There Is No Such Thing As Branding

May 22, 2020

Nick Kozmin

Peter Thiel claims there are 4 ways to build a monopoly: 

1. Network effects (where the product/services get incrementally better relative to customer/user with each new customer/user)

2. Economies of scale (where delivery of value to customer requires high fixed costs, but low marginal costs) 

3. IP - Where secrets are leveraged (technology secrets, personal secrets (like in the Mafia))

4. Branding - “Branding alone is always a difficult one. It’s a real thing. It’s something I don’t claim to understand, so I don’t like investing in companies that are nothing but a brand, even though sometimes those things do work." Peter Thiel

I align with 1-3, however, I would like to challenge 4.

There is no such thing as branding. 

Branding is just the probability that a customer will transact again with the company and is therefore only a byproduct of the transaction history relative to a customer and company. 

Versace has a strong brand because Gianni Versace was a fantastic designer who was sewing with his mother since he was a toddler and developed design skills which lead to best-in-market design relative to a specific customer. 

Yves Saint-Laurent was creating paper dolls as a kid, which lead to designer dresses (IP), which lead to the best-in-market design relative to a specific customer. 

Coca-Cola had cocaine in its products and now high levels of caffeine (chemical IP which leads to addiction - very high probability that customer will perform repeat transaction)

Starbucks has the highest caffeine/ml content. 

  Caffeine (mg) Volume (ml) mg/ml  Starbucks Relative Strength
Starbucks 310 473.18 0.6551418065  
Tim Hortons 270 563 0.4795737123 36.61%
MacDonalds 145 473.18 0.3064372966 113.79%
Dunkin Donuts 210 414.029 0.5072108475 29.17%

Starbucks' "brand" is a byproduct of having the highest level of chemical dependency through caffeine. 


- Doing any activities with the prime directive as "branding" is stupid, since branding is merely a byproduct of being useful. Focus on IP, network effects, economies of scale. 

- Marketing should demonstrate utility. 

- Betting on addictive products (products that leverage chemical dependencies) that intertwine economies of scale and network effects is a good investment strategy. 



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