How to Save $1 Billion Without Even Trying (Ep. 178)

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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?


Steve

I try to buy as many generics as possible, but there ARE differences. Sometimes it's just not the difference you might think would be important.

I buy Tylenol rather than the generic ibuprofen because my wife and daughter think the generic ones taste "yucky" and it's a small price to pay for domestic tranquility, and I buy Arm & Hammer baking soda rather than the generic because I can't break myself of the habit of looking for an orange box and it's worth the difference because any other color just falls into my blind spot and takes me an extra minute or two to find.

Now if they ever change the label significantly, all bets are off!

Judge Mental

There are some generic medications ( a couple that I know of in particular) that I have experienced that the blister packaging is significantly harder to open . I am willing to spend the extra money just to avoid the aggravation of trying to extract the medication, particularly when I am not feeling well in the first place. Sometimes I have to use a knife or pair of scissors and wind up ruining the pill in the process, ultimately making the cheaper medicine more costly in the long run.

This isn't the case with all generic medications, but I do pick and choose which ones I am willing to opt for the cheaper alternative.

John

I sometimes buy brand-name aspirin, not because I think it will be more effective, but because the packaging is more convenient. I get migraines every few months, and I like to carry a little bottle of aspirin with me wherever I go. I might be able to get a generic bottle of 500 pills for 5 bucks, but by the time I took that many pills, they'd lose their potency. A brand-name bottle of 24 pills for 3 bucks serves me just fine, and will last me for a year or two.

Glenn Hall

I try not to tale pills too often, but when I need some ibuprofen I go with Advil. The one time I tried a store brand (Rite-Aid) it didn't seem to work. So I went back to the name brand, and of course, it worked.

Now I know it's the placebo effect, but it was worth the extra couple of bucks!

NitPicker

If you added a link to he mp3 to these pages instead of having to go through to the RSS feed, that would be swell :)

dsdfs

I buy brand-name OTC drugs when the brand-name can be purchased for the same price or a lower price than the store brand. If the price of the brand name item is more than 1¢ higher than the price of the store-brand item, then I buy the store brand.

For food, I'm all over the map: store brand by preference for some things (Trader Joe's Bourbon vanilla), premium brand-name by preference for other things (Pepperidge Farm crackers), cheap brand-name by preference for other things (canned chili beans), and whatever is cheapest for other things (most recently, Italian seasoning blend from the spice aisle).

Nico

Thanks for interviewing these two researchers.
What I found disturbing about the interview was not the study or its results, but the researcher's answers to the questions about the larger picture of their study and whether marketers are unhappy with (or proud of) the results.
One researcher is thinking aloud about whether we would want to get rid of the visual cues of brands altogether. I thought it was an interesting point until he defended it:
"I think the brands are serving first as a marker of quality, second just as a way to make all these decisions we have to make everyday easier and deploy a little psychology to help us be able to quickly identify and get what we want. I think there’s clearly a lot of value being produced there…".[the question, he says, is whether firms are using these tactics to trick people and drive up their profits]

Agghh! First, in many cases, according to their own study, brands aren't serving as a marker of quality. (The faith remains, even in the researcher.)
Second, and more important and insidious -- they aren't just making these decisions easier, they (marketers, who are good at what they do) are *making us think these decisions matter at all.* We get to spend time at the store choosing products based on our life philosophy as represented in product packaging. Much (not all) of the time, these choices are so minor as to be pointless, but they take up a not insignificant portion of our time and mental energy.

They're using psychology to get us to "identify what we want"...perhaps sometimes this is true. More often, they're using a "little psychology" to help us *have* particular wants, to even consider that we should care about the distinctions they're offering us.

Is this "value" one that counts to economists? I think it is a distinct devaluing of my time and mental energy (and, ultimately, pocketbook).

Read more...

Mhd Sulhan

Here is the excerpt from book Big Pharma,

"To see how bad doctors are at prescribing efficiently, we can look at national prescribing patterns. The NHS spends £9 billion a year on drugs. You know by now that many of the drugs on the market are ‘me-too’ drugs, which are no better than the drugs they copy, and that often the branded ‘me-too’ drugs could be replaced with equally effective drugs from the same class which are old enough to have come out of patent.

In 2010 a team of academics analysed the top ten most highly prescribed classes of drugs in the NHS, and calculated that at least £1 billion is wasted, every year, from doctors using branded me-too drugs in a situation where there was an equally effective off-patent drug available. [2]

For example: atorvastatin and simvastatin are both equally effective, as far as we currently know (we keep returning to statins, because so many people take these drugs), and simvastatin came off patent six years ago. So you would expect that everyone should be taking simvastatin, instead of atorvastatin, unless there’s a very good idiosyncratic reason to choose the unnecessarily expensive one in a specific patient. But even in 2009 there were still three million prescriptions a year for atorvastatin, not much down from the six million in 2006: this cost the NHS an unnecessary £165 million a year. And all those prescriptions for atorvastatin were despite major national programmes to try and get doctors switching."

[2] http://www.bmj.com/content/341/bmj.c6449

Read more...

sv

It's not "try and get doctors switching". It's "try and get doctors to convince patients who are already happy and stable on the expensive one to switch to the cheap one".

The important question is whether new patients (who had never taken the expensive one) were started on the cheap one or the expensive one. That's something the doctors can largely control. Getting patients to change is a much more complicated thing.

Kulani

I think the best way one can save up is through one penny at a time, take for instance an individual who would rather buy in bulks, that individual would save on average $2 per purchase as compared to purchasing in singles, and again "time is money" so buying in bulks would save one more time and efforts of going to and from the pharmacist.

14064384

I do agree that bulk saves money but I do not agree that we can purchase medication in bulk. Buying medication in bulk is dangerous firstly because it expires, and if left for longer periods of time it may become poison.

I would not advise anybody to buy medication in bulk as it is risky. Buying in bulk definitely has its advantages when it comes to other products.

FrankBonham

I think the major flaw in this study is that health care workers are making better choices when it comes to their own health in general. I have seen numerous study that they tend to smoke and be obese at the same rate as the general population despite knowing all of the healthcare risks associated with the things. So, why should I assume they are making an intelligent choice when by generics vs. name brand.

Haidee

Hi guys, great episode. I just want to suggest that some shoppers out there may not necessarily remember all the active ingredients of branded drug products, but when she or he came to buy the product would know to check the label to find the active ingredient (which would allow she or he to search for the generic version on the shelf). I'm not sure about the labelling regulations in the USA, but in Australia and New Zealand we have stringent labelling regulations for drugs, so this information should be pretty easy to find for consumers down under. I was wondering if the quiz used in the survey was 'closed book', in which case it may have missed identifying some of these other 'smart' shoppers?

P.S. I had a lot of PBJ sandwiches while I was traveling in the USA... is there such a thing as a bad PBJ sandwich?

Glen

Why would you expect a medical doctor or a pharmacist to have expertise in the differences between branded and generic drugs? You should interview people who perform clinical trials on new drugs and on generic drugs. It turns out that a lot of clinical testing is performed when a new drug is introduced, but very little is performed on subsequent generic versions. And furthermore, the formulations are different. The only thing that is guaranteed to be the same is the active molecule. It is totally fine to buy generics if you wish, but don't think for a minute you are getting the same thing for less money.