Thursday, May 09, 2013

Buying Power

Ever buy a pair of Kirkland Signature™ jeans? Or Kirkland anything? If you have, and it wasn't stolen, you did it at Costco, since Kirkland is their house brand. (Name comes from the city in WA where Costco had its HQ for a year or so, back in the day.)

Sears does this: Craftsman, J.C. Higgins, Kenmore. Monkey Wards did before they went belly up. Rite Aid does it. Safeway. K-mart. Kroger. Others. 

How it works is, the store chain partners with a big manufacturer and gets a product that is the same as, or similar to, a nationally-known brand, but with their house label on it. Without the cachet of the brand name, the product can be and is sold for a big discount. 

The Rite Aid™ pre-electric shave looks an awful lot like Williams Lectric Shave™ but costs a couple-three bucks less. The only difference of any note is the label. What does that tell you?

This is a good deal for the store, the maker, and the consumer, and what it tells you? That a whole lot of stuff is way overpriced, since if you can get it at a big discount and they still make a profit, well, there you go. 

Brings us back to Costco. I'm picking up my new hearing aids today. They are spendy things, but because of Costco's buying power, they cost about 57% of what they would if I bought them retail in a small audiologist's shop. It's easy enough to check the numbers.

So if you are plunking down two grand at Costco, it buys you what $3500 does at the little hearing aid shop at the mall. You get the same tests by a certified audiologist, and that ratio is pretty close across the board in this area.

I don't begrudge those folks their living, but if you are already spending a couple grand on a  medical toy that insurance doesn't cover, that can get expensive in a hurry. 

Costco, depending on whom you ask, is either the #1 or #2 purveyor of hearing aids in the country. Figures are rubbery, but they apparently sell somewhere between half a million and a million dollars worth of the little amplifiers every day, through a chain of several hundred stores. When you have that kind of number to bring to the table, people who make these things sit up and listen. You want to hook up with us? Where do we sign?

There are, according to the estimate I read, 35 million people in the U.S. who currently need hearing aids, but only about nine million people actually have them. Big market out there, and the rock generation, the punk generation and the MP3 generation are all going to need 'em eventually because of their sins. Listen, these days I wear shooting headphones when I run the weed eater, the leaf blower, the vacuum cleaner and even the blender to help preserve what I have left. Loud noises kill your hearing. Trust me here.

My new bat-ears don't bear the Kirkland Signature™ label,, mine are from a major maker, with a model name that is exclusive to Costco. You can buy the brand elsewhere, but you can't get that model. Not that I really care what name is on it, but for folks who, for some reason, don't want the house brand, they can get the price cut without it. 

Now if we can get meds and medical care on this model ...


Kris said...

Reminds me, in a way, of this piece:

True, the Costco thing is more economy of scale related, but the price gap is still staggering.

steve-vh said...

My wife works for over the counter pharmacuetical manufacturer. manf and label same stuff for all the same walmarts, walgreens, ect. No diff in product. But we get to shop at the company store for 1/10 the retail price!

Cliff said...

It's an example of price segmentation. The best explanation I ever read on the topic was this one.

It's software-centric (that's his audience), but the concepts have stuck. If you don't do that, you don't make as much money.

Interestingly, some businesses don't sell to house brands, and are proud of it. I believe Listerine still writes on the back of their bottles that they don't sell to any stores as store brands.