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 these
costs 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? |
12:30:40 PM 
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MADE IN CANADA
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