For those playing in the brand community, one of our basic goals is to achieve a product premium. That is, to convince a consumer to part with significantly more money for our product as compared to our competitors.
This premium could be achieved through measurable quality or performance cues—as in the case of, say, BMW—but it need not be. In many cases, premiums are achieved simply by creating the illusion or allure of desire. Not surprisingly, the latter is often a more common strategy for branders because it doesn’t require them to actually create a better product. Instead, they simply work hard to convince you of the products allure.
And in our recent musings on the US real estate market, it dawns on us that one could make a strong argument that the selling of real estate is perhaps the single biggest branding triumph of the past century. How ironic that the selling of dreams works remarkably similarly whether the product is real estate, wine or confidence?
Despite overwhelming evidence that equities have always outperformed real estate markets in nearly all places and times in the modern west, US consumers appear increasingly willing to pay sizeable marketplace premiums—for the “privilege” and status of home ownership.
As economist Robert Shiller notes, the real (i.e. inflation adjusted) home prices in the US have increased an average of .4% per year since 1890. A one half of one percent gain pales in comparison to the performance of the S&P 500 over the past 35 years, yet alone the performance of even the most mediocre of mutual funds, but still, we continue to throw money toward our dreams.
But what’s most interesting here is the source of the agency. In the case of great branding triumphs, we usually find a humble executive willing to step up and take the credit.
And in the case of real estate, it appears we have nobody to blame except our own foolish selves. As the growing literature of behavioral economics points out, our irrational behavior likely results from more foundational failures of judgment and calculation. To cite but one example, many of us are smitten by real estate’s allure with stories of properties purchased in 1948 for, say, $16,000 and later sold in 2004 for, say, $190,000.
Compared to equitymarkets, that investment’s something of a joke.
As Shiller notes:
“The appearance is that the investment in the house did extremely well. But the consumer price index rose eightfold between 1948 and 2004, so the real increase in value was only 48 percent, or less than 1 percent a year.”
We’ll take the S&P 500 any day.
Of course, the more sinister question lurking here is this: How far are we willing to go as individuals, family’s and a people to risk our economic future on something so seemingly trivial as a brand?
What a lovely looking err Rat is it? Yeah it's great!
Posted by: canvas print | Thursday, November 17, 2011 at 04:52 AM