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William A. Levinson

Quality Insider

Don’t Confuse Brand Names with Quality

Quality professionals can help retailers learn how to use high-wage U.S. labor effectively

Published: Friday, January 13, 2012 - 13:20

I recently returned a pair of $28 (suggested retail price) Chinese-made gloves I bought for $7.97 the day after Christmas, which is when I do all my Christmas shopping. The reason I returned the gloves was because a seam had begun to come apart less than three weeks after I bought them. This underscores the current retail practice of importing cheap, low-quality goods from offshore sources, and then attaching brand names or designer labels along with a hefty markup.

Quality and supply-chain professionals should therefore share some basic quality and supply-chain principles with the public to help people on tight budgets (or even those with plenty of money to spend) get genuine value for their money. First, an upscale brand name or even a fancy designer label does not equate to quality. If it’s made in China or some other low-wage country, the same item might easily be found in Walmart or Sam’s Club without the designer label, and with a price that more or less reflects the item’s actual value.

As but one example, I recently saw a men’s shirt with an Italian name on it and a suggested retail price of $70 or $80. Sure enough, it was made in China, which means it was probably worth roughly what it had been marked down to, or even less: about $20. In another case, I had to return some brand-name pants because one pair began to come apart at the seams not long after I bought it, and I didn’t want to trust the others I had bought to not do the same. When I last saw that brand name it was in Sam’s Club, where it probably belongs with similar goods from low-wage countries.

How, then, can consumers pay roughly what the foreign-made cheap goods are worth instead of what the retailer wants? In Moving Forward (Doubleday, 1930), Henry Ford wrote, “If prices are used as baits for buyers, to be raised or lowered as the buyers feel about it, it is in effect a handing over of the control of the business to the buyers to do with as they like. That is a very real control, and it is exercised in very drastic fashion.” When a grocery store, for example, puts something on sale, it is a clear message that the store can afford to sell it at the indicated price, and that consumers should stop buying it when the price goes back up—or else see if it is possible to get the same thing via the Internet.

Delayed gratification is generally the best way for consumers to exercise the kind of control that Ford describes, and this is where supply-chain principles come to mind. Retailers who stock goods of North American manufacture can set firm prices and stand by them because they can order to demand instead of to forecast. Seasonal demand is not a major problem because the retailer never carries large inventories of any particular item. When retailers order from offshore, though, they must do so to forecast instead of demand because of the time it takes a container ship to cross the Pacific Ocean.

If the inventory remains unsold at the end of the season, the retailers must dispose of it at fire sale prices to make room for the next batch of cheap goods. As but one example, the suggested retail price of a Chinese-made, brand-name sweater was $95; I bought it for $28.50 on December 26. That’s still probably more than it is worth, but it is a lot less than the seller hoped to get with a fancy brand name as bait.

Parents can use this buying technique to teach the concept of delayed gratification to children who are young enough to believe in Santa Claus. “Santa’s elves have to make presents for the millions of other children who want them by December 25, so they can make only a few for any particular child. Really smart children are willing to wait a few extra days because the elves have time to make extra gifts for them.” Once the children are old enough to no longer believe in Santa Claus, parents can teach them more sophisticated explanations such as seasonal inventory obsolescence.

There is meanwhile no reason to take one-day or two-day sales seriously. If a flat screen television won’t sell for $300 today, it won't sell for $450 tomorrow. It is also difficult to respect anybody who would stand in line overnight, let alone participate in a riot, to buy Nike Retro Air Jordans for $180 a pair. A Google shopping search on “Air Jordan XIV” now turns up a price of $160 for the men’s basketball shoe at the Finish Line. The people who waited in overnight lines during the holiday shopping season therefore wasted hours of their time along with $20, which does not reflect well on the basic intelligence of these consumers.

The best way for retailers and “manufacturers” (they actually order cheap goods from Chinese and other offshore factories and then put their brand names on them) to avoid “handing over of the control of the business to the buyers to do with as they like” is to manufacture in America, and manufacture to demand instead of forecast—e.g., with retail stores pulling work into factories to replenish individual items as they are sold.

Quality and supply-chain professionals are willing to help those who are willing to learn how to use high-wage American labor effectively. Those who are unwilling to learn should be gamed by consumers as described above. If they happen to go under, it will do little harm to the U.S. economy because no American manufacturing workers will lose their jobs.

Discuss

About The Author

William A. Levinson’s picture

William A. Levinson

William A. Levinson, P.E., FASQ, CQE, CMQOE is the principal of Levinson Productivity Systems P.C. and the author of the book The Expanded and Annotated My Life and Work: Henry Ford's Universal Code for World-Class Success.

Comments

And this is another reason

And this is another reason why I don't believe in Black Fridays. 

Grocery pricing

Although I have no issue with your premise, your assertion about pricing is not universally correct.  Margins vary by product and are determined a variety of factors to hit an overall margin target.  In grocery retail, discounts are generated sometimes by the grocer to generate foot traffic, but often by the manufacturer itself and supported by the grocer.  For products that are not EDLP (Everyday Low Price), the manufacturer will offer a discount to the grocer periodically (pulsing) to purchase more product and in turn incent the grocer to turn that product around quickly (inventory space in a grocery store is low).  The grocery store uses that incentive by the manufacturer to entice customers.  They might make no margin on that sale (or in some cases lose money), but they will make up for it on other purchases that you make in your basket.