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

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. By 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, competing firms may offer umbrella branding even when both firms may be better off if they could commit to using individual branding. Finally, we extend the model to consider a market where consumers' product preference is not related to social status. Again, if consumers are sufficiently snobbish, competing firms earn more profits by adopting an umbrella branding strategy instead of an individual branding strategy.