18 July 2013

The High Price Of Being Cheap: Guess What 3 Words Will Turn Your Brand Into A Commodity?

by Freddy J. Nager, Founder of Atomic Tango LLC + Guy Who Cares How Stuff Is Made…

Swing-A-Way can opener

What’s missing from this picture?

After nearly a decade of service, my Swing-A-Way manual can opener finally bit it. It was cheap yet solid and totally energy efficient (electric can openers are for wimps). As an added bonus, it was made in America (“USA! USA! USA!”). And that’s a rare feature these days — even rarer than ever, as I discovered…

As I grabbed a new Swing-A-Way at my local Bed, Bath & Beyond (that’s the name of a department store, not a pick-up joint), I noticed something missing. Where was the proud “Made in USA” inscription that’s usually on the front? Being American is/was one of the Swing-A-Way’s key selling points. So I turned the packaging over and saw the 3 words that immediately turned this Swing-A-Way into just another disposable tool:

“Made in China”

Now I’m not saying that everything made in China is crap, but too much of it is. According to the article “‘Thanks, But No Thanks’ to Made in China?” on Knowledge@Wharton, most Americans still have a negative perception of Chinese products. (I’m guessing you didn’t need a major business school to tell you that.) It doesn’t help when we read about people being electrocuted to death by Chinese-made counterfeit iPhone chargers.

Indeed, even Chinese consumers prefer products made in the USA — if they can find them.

Then there’s the issue of cost and the perception of cost.

Even if something from China is well made, we Americans expect it to be cheap. Why else would anyone make anything there but for low costs? So immediately, we discount the product in our heads. Case in point: Banana Republic has some nice clothing, but as soon as I see those 3 words on the label, I refuse to pay regular price. I wait for the sale or won’t buy it at all. It’s not me being cheap; it’s me knowing that a company made something with exploited labor and no environmental regulations. If they want me to be part of that sinister food chain, then I should get a deal.

Now companies may whine and ask what difference does it make — a good product is a good product, right? Well, I ask them this: if they hired me to build a website for an American-sized fee, and they loved that website, how would they react if they discovered I had outsourced the work to China? Wouldn’t they feel just a bit gypped? And would they be willing to pay me an American-sized fee in the future? Or would they bargain harder for a lower price?

Let’s face it: Where something is made matters to those who pay for it, rational or not.

So back to my can opener: the Swing-A-Way was $5.99. Next to it was a Bed, Bath & Beyond-branded can opener for $3.99. It was also made in China and looked quite similar, so there was no longer any compelling reason to pay Swing-A-Way’s 50% premium. And yes, I would have paid the higher price for a Swing-A-Way, perhaps even more, if it were still made in the USA. In sum, while Swing-A-Way saved some money by outsourcing, doing so cost them at least one sale and, more critically, their brand equity. Read the Swing-A-Way reviews on Amazon — I’m not alone in my feelings toward that brand’s decline. Indeed, some of the reviews there are much angrier. Way to go away, Swing-A-Way.

Of course, millions of Americans still buy products from China, often because we have no choice (see toaster ovens, mobile phones, even vitamin C). And I know that many companies also feel like they have no choice: they must outsource or die, since manufacturing in the USA is no longer affordable or even possible (just ask Apple). It’s a brutal situation — I get it. But regardless of the financial or operational rationale, we all need to acknowledge this: when we outsource to a low-wage/low-regulation country like China, we risk undermining our brands. We might even turn our beloved products into run-of-the-mill commodities. And that’s too much to pay in order to save money.

As for all the American-made Swing-A-Ways out there — and the American factory that used to make them — may they rust in peace.

Update: That Chinese-made can opener rusted to death in just a few months. Fortunately, I managed to find a can opener made in the USA.

Related Article: For Your Daily Grind, Forget The Run-Of-The-Mill: Pepper Mills And Grinders

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Freddy is the Founder & Creative Strategist of Atomic Tango. He also teaches at the University of Southern California (go Trojans!), shoots pool somewhat adequately, and herds cats. Freddy received his BA from Harvard and his MBA from USC.

5 Responses

  1. Hi Freddy

    As usual your article is most entertaining and thought provoking. However, I would like to propose a solution to the outsourcing to China problem for great brandname companies without losing brand equity:
    If these companies did the outsourcing as part of a complete CSR strategy in which they focus on the social, cultural, environmental and economic (of course) pillars.
    A well thought out strategy may even enhance the brand with the 3 words ‘made in China’ or India or Indonesia for that matter if they make the CSR strategy the very fabric of their brand,
    God forbid that one day ‘made in China’ will invoke a positive brand image because the Global brands add value to local people rather than eroding it!
    Chris

    • I think that’s a fair proposal, and thanks for sharing. The problem is that corporations are always claiming that their foreign workers are treated well, such as Apple and Foxconn. The problem is when deeper scrutiny is applied, revealing that not all is as rosy as advertised.

      The larger issue is that American jobs were sacrificed in the process, so no matter how well the corporations treat their new foreign workers, they sometimes leave entire communities in pain back in the United States.

  2. Loved your article and I completely agree with everything you say. After several bad experiences I also refuse to pay full price for any product made in China.

  3. I would love to see a study of a typical shopper with two almost identical products. One made in the USA and one made in China. If the USA made product was 10%, 20%, 50% higher, what does a typical shopper do.

    This would be especially interesting if the study was divided into by self-identifying conservatives, moderates and liberals.

    Would there be a difference in the price tipping point?

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