Nextwave Finance

Saving money without calling names

August 27th, 2007 | by rachel |

During the 1970’s, an interesting experiment began in the consumer goods industry. Generic products were sold as an alternative to more well-known, more expensive “branded” products. Early generic products were EASILY recognized by their plain packaging and limited availability. The American Heritage Dictionary definition of generic read “general; not having a trademark or brand name”. To some people, generic simply meant boring!

Regardless of their packaging (or lack thereof), the idea of selling products comparable to the national brands at lower prices was appealing to consumers and retailers. As generic products gained popularity, retailers expanded their offerings to include individualized generic products. These product lines came to be known as store brands or house brands. These store specific brands are much older than the “no name” brands. There are some stores that are known to have had their own brands for 100 years or more! Today, it is more common to see house brands or private labels than to see generic or no name brands.

No longer considered an experiment, generic products/private labels make up a significant portion of all consumer goods sold. According to the Private Label Manufacturers Association (PLMA), “Store brands now account for 1 out of every 5 items sold in U.S. supermarkets, drug chains, and mass merchandisers.” The early appeal of generic products was their lower cost.

Why do they cost less? The main reason is simple - marketing and advertising! In their report, “The Relentless Advance of Private Label: Strategies to Compete” (April, 2007), The Boston Consulting Group states “Private label products typically require less than 2% of sales to be spent on marketing, whereas manufacturer brands spend 10-40% of sales.”

The other reason is harder to measure - control. Manufacturers of national brands have to convince retailers to carry their brand and provide space for it on their shelves WHILE convincing consumers to come to those stores to buy their brands. Retailers with a store brand only have to be concerned with getting customers to their stores. That makes their marketing and advertising lower. Since retailers have control over the shelf space in their stores, they can influence which brands are purchased.

4 main groups of people benefit from generic/private label products:

CUSTOMERS:

• access to competitive products
• choice
• consistent pricing
• lower overall prices

RETAILERS:

• reinforcement of store name/identity
• larger profit margins
• very low marketing/advertising costs
• flexible pricing
• control of shelf location
• ability to attract repeat customers

DISTRIBUTORS/WHOLESALERS:

• ability to provide private label products for companies that are too small to develop their own lines
• limited areas of distribution

MANUFACTURERS:

• ability to utilize extra plant capacity
• ability to focus on private label only
• usually imitating a product rather than starting from scratch (little or no R+D involved)

There are literally thousands and thousands of generic/private label products available. In fact, Kroger, alone, has over 10,000 private label products in its family of stores. From generic medications to clothes to food to trash bags, it is easy to find a less expensive version of LOTS of things you buy on a regular basis. But just how much money can you save? Is it really worth buying a brand that you didn’t grow up with?

Compare these ACTUAL SAVINGS on just a few items to see what you think (prices as of 8/23/2007 at Wal-Mart Neighborhood Market):

Decaf Coffee - 13 oz. package

• Great Value = $2.64
• Folger’s = $3.98

Diapers - 80 count

• Parent’s Choice = $10.56
• Pampers = $17.47

Extra Virgin Olive Oil - 17 oz.

• Great Value = $4.47
• Bertolli = $6.44

Dog Food - 8 lb. bag

• Ol’ Roy = $3.33
• Purina Dog Chow = $6.96

Cat Food - 3 oz. can

• Special Kitty = $.30
• Fancy Fest = $.49

Milk - 1gallon

• Great Value = $3.98
• Barber Dairies = $5.48

Potato Chips - 12 oz. bag

• Great Value Ripple Cut Chips = $1.50
• Golden Flake Dip Style = $2.00

During their early popularity, generic/private label products focused on their lower cost and capacity for savings. Quality was definitely inferior. In spite of that, people that bought those products were attracted by the price and little else. Today, generic/private label products are appealing because they are considered to be good quality AND lower cost. In recent years, Consumer Reports has ranked some store brand products over national brands, adding validity to the quality debate. Consumers can no longer assume that national brands are the best quality just because they are bigger brands. In fact, PLMA cites a research study that found “7 out of 10 shoppers believe that private label products they buy are as good, if not better, than their national brand counterparts.”

By far, the biggest disadvantage to buying a generic/private label product is that you may actually be “getting what you pay for”. When you make that choice, you are buying something that is unproven, at least to you. Ultimately, buying and using generic/private label products is a trial and error process. To make your shopping just a little easier, remember these guidelines when making your choice between the generic/private label product and a national brand product.

1. Check the ingredients to make sure the generic is an accurate imitation of the national brand.
2. Double check the price. With coupons and sales, you can actually pay more for the generic if you are not paying attention.
3. Check the package size to make sure you are getting the SAME AMOUNT for the lower price.
4. If you are new to generics/private labels, start with households items instead of food.
5. Don’t go “all or nothing”! Try a few generics at a time and see what you think. As you get more comfortable and start to see your savings add up, try additional ones.
6. Use generics for things that you are not particular about.
7. JUST TRY IT! At worst, you are out a couple of bucks. At best, you find a good new product AND save some money!
8. Consider the source. If you can, find out who manufactures the generic you want to buy. It may be the same people that make the national brand sitting right next to it!

The bottom line? Generics/private labels are BIG business that can bring you BIG savings, no matter whose name is on it!