Find out why brand-name products cost consumers more than generic ones.
Why do brand-name products cost more? It's called the "brand tax".
Let's take a look at how this brand tax affects the companies that produce brand-name products and the consumers who purchase them.
Companies and the Brand Tax
When a company develops a product that becomes very well-known and very popular, that product's brand becomes a highly valuable commodity.
Companies often spend thousands and thousands of dollars on developing brand recognition, investing in symbols, slogans, catchy jingles, and high-impact advertising campaigns that will stick in a consumer's mind. Over time, the product becomes more and more familiar to consumers, and studies have shown that people are often more comfortable buying products that are familiar to them rather than unfamiliar alternatives.
Consider Nike, for example. Through years and years of advertising, and by investing in campaigns featuring big-name athletes as spokespeople, Nike has developed the clout and name recognition that allows the company to command over $100 for a pair of athletic shoes.
Of course, companies cannot justify a brand tax if their products aren't high-quality. In the long run, brand popularity depends not only on how effectively a product is marketed, but on quality and consistency as well. After all, surely no one would want to pay $175 for a pair of Nike Air Jordan athletic shoes if the product had a reputation for being uncomfortable or for falling apart after very little wear.
But if a company can effectively market its product to fame and fortune and can continue to deliver a consistent and high-quality product over the long term, the company will likely find that the market is willing to pay for the brand name in the form of a brand tax.
Consumers and the Brand Tax
Each consumer has his or her own unique tastes and preferences, and each consumer has his or her own budget to consider when shopping. Accordingly, despite all the advertising in the world, only you can decide whether or not you should pay a higher price for a brand-name product.
Some budget-conscious consumers buy lower-priced generic products whenever possible, as a matter of principle. Their priority is to save money. While they might concede, for example, that Skippy peanut butter tastes better than generic peanut butter, to them the slight difference in quality is not enough to justify the higher price of the Skippy brand.
Other consumers compare prices and only buy generics sometimes. They tend to stick with a few favorite brand-name products that work best for them. For example, they might purchase generic breakfast cereal for their kids (who probably couldn't tell the difference), but they stick with a brand-name laundry detergent with which they are comfortable.
Some generic products are nearly identical to their brand-name equivalents. Some generics are even manufactured in the same factories or processing plants as the better-known brands. In other cases however, the difference in quality is considerable.
If you want to watch your pennies while also living well, try various generics to determine which ones give you the level of quality you require. Then let your experience, along with your budget, be your guide. If you can afford it, pay the brand tax for products that you feel you must have. At the same time, don't be a slave to advertising. The brand tax is worth paying only if you truly believe that it is worth it for you.