The "Brand Tax": Why Name Brands Cost So Much More

Our raison d'être here at Brandefy is helping you save time and money by showing you the best store brand products out there. In fact, as we’ve noted many times, the store brand product is often exactly the same as the name brand product, but several dollars cheaper. Which raises the question, how can retailers provide the exact same product but charge less money for it?  We’ll address this “brand tax” today, and see why you end up paying significantly higher prices for products that are often indistinguishable when you buy the name brand.

P&G spent between $5 and $5.5 million dollars to bring you this Tide commercial during Super Bowl LI.

1.       National Brand Marketing Spend

Those super bowl commercials you see ain’t cheap.  The huge CPG companies that manufacture most national brands (like Procter & Gamble, Johnson & Johnson, and General Mills) spend a huge amount of money on marketing.  Those commercials you are bombarded with, the logos stamped on sports stadiums and billboards, and the coupons the cross-promotions with entertainment brands are a major expense, that is passed along to you. The name brand manufacturers even have to pay large stocking fees, which are costs required by retailers like Kroger and Walmart to get shelf space for the national brands. The store brands, on the other hand, have minimal marketing spends. While Target itself advertises, you’re not likely to see a commercial for up&up brand sunscreen. By avoiding these huge marketing spends, the retailers can charge significantly less for the store brand products.

 

2.       Everyone needs to make their profit, including the middle man

As this beautifully drawn diagram indicates, there are several players involved in getting CPG products from the manufacturer to the consumer, and each one of them requires a margin in order to be profitable, which comes from higher costs to the end consumer. The brand cpg manufacturer sends the product to wholesale distributors who then send it to retailers, where it is finally purchased by the consumer. Store brands, on the other hand, cut out the middle man. Additionally, since there are many competing manufacturers to make these store brand products, they aren’t able to take as large of a margin as name brands receive. This allows the retailers to charge a lower price while still maintaining their margin. In fact, they can often take a higher margin while charging a lower price, making these products more profitable.

Bottom line: The brands spend big money to convince you to remember their name and buy their product, and then charge you for that "privilege" in the form of higher prices at the shelf. Sometimes it's worth paying this premium, but a quality store brand duplicate can often deliver you the exact same value at a significantly lower price, and our mission is to let you know when that's the case.

Nic StockdaleComment