Spin

Both of you are right! Sometimes (indeed often) it is easiest to create the perception of high quality by actually creating high quality. Of course if I read Half Sigma's comment in this way, it's something of a tautology. I imagine the intent is to say that quality is *not* higher rather than simply to emphasize consumer perception as the proximate cause of buying decisions…

Along the lines of what bbartlog said, creating actual quality is one of several ways to create the perception of quality, but it's the perception which drives the sale, not the actual quality.

"I'm not so sure. Consumers value actual quality enough to investigate products. That's why Consumer Reports was so successful for so many years. Its the reason magazines such as Car and Driver, Golf Digest, Motor Trend, and PC World highlight their product tests on magazine covers. "

I think that this plays more into the perception rather than the actual quality of the goods. Consumer reports is well known among serious car, audio, photography, etc. enthusiasts as being generally clueless about what they are reviewing and what is important. Consumer reports gives the perception of quality (or the lack thereof) but they frequently give out boneheaded advice. It doesn't matter much to many people because they see consumer reports as definitive, but all they have to go on is the perception of that magazine, and they buy it.

Isaac

It depends on the type of market. I work in what is referred to as an imperfect market: very high cost information technology equipment. Buyers are at a terrible information disadvantage to the companies who make the products. The manufacturer has access to all the necessary quality information on their products, but withholds that from the market for competitive advantage. The customers only know their own experiences, or those of a few carefully chosen references to go on the quality of the products. They are forced to trust a vendor they are used to working with. The consultants who claim to provide unbiased information have no incentive to do any real quality or performance research. They often just pass on claims of vendors without scientific verification. The perception that a few leading vendors produce superior quality products is not based on statistically significant information, but rather on a tiny portion of the marketplace. Leading vendors who outsell their competitors continue to do well, and startup's routinely fail. Real performance and quality information is not shared.

There are probably many similar markets where the vendors are at a significant information advantage over their customers. Industrial sales, defense procurement, and others come to mind. Contrast that with markets like commodities, with many sellers and a few experienced buyers.

"Consumer reports is well known among serious car, audio, photography, etc. enthusiasts as being generally clueless about what they are reviewing and what is important."

Care to back that statement up? Obviously the general public doesn't agree with you. What makes a person a "serious car enthusiast", anyway? How do you differentiate them from the apparently millions of clueless consumer who must be thoughtlessly plunking down their $30,000? Is the definition for "serious car enthusiast" simply "doesn't rely on Consumer Reports"?

And furthermore, the issue is the comparison of products being sold in competition with each other and not the overall increase in quality with improving technology.

I'm certainly in agreement that technological advancement has allowed certain types of products to improve greatly in quality at little additional cost to the manufacturer.

However, when the consumer is in Best Buy choosing between two DVD players, he may buy the Sony for $90 instead of the no-name brand for $30 because Sony has the perception of being better, but who knows?

I prefer to use Virginia Postrel's thesis about style rather than Klein's rant about branding, but… One example I can point to is pet products. Go into Petsmart or Petco and notice how things are packaged to appeal to the pet's owner in the store! Here's a very specific example… "Greenies"…. A tub of Greenies ($33) used to have the chews enclosed in a sealed ziploc bag for "freshness". I guess that didn't make a difference because now the tub (same price) has no inner bag. I didn't get the point of the freshness bag anyway. These are for my dogs and they'd eat the Greenies if they cam fresh from a hole outside. Of course, I'm spending more than $1/unit on dog treats — old socks are probably more cost effective!

Naomi Klein's point was about branding. Does this not cause people to buy one product over another identical product? Someone could buy a Nike quality shoe without the swoosh for $5, but most people instead pay $50 for the one with the swoosh.

Naomi Klein (as do you) mistakenly assumes that Nike and some anonymous brand shoes are identical.

Hardly.

Let us assume that is the case — and the shoes are physically/structurally identical — a consumer-teenager may still rationally choose to buy the Nikes at $50. vs. some anonymous brand at $5. — he/she (probably correctly) assumes the head-turning factor of the Nikes is probably greater than 10x that of the head-turning factor of some anonymous brand and as such, factors that into his/her decison-making process.

Or, better put, the increase of disposable income towards such items should be a sign of prosperity instead instead of peril. Marginal spending edges towards luxuries as people gain income.

Well, you'd still at least have to let people know about it- which means marketing of some sort.

I think it's important to understand that quality is a relative thing- the quality of a product is based on how well it serves whatever purpose you intend it to have.

Part of what most people consider to be quality in clothing is the image that it conveys to people (many, especially anti-capitalism types, might deny this, but everyone does it).

One purpose of marketing clothing and other style stuff, I think, is to convey a certain image to many people at once, so that a person buying that product has an idea of how others will view it.

It's clearly not the case, though, that marketing is everything. A lot of heavily marketed products sell poorly. One falacy of anti-capitalist thinking is that producers simply generate demand by manipulating people through marketing. I suspect, rather, that marketers are constantly trying to tap into existing cultural norms.

As Mises wrote in human action, advertising (business propaganda) can indeed succeed in getting the consumer to buy a certain product.

but if that product is no good, or of relatively lesser quality, then the consumer will not CONTINUE to buy it, effectively dooming that company.

Advertising may help get a product sold the first time, but quality, not perception, is what satisfies consumers and keeps them coming back.

John Pertz,

I don't understand what you mean by "advertising is a function of weakness". Consider the example of Volvo I offerred above. If they continue to spend billions engineering an increasingly safe automobile, doesn't it just make sense to continue informing the public? Where is the weakness? Their surveys may show consumers already regard their cars are the safest. Even so, they should still defend their strong position.

Am I completely misunderstanding the meaning of your post?

My wife is in charge of marketing for a large Japanese company in the CIS. Research they did last year found that less than 10% of people buying their consumer goods in Russia could recall ever seeing an advertisement for any of their goods. Their decision was based mainly on three factors: looks, price, and what the saleman said.

It is a constant debate in her company whether it is worth advertising at all, and she knows for a fact that in the CIS they spend less than a fifth of what the Korean companies spend on marketing, while still enjoying higher sales.

I've spent a considerable amount of time with people in advertising and marketing, as most of my wife's friends are, and I have noticed that most of their work seems to be aimed primarily at impressing other people in advertising and marketing, and that when asked outright what impact their work has on sales they can't answer.

I think there is some confusion between advertising and brand identity. With premium brands, e.g., Sony, consumers are willing to pay more for the brand name because the company has established the brand name as a signal of quality. Sony's brand name does not command a premium (solely) because of advertising but because Sony has established a reputation of quality by long years of producing quality products.

Consumers buy Sony exactly because they are unable to independently judge individual product quality before purchase, and they know they are unable to judge individual product quality. The brand name serves as a bond with consumers. Sony has invested a lot in its brand and is unlikely to risk that valuable brand by producing inferior products.

Once a consumer has a product in his or her hands, ex post reality displaces ex ante perception. You could potentially argue that a firm that sells goods that consumers buy only once, and never tell their friends about, could succeed in this way. But any firm that relies on repeat business, or that relies to any extent on word-of-mouth "advertising", cannot.

I know that Lipton makes better iced tea than Luzianne because I've tried them both. I know that an 01 Subaru Legacy is better than the 94 model because I own the latter and my father owned the former. I know that T-Mobile gives cruddy reception in Golden, CO because my phone has zero bars just now. I know that Kitchen Aid makes the best stand mixers because I've had one for about 15 years. The best advertising in the universe cannot fool me about a single one of those things.

"Sell for the same price a higher quality product, through the savings of not wasting money on marketing. Watch the profits roll in as everyone clamors to get said product."

In the event, that's actually a pretty good business model.

I once spoke with the founders of AlphaSmart, a limited computer system used in classrooms. They grew to a $20 million business, without ever spending a buck on advertising.

Another more prominent example is Google. They grew huge without ever advertising, with lots of competing search engines with installed bases.

Henri Hein,

I understand your argument. But I think advertising has its place.

A firm could could save advertsing expenses and depend on word of mouth to spread its message. But why give up millions of revenue waiting for that to happen? A firm can create a superior product, but how will customers know it even exists without some form of marketing?

Consider once again the example of Volvo. The company may spend hundreds of millions adding safety features to its vehicles. Should it depend solely on Motor Trend and Car and Driver to get the message out? It just makes sense to spend a few million letting the public know why they should stop in at a Volvo dealership. Could they do that effectively without advertising?

Henri,

I think we agree, then. Advertising is not always required, and often a waste of money. But for certain products in certain situations it may be critical to maximizing profits.