How to Save $1 Billion Without Even Trying: A New Freakonomics Radio Podcast

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(Photo: Chris Potter)

(Photo: Chris Potter)

When a pharmacist gets a headache, what do you think she’ll buy: Bayer aspirin or the much cheaper store brand? You’ll find out on this week’s episode. Hint: the episode is called “How to Save $1 Billion Without Even Trying.” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

It features Stephen Dubner interviewing Matthew Gentzkow and Jesse Shapiro, a pair of economics professors at the University of Chicago’s Booth School of Business and co-authors (along with Bart J. Bronnenberg and Jean-Pierre Dubé) of a working paper called “Do Pharmacists Buy Bayer? Sophisticated Shoppers and the Brand Premium.” Along the way, we find out if conducting this kind of research leads a researcher to buy more store-brand items himself:

SHAPIRO: I think I probably buy a little more [store brand stuff] now than before we wrote the study. Not so much because of anything I learned from the study, but more because I think I would just feel hypocritical buying the branded good after writing this paper.

You’ll also hear from Steve Levitt about his shopping habits. He says there is one particular item that he’s always willing to splurge on. Can you guess what that is?


Laurence

Was the music at the end of the podcast performed by Woody Allen, or was it generic?

Gary

Store brand kitchen garbage bags are far inferior to Glad. I periodically buy the store brand "just to see" and so far have always regreted it.

Steph

Try America's Choice Kitchen bags from Pathmark. I think you will be pleased with the strength of the silver plastic draw cord, general bag strength, AND price. I don't like ALL AC products but give them a chance.

Pharmaceutical effectiveness is controlled by not just ingredients but by "compounding"-- how the product is made. That in turn impacts the "bioavailability" of the drug, and how well it alleviates pain. Pain relievers act on biochemicals that are mediators of pain, an there are many kinds (prostaglandin E, prostsglsndin F, etc.) Pain meds act specifically on different prostsglandins, so what works for a headache may not work for mestrual pain or sore muscles.

Bill McGonigle

> compounding

The interesting thing there is that a name brand or a generic may or may not be more effective depending on such variability. It's usually impossible to get the data to tell.

Another wrinkle (aka 'dirty secret') is that "inactive ingredients" sometimes aren't. I'm forgetting the details, but several decades back there was one case of a name brand that was much more effective than the generics and consumers complained enough about this particular generic that some testing was done. It turned out that the active ingredient wasn't very active without one of the 'inactive' ingredients acting as an adjuvant. It was added "for smoothness" or some other probably-BS stated reason when the manufacturer probably knew it was effective but didn't want to go through another approval (which are rarely financially feasible on an OTC). As I recall, the generics added the inactive ingredient as well and nobody rocked that boat. If somebody remembers the specifics, I'd love to be reminded. Again, this is another case of not having the data to make an informed decision.

Disclosure: I almost always buy generics, unless they taste horrible (yeah, I'm looking at you, Leader wannabe-Pepto), but I do look for "one of these things is not like the others" ingredients on labels - if either a name brand or a generic is going to have extra mystery ingredients ("natural flavors"?) it's more likely to be the name brand. Still trying to make informed decisions without all the data - I suppose marketing people prefer this state of affairs.

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Patrick Russell

Long ago a Pharmacist told me to take Bayer. It is of higher quality and in that difficult environment of a bathroom will degrade at a much slower rate than the cheaper brands. Fresh off the shelf there is no difference, but six months in the bathroom makes a big difference.

Jayme Pharmacist

Don't keep any medicines in the bathroom! Buy generic!!!

nick

On thing I have always noticed about high end drugs compared to low end drugs is that they always have "extras". Things such as migraine medicine, these are typically just acetaminophen and caffeine. I could get the same effects from drinking a Mountain Dew and taking the store brand acetaminophen. In the end it is all about education.

Some items are not better as a store brand. Garbage bags, paper plates and dishwashing soap are a few items that I feel I get a better value from when buying name brand.

Kathy

If I am consuming the product (it is not a band-aid), I am more likely to purchase the branded version and not the store brand. I will purchase the branded product even if it costs subtantially more than the store band. I do read the labels and I can see the ingredient lists are identical. But that list tells me nothing about the quality of the manufacturing process. My concern is quality control over ingredients and reduced errors during the manufacturing process. I have to hope that there is better quality control during the manufacturing of the branded product, and that it is safer to consume. But...this impression and hope of mine may be false.

James

The comments about branded garbage bags being of better quality than the store brand prompts me to ask why anyone would care about the quality of something which will immediately be thrown away. Do people really think that their trash is QUALITY trash that needs to be safeguarded for future generations of archeologists?

For myself, I save even more money by not buying garbage bags of either sort. Empty dog food bags and the like do a perfectly adequate job, when a bag is needed at all.

NZ

I think when people talk about the quality of garbage bags they mean in terms of stuff like the bags tearing open and leaking, or coming with convenience features like a drawstring.

Personally, I think Costco's trash bags are great, and if you're in the southwest, so are Smart & Final's.

Dog food bags are made of paper, aren't they? Probably reusable for throwing out yard waste, but what about kitchen refuse that can be wet?

James

Kitchen waste, like yard refuse, mostly goes in the compost pile, of course. And most dog food bags have at least a water-resistant coating on them.

Nobody Special

I always viewed brands as a kind of insurance... something you pay extra for to lessen the variability of possible outcomes.

For something people buy many of, they will probably spend the effort to learn which brand is better (e.g. chefs)... better knowledge makes the decision less random and you don't need to insure it.

For something expensive that people buy only once (e.g. college), insurance is more valuable.

For the pharmacists... I got nothing. But I don't think pharmacists are necessarily much more knowledgeable than the average customer. I would be more curious to know what the drug manufacturers were buying.

Isabel

When I was at university some advertising firms came round recruiting. I saw them as basically nefarious, cheating people out of their money, until they said anyone should consider advertising as a profession if they think the feeling their favourite brands give them is worth paying for. And actually, sometimes I think it is. Coca Cola, for example, just perks you up more than own brand fizzy drinks, because of the brand.

Eric Peterson

What I really wanted to know about the PB&J test was this: Did the test subjects prefer the sandwich on the plate with the striped border more often than the sandwich on the plain white plate?

Plucky Brit

We're in the UK and I have to say our store brands are generally of a much better quality than the US equivalents at Walmart, Target etc. Most of the British supermarkets also have 2 ranges, the normal store brand and a super value range. The latter can be poor but the former is usually very similar to the branded equivalent, and sometimes better.

The only branded goods we buy are Heinz ketchup, Bisto gravy and... bin/garbage bags! There is nothing more annoying than cheap bin liners that split and leak and make the bin filthy, smelly and a positive petri dish.

That being said, we buy our branded bin liners in bulk from a wholesaler to reduce cost, each lot lasts us about 2 years!

As for drugs, I buy the cheapest possible. If the active ingredient is the same then you're paying for a fancy looking tablet a nice coating and the packaging, none of which affect the functionality of the product.

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Julie

I just wanted to share a story with you. I'm 71 years old. When I was in fifth grade our teacher took us on a field trip to the Stroehmann Bakery. While we were there they changed the bags the bread would go in from the Stroehmann bag to a supermarket brand. The same bread went into each one. For sixty years, I've stuck with generics because of that experience. Wonder if I've saved a lot of money...

June

Thank goodness for the Dollar Stores!

ian

After listening to Freakonomics' discussion on named branded and store branded products.I would like to know who actually produces the store branded product.Does the store get,say Bayer,to make aspirin which is then packaged in a store branded product box,or,does some other manufacturer "copy" Bayer's aspirin.If this is the case,would this also apply to everyday items like store branded bread or milk sold at a cheaper price than the named brand.Are products so easy to make that anyone can make them,despite years of research and skills gone into producing them in the first place.
I suspect that "name brand" companies are pressured by powerful stores to supply their products to them at a cheaper price and then relabelled as a "store brand" to improve the store brand's profits.So Bayer are not really "losing out" as they are still selling their product to the store which would explain
the fact that the two products are much the same!
The golf balls may be identical as well the cheaper store brand being wrongfully blamed for a poor drive!
Can someone shed some light on all this?

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