The Basics of economics tells us that consumers are rational. But have you ever thought why people buy Apple iPhone over Samsung Galaxy phones or LV over Levis. Why by providing less feature Apple can sell its phone at higher prices? What is it that makes consumers irrational? But are these consumers irrational? Is there any other value that these companies offer which is different from the peers? Let’s explore these questions and find out how Branding is creating an intangible value for the customers which makes them pay more for similar products.

To first understand branding, we need to first understand how products pricing works. Product price is derived from the perceived value of product for the customer which is a summation of the product utilitarian value and social/psychological value. This social/psychological value distinguishes one seller’s goods or services from the other. Let’s take an example, when you buy a bag from LV its utilitarian value is same as any other bag, but the social/psychological value is what makes it expensive. And this just does not happen with luxurious items, even highly commodities product demands a premium over the local goods with name like Tata and JSW stamped on it. This intangible value of the product is known as branding. Is this intangible value the same across industries and what are the factors affecting it? The answer is it depends on which industry you are operating in, say if you are working in the luxury or niche goods industry you will command a higher premium whereas highly commodities industries like salt and steel etc. often generally have a lower premium.

As a Marketer how can differentiate yourself from peers and command a higher premium for your product? There is no set template which a company can follow to build a brand as industries they operate in a totally different from the others like fashion industry is totally different from a brand in steel industry. First you can achieve through product differentiation and maintaining exclusivity. While, in the steel company the brand is generally based around trust and reliability. What are the emerging trends in brand building? ESG is becoming an important factor in how companies differentiate themselves from the other companies and can charge higher prices for green products. The answer to the fundamental question that this article asks about consumers being irrational while buying goods and services from premium brands doesn’t stand true as there is other intangible value associated with the product which help them justify the high cost of the product relative to other similar products.