If They Hawk It, You Will Come
By Russ Roberts
From the St. Louis Post Dispatch
Oprah and Martha appear as different as night and day.
One is African-American. The other is whiter than white. One is chatty and informal. She seems like one of us. She has weight problems. The other one seems almost too perfect. Everything is handmade, homemade, crafted with love and matches everything else.
Yet these two women have much in common, starting with their wealth. Each possesses a talent that is hard to measure. Neither is a great golfer or actress or mathematician, talents that jump out at you. Yet each has something that is deeply appealing to large slices of America.
And each has been able to create a brand-name, a franchise. They both have a television show and a magazine. Neither of them needs a last name. Both attach their names to products for fame and money.
Oprah endorses books and elevates her reputation above your average talk-show host. Martha has her own line of Kmart housewares. But she also has her own palette of 256 paint colors at Sherwin-Williams including Lamb's Ear, Fresh Hay and Araucana Colors, based on the egg shells of her Araucana hens, whatever they are.
And that brings us to our puzzle for today—why is this brand extension possible? Why would anyone buy a pot at Kmart that has Martha Stewart's name on it? Or buy a book because it's a selection of the Oprah Book Club?
Perhaps it's an immature form of hero-worship. Some want to be like Mike, so they wear his shoes. Others want to be like Martha, so they sleep on her sheets. In this view of the world, it's all about image. If you're buying Martha's pans or reading Oprah's books, you're deluding yourself into thinking you're part of Oprah or Martha's world.
But the economist in me sees it differently. Oprah and Martha are filters.
Your email program probably has a filter that lets you keep spam to a minimum. A good filter keeps the good stuff and throws out the bad. Life is too short to pay attention to everything. A good filter is valuable. And filters pop up in the economic landscape to save us precious time and make life easier.
A department store is a filter. When Dillard's or Famous-Barr puts an item in their store, they're telling me that it has passed their minimum level of quality. It's a stamp of approval. That keeps me from spending a lot of time running around trying to figure out which are the best specialty shops.
A bookstore is a filter compared to all the unpublished stuff I can read on the web for free. I may not like every book in the bookstore, but a bookstore is a place that's been pre-surfed for at least a minimum measure of quality. But even in a bookstore, we don't choose our books randomly. We use the Pulitzer Prize or the quotes on the back cover or we ask friends for advice. And some of us use Oprah's Book Club.
Martha and Oprah are filters. After watching their shows and reading their magazines, we know what they like. And we trust them to deliver the goods for the same reason we expect quality from Dillard's or Plaza Frontenac or Houghton-Mifflin.
It's always in the short-term interest of these brands to take advantage of us by charging high prices for low quality merchandise. But if these brands give in to this temptation, it would hurt their reputations and the long-term damage would outweigh the short-term gains.
So it is with Oprah and Martha. If Oprah recommends a lousy book, it hurts the franchise. If the ground beef sticks to Martha's no-stick pan, it hurts the franchise.
Those franchises are rather valuable. According to Forbes Magazine, Oprah is worth about $900 million and Martha, a mere $650 million. (Down from $1 billion the year before. Sob!) You can imagine that Oprah and Martha are very, very careful in deciding to put their name on something. There's a lot at stake. And that care is what you're counting on when you follow their advice.
They have one more thing in common. People like to make fun of them and their recommendations. But you could do worse than read the books that Oprah recommends. And while I have no idea what an Araucana chicken looks like, I wouldn't be surprised if its eggs are a lovely hue.