Quality, Familiarity, Responsibility and the Failure of Generics

need-affinity matrix
Last week, consumer product giant Johnson & Johnson paid drug giant Pfizer $11B for a whole bunch of brand names, for products all available in much cheaper generic formulations.

What hope do sustainable, responsible entrepreneurial firms, and ‘buy local’ programs have, when the oligopolies hold such sway over the consumer that the mere names Listerine, Visine, Sudafed, Nicorette and Lubriderm will compel them to pay billions more for the concoctions bearing them than they will pay for natural, simple formulations?

Most of the people I know pay premiums as high as 300% for such brands, for three main reasons:

  • Perception of Quality: “It must be effective or it wouldn’t still be around.”
  • Familiarity: “I’m used to how it feels/tastes/looks/smells and don’t like to change.”
  • Perception of Responsibility: “If it injures me, I can find the manufacturer to sue them, and they can afford to pay.”

The first reason is largely fallacious thinking. The main reason these brands are ‘still around’ is due to the money invested blanketing big retailers’ store shelves and the airwaves. They pay retailers not to carry competing products. All the money they spend on ‘new improved’ versions and rebrandings is merely to give you the illusion of real choice, to protect their brands. There are, of course, some poor-quality generics, and a single experience with a poor no-name product is likely enough to put you off generics for a long time, and convince you that ‘only poor people who have no choice’ would buy no-name products (though a recent study shows the poor are even more likely to buy more expensive brand names than the rich). A real cynic would wonder whether these poor-quality products are deliberately and anonymously produced by the oligopolies for exactly that purpose.

In some cases, the purchase of brand is to impress others, to convey status or perceived quality. This is particularly true in clothing purchases, though restaurants also insist on carrying brand names (Coke; HP sauce) when they are visible to customers.

The third reason is also illusory. The oligopolies have very sophisticated systems in place to protect them from any risks to their shareholders. Lots of people have tried to sue them; very few have succeeded, and some of them have been countersued and bankrupted by the oligopolies’ armies of well-paid lawyers. The corporatist argument that ‘frivolous litigation’ by consumers is out of control is, as I’ve reported before, complete nonsense, propaganda to bully politicians into making it even harder for injured consumers to receive fair treatment. (Most product-related lawsuits are in fact launched by corporations against other corporations, usually for alleged intellectual property law violations). When a company is so irresponsible that its product unarguably and grievously injures the public, the corporation usually goes bankrupt, the victims each get little or nothing, and the ultimate parent, protected by its ‘limited liability’, just shrugs and goes on with its business.

The only reason that makes any real sense is the second. In Canada, there is a very popular generic brand (of just about everything) called ‘President’s Choice’. Launched by the Loblaws grocery chain (Canada’s largest) as a mid-price alternative between brand name and its own no-name products*, and now independent and sold by several retailers, ‘PC’ products generally try to imitate brand names (in colour, consistency, and sometimes even packaging) as much as possible. Ironically, they are often produced by the same manufacturers as the brand names. They have been successful to the point they are now actually preferred over the brand names by a lot of customers. Once you get used to a certain product, even if it’s a generic, you don’t want to change. You find the alternative less appealing.

In his book The Shangri-La Diet, Seth Roberts explains this phenomenon as, at root, biological. In nature, the young learn what is safe to ingest by watching their parents and smelling their breath — only familiar-smelling and familiar-looking foods are eaten. This preference for the familiar is Darwinian — eat those lovely-looking but unfamiliar poison berries and you’re removed from the gene pool. Nature, Seth tells us, reinforces this by actually getting us craving the exact formulations (that have caloric ‘value’) we’re most familiar with. Your body in fact tells you “If it’s not Heinz, it’s not ketchup”. Seth shows that by switching to less familiar flavour combinations you can wean yourself off these cravings and lose weight.

Although this Darwinian preference for precise familiar formulations only applies physically to products we ingest, it is likely that psychologically the same preference for the familiar holds for other kinds of products like Band-Aid and Sudafed. Reinforce that with the (mis-)perception of higher quality and responsibility of these familiar brands, and you have a collection of names worth $11B in an oligopoly trade.

So what if you’re an entrepreneur, with a healthier, natural, more innovative product, and you’re up against J&J in your local market?

If you’ve followed the ‘find a need and fill it’ process I’ve outlined in The Natural Enterprise, you will have created three competitive advantages of your own to offset the three ‘established brand’ advantages bulleted above:

  • Your product fills a researched, demonstrated, articulated need that the established brand does not (the ‘better mousetrap’ advantage).
  • You know precisely which customers (communities of people, and their affinity to each other) need your product, why they need it, and how they will use it, and you also know why the oligopolies haven’t already filled the need your product fills (the ‘better knowledge’ advantage).
  • The core group of customers for your product (the ones you talked to in your research) have met you and know you (the ‘better relationship’ advantage).

In fact, these advantages trump the ‘established brand’ advantages:

  • The established brand cannot compete with you on quality/effectiveness because it fails entirely to meet an important need that your product meets. This also helps overcome customers’ aversion to change.
  • The established brand cannot compete with you on familiarity or responsibility because you have established a relationship with the customer, because you are local, and because you have already demonstrated that you listen to customers.

An in case this isn’t enough to overcome the oligopolies’ incumbency, at least in your community, I have a couple of additional ideas.

The first idea is a federation of entrepreneurs with a mutual certification process and a single meta-brand. You’ve probably heard of the Good Housekeeping magazine Seal, which for years helped the big oligopolies enhance the illusory perception of responsibility. It was simple: (a) the corporation had to place a certain amount of advertising with the magazine, (b) consumers could send the magazine unsatisfactory products bearing the Seal for two years after purchase and get a full refund, (c) the corporation indemnified the magazine for these refund costs.

What I’m talking about is something similar, but with substance: (a) the meta-brand would only be available to local sustainable enterprises (LSEs), (b) collectively the LSEs would conduct quality tests on all members’ products, and monitor customer ratings and complaints, and only allow the meta-brand on products that passed the tests and had high customer ratings, and (c) the LSEs would accept no money for doing this — participation in the collective process of testing other LSEs’ products and helping monitor customer ratings would be a collective process, a part of the cost of doing business. It would be a cellular organization — in each local community, LSEs would test and monitor each others’ products (as customers themselves), and help provide global oversight to ensure the integrity of the process in other communities. With their own products’ reputation in their own community at stake (a hugely valuable asset), LSEs would be very unlikely to collude with others to lower the value of the meta-brand.

The meta-brand, all by itself, would lower customers’ resistance to switching from an incumbent’s product — the customer would know it’s been tested, and peer-approved, and that it was locally and sustainably produced. But — and here’s my second idea — you could nudge them to switch even more strongly if, right under the brand, you listed the differentiating factor, the need that the incumbent’s product doesn’t adequately fill or doesn’t fill at all. That way you leverage both your ‘better mousetrap’ and ‘better knowledge’ advantage to those customers who have not yet discovered it.

You could even show those differentiating factory graphically by putting an equalizer, like the one pictured above, right on your product label. You’ve done your homework, you know what need your product fills that your competitors’ don’t, and why — why not be explicit about it?

It could give the term ‘equalizer’ a whole new meaning for a new generation of LSEs. Like yours.

*Retailers, in fact, would prefer you to buy their ‘store brands’, which, despite their lower price, carry a higher profit margin to the retailer. That’s because the trillions that big corporations spend promoting and advertising these brands get passed along to the retailer, who of course passes thesecosts on to you. Big Pharma alone spends $60B per year on advertising and promotion, which kinda puts the Buffett donation in perspective, doesn’t it?

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