Brand Management: Research, theory and practice

Theoretical building blocks of the economic approach

The economic approach builds on traditional economic theory of exchange where
the principles of the invisible hand and the economic man guide behaviour and
transaction cost theory. This section will account for each of the theoretical
building blocks (supporting themes) that make up the core theme – the economic
brand. The supporting themes of the economic approach to brand management
consist respectively of transaction cost theory describing the transaction-based
perspective on exchange between brand and consumer and the concept of the
marketing mix describing the marketing mix parameters that are key when
building a brand strategy in the economic approach.

Supporting theme: transaction cost theory

The principle of the invisible hand and the perception of the consumer as an
economic man imply that any consumption choice is the result of a reasoning
process, where the involved partners will choose whatever will maximize their
own profit or utility. However, in consumer behaviour there are some exceptions
to this rule, because consumer behaviour does not always display a utility-maxi-
mizing consumption choice behaviour. Transaction cost theory takes these excep-
tions into consideration. Consumers, for example, do not have perfect information
and accessibility to all choice available, or consumers can have switching costs
when shifting from one brand to another. According to the assumptions of the
‘invisible hand’ and the economic man, these barriers to the perfect exchange are
called transaction costs.
Transaction costs are hence barriers to utility maximization. The goal for brand
management in the economic approach is to eliminate these transaction costs and
facilitate transactions. The next transaction is hence the ultimate goal in the
economic approach. A good measurement of whether or not a brand strategy is
efficient is hence measuring the number of transactions or, expressed differently,
sales figures. Focusing excessively on sales figures alone implies a rather short-
term focus as opposed to the focus of the remaining brand approaches in this book
that have a more relational perspective on brand-building activities.

The economic approach 35

Supporting theme:

Marketing Mix

Supporting theme:

Transaction Cost

Core theme:

The Economic Brand

Figure 4.3Supporting themes of the economic approach