A friend of mine was recently bemoaning the disappearance of small stores and old-time department stores, where clerks knew the products and had information and advice that we, as customers, could trust. Understandably, he is frustrated when he walks into a Big Box store, asks a clerk a question about a product, and the clerk starts looking at the box to read whatever is there (as if my friend, perhaps because he is a sociologist, is unable to read that information himself).
One reason Big Box stores have become so successful has to do with the success and reliability of brand names and branded products (yeah, yeah, I know changes in technology, the legal environment, and relative factor prices play a role, too):
If we want to buy a standard household appliance, we can search the internet or consumer magazines for information about quality and reliability, and then go shopping; Alex Tabarrok at the Marginal Revolution last year posted on the importance of the internet in this regard.
But even if we didn't have the internet to search for information about product quality, big box stores would still become important by emphasizing low prices for well-known branded products. The strength of the branding replaces our need to rely on store clerks for information.
So when I want to buy something, I just go to a big box store and buy it at a low margin -- there's much less need to rely on knowledgeable clerks because the brand names themselves convey tonnes (hey, we're metric in Canada) of information.
From a different perspective, what I'm suggesting is that the knowledge we have about different branded products is a necessary condition for the existence of many Big Box stores. If we as customers didn't know about the qualities of different brands, or if we couldn't learn about them through experience or word-of-mouth or advertising or the internet or something, then Big Box stores would not be able to just schlep out the merchandise and sell it. If they tried that, customers would not shop there but would go to the full-service stores that provided more point-of-sale information about the products they carried. And without branding, there wouldn't be a free-rider problem that is so often identified with resale price maintenance arguments.
Here is Russell Roberts' excellent piece on the impact of Big Box retailers on the quality of life (link via his piece in Cafe Hayek).
I wonder what will become of the importance of product branding as Walmart develops and markets more of its own, in-house brands and products.
Posted by TheEclecticEconoclast on November, 10 2005 at 09:23 PM
Alan wrote:Left out was one other factor I think very important; I feel quite comfortable buying at Home Depot because of their very liberal return policy (I do not know how Wal-Mart works). It is very hard to go wrong when the retailer is willing to carry so much of one's risk. I have felt a small sense of embarrassment at some of my returns, but I did them!
-- November 11, 2005 07:55 AM ∞
Bob wrote:The brand of the merchandise is important, but so too is the brand of the store selling the merchandise. In this case, the return policy is part of Home Depot's brand. Many people think of brands as logos and advertising, but these are just icons of the brand. A company's brand is determined by the relationships it forms with its customers and prospective customers. This relationship can be helped or harmed by interactions with employees (nice or rude), experience with transaction (return policies included), store cleanliness, cost of merchandise, and many, many other factors. Successful brands have icons and messages (logos, advertising, PR) that reinforce the reality that the customer has already experienced or will experience.
-- November 11, 2005 10:03 AM ∞
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-- November 11, 2005 05:06 PM ∞
Bob Pence wrote:I think the very existence of Aldi is an argument that price matters more than brand, since almost everything they have is private label. Regular department stores love private label stuff, because they can present something at a lower price that is in reality at a higher mark-up, and they get a better handle on distribution and promotion. Costco has done very well with private label stuff, and gets a higher mark-up on it. Target has also done a lot with private-label designer goods from softlines to hardlines, including the toy department and electronics.
Wal-Mart has only recently begun using Ilo where it sees price holes in electronics. Private label stuff is all over, such as in the clothing departments (Kathy Lee, Mary Kate & Ashley), drugs (Equate) and some food (Sam's Choice), and some other hard lines (lamps, for example). But on the whole they have underdone it with private label. When you see Wal-Mart detergent, batteries, razors, and toothpaste, expect Proctor & Gamble and Gilette shareholders to autodefenestrate.
-- November 12, 2005 12:08 AM ∞
