Unit III Section a Marketing

Vocabulary Notes

16. brand name – торговая марка, бренд

established brand names – известные торговые марки

unique brand names – уникальные торговые марки

17. incomplete – неполный

18. availability – наличие

19. to lessen the costs – уменьшить расходы

Syn. to reduce

20. product information – информация о товаре

21. artificial distinctions – искусственное различие

22. to maintain – поддерживать, сохранять

n. maintenance

23. incentive – побуждение, стимул

24. incentive program – поощрительная программа

25. indistinquishable – неразличимый

v. to distinquish

to identify – определять

n. identity

identification

adj. identifiable

26. to reward – вознаграждать

n. reward

adj. rewarding

27. to punish – наказывать, карить

n. punishment

28. withdrawal – зд. лишение

29. quality standarts – стандарты качества

30. to grade – классифицировать

Reading Tasks.

1. Understanding main points:

6. Why do consumers often prefer to rely on brand names?

7. What problems do economists see in consumer reliance on brand names?

8. Why do companies try to maintain and improve the quality of their products?

9. What would happen if consumers could not identify the companies that produce the product?

10. Why did many companies in the Soviet Union produce bad quality products?

11. What is the mechanism of repeated purchase?

12. What companies have more to lose in case they perform poorly?

13. Why do consumers of brand name products feel more assured?

14. Is it possible to rely on government standards only to assure company performance?

15. What are the examples that illustrate that the government can not easily capture some elements of product quality?

2. Understanding details. Mark True (t) and False (f) statements according to the text.

11. Many economists have expressed their satisfaction with the fact that consumers rely on brand names so much.

12. “Market power” implies that companies with established brand names have to much freedom in setting prices.

13. Consumers always have the exact and reliable information about products available, their choice and quality.

14. Companies maintain and improve the quality of their products because customers usually rely on and pay for established reputations.

15. Brand names are important for consumers as they know which products to buy and which ones not to buy in the future.

16. Future profitable sales are ensured by good past performance of the company and its good reputation.

17. Companies with valuable brand names have far less to lose than companies without them.

18. The brand name company usually takes the necessary measures to protect its reputation for quality.

19. Government agencies set product quality standards and consumers entirely rely on them.

20. Government standards are quite reliable as they truly show the companies’ performance.

Brand Names

Consumers always have incomplete information about product availability, quality, and alternative prices. Such “imperfect information” leads them to rely on brand names, which lessen the costs of acquiring product information. By relying on brand names and the company reputations associated with them, consumers can make reasonable purchases without searching or investigating products each time they buy.

Many economists have lamented the fact that consumers put so much reliance on brand names. The problem, as these economists see it, is that this consumer reliance gives companies with established brand names "market power" over the price they can charge. When companies "differentiate" their products with unique brand names and associated advertising and promotional campaigns, they can charge more than others for what these economists claim are "truly" identical products. Brand names lead consumers to make what these economists consider to be artificial distinctions between different products. Companies with respected brand names, therefore, can increase prices without losing significant sales.

Because consumers rely on and pay for reputations, companies have incentives to establish reputations by maintaining and improving the quality of their products. This incentive would be lost if all companies were required by law to sell indistinguishable, homogeneous products. If consumers could not identify the companies that produced the products they bought, individual companies would have no incentive to improve the quality of their products; in fact, each company would have an incentive to decrease the quality of its products. Economist Marshall Goldman has pointed out that this is exactly what occurred in the Soviet Union when brand names were eliminated after the 1917 communist revolution. That is why firms in the Soviet Union were required to identify their output with "production marks." When consumers cannot identify the company that produced what they buy, they have no recourse when they receive a product of low quality. Not only do consumers have no legal recourse, but more important, they have no economic recourse. Without brand names consumers do not know from current purchase experiences which products to buy—and which ones not to buy - in the future.

This mechanism of repeated purchase, where good past performance and a good reputation are rewarded with future profitable sales, and where poor performance is punished.

As a result, companies with superior reputations, representing good past performance and the likelihood of future profitable sales, have something to lose if they perform poorly.

Because companies with valuable brand names that fail to perform have more to lose than companies without valuable brand names, consumers who buy brand name products are necessarily paying for something. They are buying the added assurance that the brand name company will have an increased incentive to take the necessary measures to protect its reputation for quality.

Finally, it is important to recognize that brand names even operate in marketplaces where the government sets product quality standards. The obvious question is: why not rely entirely on government standards to assure company performance? There are two main answers. First, government standards often cannot easily capture some elements of performance. For example, although the government may grade agricultural commodities, such as vegetables, for color, size, and so on, they cannot define and grade characteristics such as taste that are quite important to consumers. Second, government agencies that rate and assure quality are far from perfect.

To assure the quality of the products they buy, consumers are right to rely not just on government standards, but also on brand names.