrupted in her work, as I interrupted her, to politely chit-chat. Of course, I brought up the likelihood of five-day delivery come August, to which she gave a candid response, “Well, we’ve been losing money.”

Most Americans—and maybe even some carriers—don’t know the full story—or any story—about how the United States Postal Service endures pre-funding retirement benefit mandates from Congress, as well as other cost-drivers that have nothing to do with the digital age, electronic bill payments and multichannel communication trends. Nor do they know that both The White House and Congress spend these mandated monies on their own programs, even as the federal deficit spirals.

That’s why it’s easy to be indignant when some members of Congress, perhaps predictably, jumped onto the current appropriations bill (a continuing resolution to fund the government beyond March 27) with mandates for six-day delivery. Yet, one has to ask, where are the means for real relief from some of the costliest demands of the 2006 postal reform law? Making the Postal Service stick with Saturday delivery isn’t the action we need Congress to take.

Is it really enough, or correct, to just counter USPS management efforts to cut costs and right-size the network? Why not delve deeper into the ills that Congress and the Administration—both parties involved here—have heaped onto the Postal Service’s bottom line? Why not revisit real postal reform? How many more years must the Postal Service get squeezed, and default on payments, before Congress and the Obama (or next) Administration take seriously its cause, its future, its sustainability?

Late last month, National Public Radio discussed, in a piece regarding postal services around the globe, how these services are coping with lower demand of an increasingly electronic society: http://www.npr.org/templates/story/story.php?storyId=172932914

It’s funny how much of “Socialist” Europe already has privatized its posts (not that citizens or businesses are the better for it). On the other hand, it’s very serious to say our quasi-public U.S. Postal Service still runs the most efficient ship of all, universal delivery at a fair price, despite its tethers to political whims …

… and despite my “stealing” of expensive carrier street time! five-day or six-day delivery is a concern for many mailers—but it’s really not the most important postal operations issue that needs to be addressed.