Wednesday 22 April 2009

Marks, Brands and Customer Satisfaction

One of the toughest challenges in teaching trademark law is trying to explain the transformation of the 19th century mark, plain and simple, to the multi-faceted nature of the modern mark in commerce. It was less than a century ago that the English courts held that trademark licensing to be inconsistent with the bedrock trademark law principle (as it was then) of source identification. Under that view, a trademark license was legally ineffective because the owner of the mark was not the actual user of the mark, and vice versa, thus doing fatal harm to the principle of source identification. There was no other justification, at least legal, for trademarks.

How different things are today. Marks are no longer merely identifiers of source, but they are also badges of quality and even self-sustaining valuable rights standing on their own. Even more, marks have transmogrified into brands, with blurred boundaries between the two. So is a mark still primarily an indicator of source, or is badge of quality function paramount? The short answer: it all depends.

Consider an article in the March 2 issue of Business Week, that purported to rank companies on the basis of customer perceptions of service ("Customer Service Champs"). Relying on data gathered by J.D. Power & Associates, the article listed the 25 leading companies from the vantage of customer service. Topping the list was, followed by USAA Insurance, Jaguar, Lexus, The Ritz-Carleton, Publix Supermarkets,, HP, T. Rowe Price, Ace Hardware, Keybank, Four Season Hotels, Nordstrom, Cadillac, Amica, Enterprise Rent-a-Car, American Express, Trader Joe's, Jetblue Airways, Apple, Charles Schwab, BMW, True Value, LL Bean and JW Marriot Hotels. Clearly, the marks listed serve more than to merely designate the source of the goods or services.

I said "", not "Amazon"

So what do we make of the list? First and foremost, with the exceptions of HP and Apple, virtually none of the companies listed appears to leader in their industry (at least on the basis of size alone). This suggests that size may be correlated inversely with perceived customer service--the larger the company, the less well-regarded the level of service provided by the company.

Second is the absence of any mega-bank or similar financial institution. The only bank mentioned is Keybank, a regional bank headquartered, I believe , in Ohio. One is tempted to say that this is an expected result, given the cratering of the entire financial industry and the accompanying negative goodwill. But I think that this result is not merely due to the current economic downturn. Rather, it supports the observation, sometimes forgotten, that for all of the size of the financial industry at the top, it remains at its core a person-to-person service industy. Or, stated otherwise, there are no economies of scale in the banking business.

Third, failure of the industry at the so-called top does not mean that all of the participants in that industry are necessarily painted by the consumer with a single, black brush. While none of the leading automobile house brands is mentioned, up-scale automobile brands continue to satisfy customers--witness the inclusion of Jaguar, Lexus, Cadillac, and BMW. Service and brand value are still valued, particularly for some luxury brands.

Fourth, however, customer service satisfaction is not necessarily a function of luxury. For every Four Seasons Hotel and Nordstrom store the is an Ace Hardware, True Value Hardware, Jetblue Airways and Charles Schwab.

Thinking back to our initial observation on the commercial development and evolution of trademarks, it would seem that the quality function of trademarks is not a synonym for brand value. Any list of the world's most valuable brands will have only a limited overlap with the list of brands as identifiers of perceived customer service satisfaction. It would be interesting to know whether profitability is more highly correlated with a company's ranking on the basis of customer service satisfaction or with overall brand value. If any readers have further information on this point, I would be delighted to hear about it.
But do customers still value their services?

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