11/29/2015

Name Brand or Generic?

In a Freakanomics podcast entitled, “How to Save $1 Billion Without Even Trying”, a group of individuals were given a peanut-butter-and-jelly sandwich taste test.  The taste-testers were given two sandwiches; one was made with Skippy peanut butter and the other with a generic store brand.  They were then asked to identify which sandwich was made with the name brand, Skippy peanut butter, and which was not. 

The testers began to describe the differences between the two sandwiches.  They described the Skippy peanut butter as being nuttier, having less sugar, and more delicious; and the generic peanut butter did not have the same level of excellence.  After they had all shared their perspectives, the testers were then told that all of the sandwiches had been made with the same generic store brand.

Consumer behaviors and the relationships we create with certain brands is a complex enigma.  Companies spend countless dollars promoting their brands and indoctrinating consumers with the ideology that their product is far superior to the competition, but is it really? 

My wife and I have arguments about certain products we purchase in our home.  For example, if I am going to the drug store to purchase headache medicine, I will select Tylenol.  My wife on the other hand will always purchase the store brand.  She is a R.N. and she knows that the active ingredient in Tylenol is acetaminophen.  I, on the other hand, have no idea what acetaminophen is.  I recognize the Tylenol bottle; I know what it does—end of story.  My decision is based upon familiarity, rather than knowledge of the products.

There are a variety of other factors that affect our consumer behaviors.  As the podcast points out, many of our purchasing habits are completely irrational.  Our decision making process is often influenced by external factors.  As a child, my mother would only purchase the generic cereal in a bag.  You know, the cereal found on the bottom shelf of the cereal isle.  I now find myself purchasing only name brand cereal in a box.  I hope I’m not the only one with such a traumatic childhood.  



8 comments:

Dr. Tufte said...

David: 100/100 (I did not take off because David wrote "a R.N.". I think "an R.N." or "a registered nurse" sound better, but I don't think that they technically are better).

I take (a little) exception to the idea that this behavior is irrational.

As a professional, I really don't think it's my job to label some behaviors rational and others irrational.

Instead, I think if people do something that they seem to like, but that I can't figure out, then it's my job to change the valuation system that I've brought to analyzing their behavior. Basically, it's a "check my privilege" sort of attitude towards my craft.

Now personally, I am a big buyer of the generics and store brands.

So, what do I think (professionally) about people who aren't like me (personally)? I think David raises a couple of good points,

Part of brand recognition is that you're provided with helpful information to steer your decisions: I don't think there's anything wrong with choosing Tylenol if you've absorbed information that Tylenol meets your needs. Yes, you could absorb information about generic alternatives. But information processing isn't free, and the generics aren't providing you with information to defray those costs.Do note that it's an important clue that David's wife is an R.N., who also got free information about active ingredients in the brand name and generic equivalents. It seems implausible to me that those costs are that high, but maybe I don't know enough about them.

I also don't think it's irrational to want what you can't have, or to choose what you couldn't have before when you can have it now. That clearly has value to some people in some situations. I don't think labeling as irrational — what seems to me to be a very human response — is constructive. Perhaps we're making an individual choice to be contrary, and possibly having some people be contrary is actually a positive force for society as a whole.

One factor that isn't mentioned here is that perhaps a brand is a form of implicit warranty: if they've invested so much in brand development, they'll also be doing risk management to make sure they don't screw it up. And the buyer benefits from piggybacking on the suppliers risk management. In this sense, the brand is costing you more because it's giving you more.

I also wonder if some of this is harmless tribalism. Think about this: why are you a fan of the sports teams that you are? I think for a lot of us it's because our parents happened to live in the region of those teams when we were young. I kid you not: I grew up in the Buffalo suburbs, and I have an ever-so-slight pique in my interest when the L.A. Clippers do well, because that's the same franchise that moved out of Buffalo when I was in 8th grade. Clearly that's an odd behavior, but I wouldn't label it as irrational. I was once part of the tribe of fans of the Buffalo Braves, so somehow I feel like I'm a long-lost member of the Clippers tribe. Well, what if, we think the same way about brands? That somehow we're connected to that brand through thick and thin? Do I still buy Crest or Tide because my mom did? Maybe so. If so, am I just putting a monetary value on some preference that I happen to have? And is that preference any better or worse than having, say, a favorite color?

CChilds said...

I liked this post, mostly because I’m related to a pharmacist and this closely follows what I have observed from him for a very long time. We pretty much used the generic over-the-counter and prescription medicines exclusively and I can tell you what the national equivalents are for most of them. When it comes right down to it, we used generic for just about everything (except cereal, generic captain crunch is NOT as good as the name brand). So you could say that I am part of the generic club for most products. I use them because my parents used them but even now after shopping for my own household for more than a decade I still like store brands. Even for those items that I prefer a national brand, I feel generics are helpful because they create more competition, keeping prices lower for national brands and also provide a close substitute for convenience, saving me an extra trip if the store is out.

Hank Hill said...

First of all I have to say CChilds, that Colossal Crunch is TOO as good as Captain Crunch :) I took a marketing course at UVU where we conducted a blind taste test for name brand and generic brand yogurts on close to 60 students. The results concluded that generic brands on average were of equal quality to the students in our sample. I was not shocked by the results. You don't have to produce a higher quality product to out perform your competition, you just have to CONVINCE your market that your product is higher quality or offers more value to them. Look at McDonalds. They definitely don't have the best quality hamburger out there, but they are promoted all over in many marketing mediums, provide the most consistent food experience no matter where you are, affordable, and are located everywhere.

I agree that generics and name brands often times carry the same ingredients, but that is not always why we purchase products or services.

Brett Bodily said...

This was an interesting post to read. Part of me enjoyed it because it makes you wonder or question why people choose to do the things they do. In this case, why do some people go for brand name over store brand? Or vice versa. When we were younger ( at least in my case) brands played a bigger role. You needed to have the right clothes, the right shoes to fit in. All the advertising was paying off. As mentioned in the post regarding brand name and store brand medication, I don't think there is much difference except for the price. For example, where I work they have asked us to purchase generic over brand name. I believe the place where I work to be very reputable, so I highly doubt that they would tell us to purchase generic if it was going to be detrimental to our health. For the most part consumers buy what they know, whether that is what they grew up with or what they have seen on t.v. or read it somewhere. It just goes to show you how much of an impact advertising can have on the economic environment.

Dave Tufte said...

CChilds: 50/50
Hank Hill: 47/50 (that's quite the run-on sentence at the end there).

CChilds:

Not much ManEc in this comment.

I do find it interesting that you started out by implying that you learned this from a relative. That points towards my argument that perhaps what we're seeing is just harmless tribalism: your family has intentionally moved away from those tribal associations.

Hank Hill:

The thing is with marketing, as you've described it, is that it isn't clear that it helps or hurts profits. Most studies of advertising that I'm aware of show that it increases revenues, but also costs, and the net effect is that profits are unchanged.

I do recognize that advertising is just one part of marketing, and that other parts might be able to increase profits. I just haven't read up on those.

Brett Bodily:

I'm glad you liked this thread. But I think what I just added above applies to your comments too.

I was amused by what you said about the importance of brands when we were younger. I was walking through Walgreen's last night looking at the "As Seen On TV" products. And I got a warm fuzzy thinking of my 13 year old daughter, who was a sucker for those things when she was 7-9. She was thrilled once when I got her space bags for Christmas.

We've also just found out in my household that the teenagers prefer Beano to the generic equivalent. Why? Because it has a little flavor (not much), while the generic is a caplet. My kids are disappointed when I buy the generic. But if you look at the prices, the name brand is about twice as expensive ... for a little flavoring.

Dave Tufte said...

Oops. Brett Bodily got 50/50 on that last one.

Jacob Cole said...

I enjoyed reading this post because I can relate to the Tylenol vs. acetaminophen argument. My wife is a pharmacist and always buys store brand over-the-counter medications rather than brand name. I buy brand name because that is the name I recognize and can pronounce.

I think for most people budget constraint plays a role in whether or not brand or generic products are purchased. We each have our budget and are trying to purchase the optimal bundle of goods that our budget will allow. Many factors go into what makes an optimal bundle for each individual. Generic products are typically less expensive. A consumer who buys a generic product may be able to get more of that product for the same price as the brand product. Or that consumer may choose to buy the same amount of the generic product and use the left over money to buy a different product. These options may result in the consumer being able to purchase his or her optimal bundle of goods.

Dave Tufte said...

Jacob Cole: 50/50

Fair enough.

Let me push a little further. Jacob Cole is not "most people". If he was, his budget constraint would influence his drug purchases more than it does. Instead, he used the "name I recognize and can pronounce." Why exactly does that have value?

Is it advertising? It's really interesting if it is. I think it's fairly common for people to knock advertising as a waste. Yet advertisers tell us that they are concerned about educating consumers about their product much of the time. Perhaps Jacob Cole is a positive example of that.