The Signal That Has to Hurt

Abstract

Take the standard trust apparatus a company assembles and run every piece of it through the test. Brand advertising. A national campaign about how much we care. Expensive — genuinely, painfully expensive. But could the unscrupulous competitor buy it? Yes, at exactly the same rate card. Nothing about the purchase order is harder for a company that intends to defraud you. There is a serious economic literature arguing that advertising spend can signal quality for repeat-purchase goods — burn money publicly, and you have credibly told the market you expect enough repeat business to earn it back — but notice how narrow that condition is. It requires that your revenue depends on people coming back, that quality is discoverable on first use, and that the customer reasons through the inference. Take away any one of those and the ad is just a purchase. We will return to what happens when the condition fails, because that failure has a name and a spectacular recent example.