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Branding

The creation of consumer loyalty to particular brands is mainly achieved through advertising, and it is in oligopolistic markets where branding, backed by extensive product promotion, is most prevalent. The markets for soap-powders, cereals, cars, confectionery and cosmetics provide a few notable examples.

The main aim of branding is to make particular goods, produced by particular firms, appear as if they have unique features which the products of competing firms do not possess. On occasions these features may be real, e.g. the distinctive quality of a BMW car or a Sony camcorder. However, often the 'uniqueness' may only exist in consumers' minds, but a difference, real or imagined, in how consumers perceive branded products, may be sufficient to allow goods to be sold at very different prices e.g. well known brands of soft drinks, sports-wear, bars of soap and shaving creams are all sold at higher prices than their 'own brand', or lesser-known, equivalents.

Thus, if successful, branding will reduce the degree of substitutability for the good, make its demand more inelastic, allow for higher prices and profits to be earned and enable the brand to become unassailable.

Moreover, the practice of multiple branding serves as a very effective barrier to entry of new firms e.g. go to any supermarket and you will see several brands of soap powders on the shelves, but these are mainly produced by just two firms, Unilever and Procter and Gamble - the costs of breaking into such a market would be formidable as any new entrant would have to compete against numerous brands of soap powder, requiring an enormous outlay on advertising; obviously if Unilever and Procter and Gamble only produced one brand each, the task of contesting the market would be made considerably easier.