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?
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