We The Consumers

Dated Dec 21, 2021; last modified on Wed, 29 Dec 2021

Product Differentiation and Price Discrimination

Product differentiation seeks to distinguish a product from a competing product to make it more attractive to a specific target market. Price discrimination occurs when the same goods/services are sold at different prices from the same company.

The Captain Samuel Vimes “Boots” theory of socio-economic unfairness: the rich man who bought the high quality $50 pair of boots would still be using them in 10 years, while the poor man who buys the $10 pair would have spent $100 on boots in the same time, and still be worse off.

It’s tricky to know what fits in the “Boots” theory, and what doesn’t. Motivated by the markup done by LensCrafters , I just don’t want to pay an unfair markup.

Terms like “medical-grade”, “military-grade” and “organic” often make consumers over-estimate the products' good qualities. Sometimes the test itself is too easy to pass. For instance, “military-grade” comes from specs by the military to enable interchangeability between manufacturers. Saying something is military-grade without quoting some mil-spec, e.g. shock tests, is bogus.

Costco Kirkland is more likely to be high quality because Costco demands it from the manufacturer. The lower price but high quality is made possible by the increased sales of being a Kirkland Signature product, with little marketing cost.

Costco evokes positive sentiment on Reddit. interviews thousands of customers annually, so it should be a good indicator of public opinion. ranks Costco as #1 Dept & Discount Store (5th straight year) and #2 Supermarket (behind Trader Joe’s).

Interestingly, the top 5 consumer satisfaction benchmarks by industry are breweries, cellular telephones, soft drinks, TV and media players and apparel. The bottom 5 are internet social media, hospitals, video-on-demand service, internet service providers, and subscription TV service. Contrary to the USPS positivity that I see in my online circles, USPS is 7th-last.

Factories usually supply products to multiple brands. Sometimes it’s all the same product all along the assembly line, and only differentiated by the box it gets put in. Some brands however, have better handling once the products leave the factory.

Sometimes the factory sells the lower quality batches to others, e.g. Duracell batteries vs. Walgreens batteries. Some companies go even further, packaging some of their products as premium brand ones, and others as budget brands, e.g. Viagra vs. Avigra, Ralph Lauren.

Generics and brand medicines may have the same active ingredients, but the inactive ingredients may be allergens to some people. Regardless of branding, identical medicines have the same Product License numbers. Going by generics are tested for bioequivalence (gets to the part of the body where the drug works at the same time and in the same amount) and product quality (e.g. purity, good manufacturing practice, quality control) by the country’s health agency, and therefore unlikely to impair the safety and efficacy of treatment. Generic equivalents are heavily pushed in developing countries for cost savings, e.g. China could save $370m (65%) from switching four medicines . Generic drugs do not undergo safety and efficacy testing as that is inferred from the previously approved brand drug, and therefore less costly to obtain approval. Authorized generic drugs are the exact same as the brand drug, and are marketed under the brand company’s supervision.

Supermarket spices are marked up compared to those found in shops for ethnic minorities.

Walmart has deals to lower prices, e.g. rebranding Walmart-produced items as brand names. It’s large presence enables it to corner suppliers. This has effects like leaner supply chains and accelerated offshoring to comply with “everyday low prices”. When Levi Strauss started selling jeans at Walmart, they created the “Levi Strauss Signature” brand for mass retailers in place of its premium brands.

References

  1. Sometimes cheap and expensive items are the same thing with the only difference being the brand name. What are some examples of this? www.reddit.com . Apr 27, 2020.
  2. Marketing "Military Grade" and what that actually means. Ken Marsh. Washington Military Resource Media. www.linkedin.com . Aug 16, 2016.
  3. TIL "Military Grade" is just a marketing ploy. In the actual military, "military grade" means "meeting the bare-minimum requirements of durability, while also costing the least. www.reddit.com . www.reddit.com . Jun 30, 2020.
  4. The Wal-Mart You Don't Know. Fishman, Charles. www.fastcompany.com . Dec 1, 2003.
  5. The American Customer Satisfaction Index Home. www.theacsi.org . en.wikipedia.org . Accessed Dec 21, 2021.
  6. ACSI Retail and Consumer Shipping Report 2020-2021 American Customer Satisfaction Index. www.theacsi.org . Mar 2, 2021. Accessed Dec 21, 2021.
  7. Costco CEO shares tips with Clark Howard to help you save money. Clark Howard. www.wsbtv.com . Nov 11, 2016. Accessed Dec 21, 2021.
  8. Generics - equal or not? Donald J. Birkett. Australian Prescriber, 2003; 26: 85-7. www.nps.org.au . 2003. Accessed Dec 22, 2021.
  9. Switching from Originator Brand Medicines to Generic Equivalents in Selected Developing Countries: How Much Could Be Saved? Alexandra Cameron; Aukje K. Mantel-Teeuwisse; Hubert G.M. Leufkens; Richard Ogilvie Laing. Value in Health, Volume 15, Issue 5, 2012, Pages 664-673. doi.org . 2012.
  10. FDA List of Authorized Generic Drugs | FDA. www.fda.gov . Accessed Dec 22, 2021.
  11. Product Differentiation vs. Price Discrimination: What's the Difference? Steven Nickolas. www.investopedia.com . Accessed Dec 22, 2021.
  12. Men at Arms. Pratchett, Terry. view.officeapps.live.com . www.goodreads.com . 1997.