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Tuesday, 6 December 2011


Trademarks provide reliable reference points that enable consumers to identify products on the market that are likely to meet their requirements and to use their own experience and other sources information to evaluate marked products and inform their decision-making.
According to the economic theory of trademarks, consumers respond and give weight to trademarks in their decision-making because they value the information that trademarks signify or because trademarks are a source of some other kind of benefit.[1] Trademark can also distinguish goods through identifying and differentiating competing products on the basis of their trade origin. For the consumer, trademarks can be a source of guidance about the quality, condition of marked products. The competing products may vary on the basis of quality or price or any other characteristic, which consumer values positively or negatively. The information provided by the trademark may not be required, if the consumer has previously used the product but where, the consumer has never used the product, the trademark plays an important part in their decision making. It provides necessary information regarding the characteristics of the product, reducing the search cost for the consumer. But this function is restricted on the basis that the trademark should a recognized trademark.
Some of the additional functions of the trademark in context with marketing are as follows:

Trademark and communication

Trademarks identify products that are likely to be consistent in terms of quality and other characteristics of interest to consumers. They can therefore facilitate communication in the form of providing information relation to the product’s characteristics therefore providing a basis for identifying and differentiating “brands” of products in terms of their quality and other features of the products. Trademarks help consumers to recognise brands on the basis of past experience and form their opinion about a particular brand.

Trademarks are the best means of communication for a firm as they can reduce the risk of error in communication and accurate in providing the information regarding the marked products.
Trademarks identify products that are likely to have a deep level of consistency. They signify the consistency that can be achieved through unitary control of production. A firm is not restricted to establishing a single brand or marketing identity for its products, but can use trade marks to establish a portfolio of separate marketing identities for the same kind of product. This enables a firm to market products with different levels of quality or different combinations of characteristics, which may enable it to increase its profits from its activities.[2] For example, strong brands today have source and quality-limited messages. TIDE, CHEER and IVORY SNOW do not identify different detergent manufacturers—they all, in fact, come from Proctor & Gamble—and each transmits not a general, but a specific and very different cleaning signal—TIDE “is so powerful, it cleans down to the fibre,” CHEER is for all temperatures and IVORY SNOW is “99 and 44/100ths percent pure. . . .”[3] Each has its own distinct image. Each poses a separate value proposition. So, is  can but said that trademark facilitate communication about the products in terms of their identity and distinguish products that are likely to be consistent with each other in this respect and do so in a way that should be readily apparent to consumer.

Trademarks can also provide a useful channel of communication between producers and consumers: Producers can use them as reference points to convey information about their products as well as producers can use them to acquire information about the preferences of consumers and feedback from consumers. For example: The quality of some products may be a matter of subjective taste and preference or may reflect knowledge, skills and other capabilities that are specific to a particular firm and cannot easily communicated. In that case, some of the characteristics of an undertaking’s products may be unknown to other firms. A trade mark can therefore reduce the communication costs that would have to be incurred in specifying a particular set of characteristics and verifying compliance.

As trademark communicate about the quality and other characteristics of the product and quality characteristics are ones which all consumers are regard as adding value to a product, though they may differ in how much they are willing to pay for a higher quality product and in their willingness to accept a lower quality product at a lower price. This process of deciding a higher quality product or low quality product creates an image of the brand. Thus, encouraging potential consumer, who may prefer a particular brand of product because they enjoys a particular status or image  given to them by using that product even though it may not differ from its alternatives.[4] A trademark can communicate information relating to the behaviours of the undertaking. For example the after sales service, etc, this behaviour of an undertaking as an organization can also be viewed as contributing to the characteristics of a product if some consumers would give these matters weight in their decision-making once made aware of them.[5]

Trademark Reduces Informational Search Costs

As stated above a trade mark has the identifying and differentiating power on the basis of their trade origin. The trademark is the guide to the consumer. It tells about the quality, condition and other characteristics of the marked product. The markets are filled up with identical and competing products, which may change the consumer’s value positively or negatively. The trademark which can easily identified i.e. recognised trademark can reduce the cost consumer incur in searching for what they desire, and the lower the cost of search in more competitive market.
The courts have also recognised for decades this search cost theory attached with the trademark law. In 1987 William Landes and Richard Posner influentially presented a “search costs” theory of trademark laws. They explained that trademarks are socially valuable because they reduce consumers’ search costs, by allowing both sellers and buyers to economize on trademarks’
The price of any product is sum of its monetary price and the consumers cost of a market search. A search cost is the consumer’s cost of obtaining information about the product in terms of quality, price, location of sales or any other information. The type of search, and how extensive it is, varies with the type of product sought[6].
Trademark provides two kinds of information which can reduces the consumer’s search cost:
1.      Trademark identifies the source of the produce. It acts as reference point for the consumer, so that the consumers can relate to their past experience with the brand or through recommendation by other consumers, thus decreases the search cost.
2.      Trademark provides information about the product. 
For products that consumers tend to purchase less frequently or that involve relatively substantial expenditure, consumers may try to use the experience of others as a source of guidance. Again, trademarks provide a means of assistance both through signifying likely consistency and through providing a reliable reference point that third parties can use to publicize their experience and other information.[7] The experience of others may also provide useful guidance about the credence characteristics of products. A single strong brand can convey product-related attributes, user imagery, usage imagery, personality, and functional, experiential and symbolic benefits, and “the strength of a brand association increases both the likelihood that the information will be accessible and the ease with which it can be recalled by ‘spreading activation.’”
Furthermore, the protection of the trademark may not always reduce search cost, when the producer owns a mark the identifies or describes the product, the productivity of other firms trademark decreases since they are not entitled to use a mark that describe their products. As a result, the consumers will need to search further to determine whether a brand under a different name is really the same product. Further, the competing firms will have to use some other name, probably long name, to describe their products and consumers having less recall of long names may retain less information from those brands, increasing the search cost.  

The Investment and Advertising Functions of a Trademark

Trademark law provides broad protection for strong trademark in order to provide incentive to invest in producing a quality product and advertising to strengthen the mark. A trademark is strong when the consumer identifies the mark with the brand and its source. [8]The strength of the incentive that the owner of a trade mark has to avoid action that may damage the trade mark’s reputation and marketing power is related to the scale of the investment that has been made in building up and maintaining this marketing power and investment in building up the kind of track record that justifies a good reputation, it includes expenditure on increasing the trade mark’s level of recognition and increasing its appeal to consumers in other ways such as through advertising and promotional activity[9].Trademark owner have an incentive to invest in advertising to strengthen marks and increase brand identification when strong marks are afforded broad protection.
In order to develop a strong mark, a trademark owner must consistently produce a quality product. When trademark owner consistently produce high quality goods, consumers come to rely on the brand based on consistency. The result is repeat purchases, which, in turn, strength en the trademark further and lower search cost since the consumers have information from experience with the brand. Without trademark protection, consumers would not be able to identify brands and companies would have no such incentive for investment. As a result search cost would increase as consumers would be forced in incur the cost of distinguishing between high quality and law quality goods. The end result would be an overall drop in the quality of goods.

[3] Swann, Aaker and Reback, 2001,, accessed on 25/7/2011
[4] Swann, Aaker and Reback, 2001,, accessed on 25/7/2011
[5]  An Economic Perspective on Trade Mark Law (Edward Elgar Publishing, 2011)
[6] Kenner Parker Toys, Inc. v. Rose Art Industries, Inc. - Confusing Play on Words Costs Dough for Rose Art accessed on 21/7/2011
[7] A. G, An Economic Perspective on Trade Mark Law (Edward Elgar Publishing, 2011
[8]  Kenner Parker Toys, Inc. v. Rose Art Industries, Inc. - Confusing Play on Words Costs Dough for Rose Art accessed on 21/7/2011
[9] A. G, An Economic Perspective on Trade Mark Law (Edward Elgar Publishing, 2011)

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