Jun 21, 2008

The irrational basis of brands?

The recent Economist carries an article about the endowment effect - a curious, irrational and universal human behaviour that makes us place a higher value on something the moment we own it, as against how much we valued it before we own it.

The effect has been observed in hundreds of experiments - in humans and even in some animals too. A classic experiment illustrates how students who have initially been given coffee mugs are then reluctant to exhange the coffee mug for chocolates - even though they showed no preference for coffee mugs when offered to choose between the two.

All this flies in the face of traditional economic thinking, whose model of the rational man is one who maximises welfare; ownership of something then shouldn't change its value.

Which makes me wonder. Could the endowment effect be at the heart of how and why brands work?

Only in this case what we are placing more value on is certain bits and pieces of information - information that builds preference for a particular brand. Even when we are offered a more 'logical' and rational exhange of better information (the availability of a cheaper substitute, for eg.), we cling on to what we have already internalised and own.

The trick in this case is to make people 'own' the information that builds preference for one's brand. Once they see it as belonging to them, they'll be reluctant to give it up in exchange for something else.

I am not sure if any study or experiement can establish a connect between brands and the endowment effect - or if the latter does indeed work on something as intangible as information. But I, for one, am  convivced there's more than just a passing connection of 'irrationality' between them.
About the author:
Iqbal Mohammed is Head of Innovation & Strategy at a digital innovation agency serving the DACH and wider European markets. He is the winner of the WPP Atticus Award for Best Original Published Writing in Marketing & Communication.
You can reach him via email or Twitter.


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