Saving in a Big Way: Buy Generic

Hard economic times mean making hard financial decisions, and that money-saving mentality is as prevalent in the typical American household as it is in the boardroom.

The poster child for household cost cutting has always been the generic product, but what constitutes "generic" has changed dramatically in the decades since store shelves bore white-label canned goods with simple names such as "peas."

"There is a hierarchy to products," says Lars Perner, an assistant professor of clinical marketing at the University of Southern California's Marshall School of Business, "but there are very few true generics that remain in the marketplace."

The four major categories of consumer products are "generic" (no brand name of any sort), "store brand," "regional brands" and "national brands." The majority of what most consumers consider generic today are store-brand products, which are created much like historic generic goods but bear the name of the retailer that primarily distributes them. Wal-Mart's Sam's Choice and Target's Archer Farms are two examples of store-brand goods.

Generally speaking, store brands don't bear quite the same stigma as the true generics of years past. "It's more about what people believe are the differences," Perner says.

Buying generic groceries has long been associated with less affluent Americans according to Perner, but that's changing.

As the quality of store brands improves and is regularly acknowledged as being on par with their brand counterparts, Americans are becoming more open to buying generics.

In particular, when it comes to notoriously expensive over-the-counter and prescription drugs, Americans are becoming far less squeamish about going the generic route.

According to the Generic Pharmaceutical Association, generics represent 65 percent of total prescriptions dispensed in the United States while making up only 20.5 percent of all dollars spent on prescription drugs.

"Generic drugs are as safe and effective as brand-name drugs," says Sandy Walsh, a spokeswoman for the Food and Drug Administration. "They use the same active ingredients as brand-name drugs and work the same way."

Generic products offer some obvious (and not so obvious) benefits:

Generic Products: Cost

This benefit is the most obvious. In many cases, the cost to produce generic products is only minimally cheaper than producing brand-name counterparts. However, when consumers purchase that brand-name product at the store, they are also paying for the marketing, advertising and research and development expenses that have gone into making that product such a recognizable name.

Generic Products: Quality

The perceived drop in quality has always been one of the biggest turnoffs regarding brand-name versus generic products. The reality is that the quality of generic goods can vary greatly depending on the product, but consumer and market factors work together to keep product generic quality generally high, Perner explains.

"There's only room for a certain number of name products on the grocery shelves," says Perner, which is why producers of foods such as vegetables often find themselves selling off their overstock for generic or store-brand distribution.

Conversely, there is the case of soft drinks. Beverages such as Coca-Cola are the result of substantial hours of research and development, so the generic cola versions may have a wide variation in quality and may taste totally different.

In some cases, manufacturers of generic products may even leave out expensive ingredients (such as vanilla in soft drinks), but consumers stop such practices from being widespread by simply avoiding products that have skimped too much.

"Major retailers are generally unwilling to stock lower-quality items, simply because they don't sell and reflect poorly on the business," says Perner.

Generic Products: Saving Money with Generic Drugs

Generic pharmaceuticals in particular have helped keep costs of their brand counterparts low. They are less expensive to produce because generic manufacturers don't have the investment costs of the prodelopers of new drugs, which are created under patent protection.

While in effect, the patent protects the investment - including research, development, marketing and promotion - by giving the company the sole right to sell the drug. However, as patents near expiration, manufacturers usually apply to the FDA to sell generic versions, which are sold at substantial discounts.

"Once generic drugs are approved, there is greater competition, which keeps the prices on (brand-name) drugs down," says Walsh.

Generic prescription drugs, unlike food or toiletries, are put through a rigorous multistep review process by the FDA that includes a scientific review of the generic drug's ingredients and performance.

"FDA-approved generic drugs work the same way in the body as the brand-name product," says FDA's Walsh.

Walsh says inactive ingredients, such as colors and flavors, may prodiate from the brand product, but consumers buying generic drugs are guaranteed by law that they are getting the exact same quality as their brand equivalent. Since over-the-counter drugs such as cold medicine are included in the FDA's jurisdiction, even casual consumers are guaranteed by law equal product effectiveness.

Generic Products: Should you buy a generic?

If you're trying to decide whether to buy a generic or brand-name version of a product you may want to consult Consumer Reports magazine. The organization routinely compares the generic versus brand-name quality of a variety of consumer goods, from food to toiletries, and posts the results on its Web site (

While categories such as pharmaceuticals have seen the reverse cost benefit of generics, there are several other categories, such as batteries, where the perceived quality of generics remains low, keeping the brand costs painfully high.

The bottom line is that most generic products are of high quality and will save you a substantial amount of money.

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