Branding Conspicuous Goods, An Analysis of the Effects of Social Influence and Competition

Abstract

Branding decisions are critical for the success of new products.  Prior research on branding and brand extension has primarily  focused on how branding influences consumers’ perceptions of product quality.  However, consumers of conspicuous  goods care not only about product quality but also about the profile of its users. For example, high-end consumers prefer an exclusive brand. On the other hand, low-end consumers may find a brand more attractive if high-end consumers use it.  In this paper, we analyze how social effects and market structure can influence the branding of conspicuous goods. Consistent with intuition,  our theoretical analysis shows that a monopolist would prefer not to use umbrella branding when consumers’  desire for uniqueness  is high.   In contrast, in a competitive market, umbrella branding is more profitable than individual branding when consumers’ have a high level of desire for uniqueness.  We also identify conditions in which it is optimal for marketers of conspicuous  goods to adopt either an individual branding strategy or asymmetric branding strategies. Furthermore, our results suggest that in a competitive setting firms may offer umbrella branding even when both firm may be better off if they could commit to using individual branding. An experiment lends qualitative support for the model predictions, highlighting the need to consider both social influences  and competition when formulating the branding strategy for conspicuous goods.