Do you ever wonder what justifies the three dollar difference between the name brand and store brand versions of your go-to shampoo or face wash? Many people are certain that the inflated price of the name brand always correlates with a higher quality product. However, after working for four years at a private label company, I’ve learned that this is not always the case.
How can retailers afford to provide the same exact product as the name brands and charge less for it?
Enter: the brand tax.
Brand tax is what results from the extra spending notable name brands devote towards the marketing of their brand and the distribution of their products. The huge Consumer Packaged Goods (CPG) companies that manufacture most national brands, such as Procter & Gamble, Johnson & Johnson, and General Mills, spend a massive amount of money on marketing. For Super Bowl LII, the average cost of a 30-second commercial was $5 million. In 2017, P&G spent $7.1 billion on television, print, online, radio, and in-store advertising. Unfortunately, as consumers, this expense is passed along to us.
Store brands, on the other hand, have minimal marketing expenses. While you might see an ad for Target’s store as a whole, it is unlikely you will find a commercial specifically for Up&Up brand sunscreen. This streamlines their marketing efforts to focus only on the overall store, rather than requiring an individual marketing budget for each product.
These name brand manufacturers also have to pay large stocking fees to retailers to get shelf space for their products. The addition of a wholesale distributor means even more expenses for CPG companies. By producing their own products, retailers like Target and Walmart cut out the middle man. This allows retailers to charge a lower price for their private label products while still maintaining a high margin.
Bottom line, the brands spend big money to make sure consumers know their names. Then, they upcharge you for it. Sometimes it is worth paying the premium for a quality product, but other times the store brand duplicate is just as good. Don’t let the brand tax take advantage of you! As a consumer in the digital age, you have the resources to know the difference between paying for Tide’s massive advertisements and investing in a less expensive product of similar (or higher) quality.
