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Trump Bets It All on the Brand

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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What’s in a name?

A few years back, a lot of people put down deposits for condos on a yet-to-be-built Trump-branded property in Baja, Mexico. Then the financial crisis happened, the property never got built, and it turned out the developer had spent the cash. The investors sued for fraud.

The Trump family denies that they were at fault; they simply licensed their name to the people who were actually doing the building. The matter will never be litigated -- the Trumps settled. But chicanery committed by Donald Trump's licensees is going to be an ongoing issue for him during this election, so it seems worth asking just how much responsibility he bears for the behavior of organizations he gave licenses to but did not directly operate himself. And that requires us to dive into the mystery of branding.

Ask a marketer what a brand is, and they can spend hours waxing lyrical about this nebulous yet vital concept. It is the business equivalent of asking “What is love?” And just as with love, the answers you’ll get about its nature and function are as varied as the human race itself.

But we can ask a narrower question, which is: What function did the Trump name serve for the people who decided to buy condos with his name on them? Did it make them more likely to sign on the dotted line?

One thing a brand does is tell you what kind of thing you are buying. If I buy a terrible, ugly Hermes bag, I still have certain assurances: that it will have high quality and durability, that it probably has good resale value, that I am buying the sort of product that well-heeled people with something called “good taste” like to own. A lot of assurances are packed into that little logo.

This is less common in residential real estate. Most people don’t buy houses frequently enough to develop branding associations with developers. Developers still have brands, which are useful, for example, in dealing with repeat players such as banks. But they don’t have much of a consumer brand, compared to something like a car; people tend to use proxies such as location, design and finishes for the overall quality that they can expect in a property.

Donald Trump is something of an exception. Everyone knows who he is, love him or hate him. That’s very useful, because to those people, his name will signal something about the likely style and experience of the place: If I were looking at a prospectus, I’d probably expect it to have the same kind of style sensibility as his casinos. (I’m not saying this expectation would prove correct, but for the developers, that expectation is valuable.)

But for someone putting down a deposit on a property in another country, that name probably carries an even more valuable characteristic: Well-known brands, which can suffer reputational losses, have an incentive to deliver the goods for consumers, even when they are engaged in a transaction that will probably never be repeated.

Think of it this way: Your local restaurant wants to do a good job for you, because if it doesn't, you won’t come back. And maybe you’ll tell your friends it's terrible, and your friends will also stay away. Reputational capital is very valuable in the service business, which is why, in general, people say “the customer is always right” even when the customer is acting like a royal jerk.

But now say you go to a restaurant that sits on a busy interstate. Most of the people who stop at that restaurant will rarely, or never, come back. That restaurant has no incentive to do a good job for you, because it gets little benefit from building up reputational capital and suffers little cost for destroying it. The incentive is to do the bare minimum needed to keep you from suing them for fraud. Those of us who grew up taking long road trips in the 1970s can remember that this minimum was often very bare indeed.

Younger travelers, however, probably have no idea what I’m talking about. That’s because interstate service stops -- and the American culinary landscape more broadly -- were gradually taken over by chains. And those chains do have reputational capital to protect. McDonald's does not want you eating cold French fries and a carbonized burger anywhere in the country. So when you see a recognizable brand on some place that doesn’t get a lot of repeat business, you know that you are less likely to have a really terrible experience, because that company has good incentive to keep you happy.

On such a risky transaction as buying an unbuilt condo in another country, it’s hard to believe that Donald Trump’s name on the project did not make people much more willing to plunk down those deposits, because they would assume that, first of all, Trump must have a pretty good track record of getting stuff done well (or they’d have heard about the complaints), and second, that Trump would have strong incentive to make sure that they were happy.

It is something of a mystery as to how the Trump brand has managed to stay so strong, given that this is not the only licensing operation that has run into trouble. Most companies undertake brand expansions pretty cautiously, after long thought, and with a lot of market testing to make sure that they are not alienating their core consumers. A badly done brand expansion can rapidly erode a profitable business, as consumers reject both the new products and the originals that are now tainted by association.

The litany of failed Trump products -- and lawsuits -- testifies to the fact that Trump has been the opposite of cautious. “Indiscriminate” seems like a closer word. Yet somehow, until this campaign, the brand remained strong. There’s a lesson for marketers in there somewhere, if I were only smart enough to figure out what it is.

But I have to wonder if his attempt to expand into presidential politics won’t ultimately prove to be the brand extension that undoes him. Part of the reason that most of these brand expansions didn’t hurt the core Trump brand is that, somehow, the failures flew under the radar; people knew about the casinos and the television show but not the lawsuits or the Trump Steaks, may they rest in peace. Now he’s lost his television show, the various problems with his products and services are very public knowledge, and while he’s probably got some added loyalty from his core supporters, he’s also alienated a heck of a lot of people who previously didn’t have a strong opinion about Trump but would now pitch a tent in the local dump before they’d rent a room or office space from The Donald. His presidential bid has, to be sure, made him even more famous. But I suspect that it has also made his most valuable asset -- his name -- much less profitable.

  1. Now, there are things not to like about this revolution: Mass dining has dramatically reduced the variance of the culinary experience. You could also get really great meals on the road from Mom and Pop places, if you knew where to look, and those places have increasingly been pushed out in the vicinity of the interstates in favor of something people know they can rely on. I’m not saying that this was an unalloyed good but that the average quality is probably higher, and therefore, that the brand really does add some value.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor responsible for this story:
Brooke Sample at bsample1@bloomberg.net