Have the questions swirling around the finances of the Clinton Foundation damaged Hillary Clinton’s brand? Many observers seem to think so. That word — “brand” — keeps popping up. Yet polls show that voters continue to lean her way. When pundits express surprise at Clinton’s staying power, they are misunderstanding how brands work. Once we see what it actually means to have a brand, we will see why a rational Clinton supporter would be reluctant to switch.
To start with, why do brands matter? Consider a consumer who goes into the pharmacy to buy toothpaste. She wants to buy her favorite brand. She finds it on the shelf, pays her money and leaves. Chances are that her favorite brand was not the lowest priced among the various available toothpastes. It might not even have been the most effective at cleaning teeth. But it was the brand she was familiar with.
According to the theory of trademarks, the full price one pays for a good is the sum of the price in money and the search costs. The search costs are those associated with locating and evaluating the good. If the brand of toothpaste if familiar, finding it is easy. The consumer recognizes the package on the shelf. Similarly, the evaluation is easy. The consumer already knows the qualities of the toothpaste she prefers. As a consequence, her search costs are low, meaning that the owner of the brand can charge a higher price in money.