Posts Tagged ‘brand image’

Why do generics cost less?

Monday, November 2nd, 2009

You can find a generic version of almost anything: prescription drugs, soaps, even breakfast cereals. A generic product is one that lacks a brand name or a registered trademark. For example, you can buy brand-name Bayer Aspirin at the drugstore or you can buy generic aspirin usually with the name of the store on the label for slightly less. There should be no physical difference between the two products, but people willingly pay more for Bayer. Why would someone do this?

Companies spend lots of money on advertising to establish a good reputation or brand image. Because of that, people feel like they can trust the brand name product more than a nameless, faceless generic product. Both products are covered by the same consumer safety laws and regulations, but people in general are willing to pay more for a familiar brand name. The generics have lower prices both because they don’t have the same advertising costs and because consumers wouldn’t be willing to pay as high a price for them.

Companies also fight hard lobbying and in courts to protect their trademarks and copyrights and prevent companies from selling generic versions of their products, which allows them to control supply and keep prices higher. For products like life-saving medicines, some argue that this is unfair and prevents millions of poor people from accessing the treatment they need. Others argue that this gives companies incentives to come up with new drugs.