Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Generic Brand

What it is:

Generic brands are often cheaper than "name brands." Some generic products are more viable and profitable than others; this is particularly the case for commodity products (such as milk) and products that have low brand loyalty. For instance, consumers may be particular about which cola they buy because they perceive a taste difference between brands and because they like the image associated with consuming the brand, but they may not care about what brand of aluminum foil they buy and will thus buy the generic brand without thinking twice.

It is important to note that retailers who sell generic goods are generally not the manufacturers of those generic goods. In many cases, the name-brand company will make a generic version of its product for the retailer as a way of capturing market share and shelf space. In the pharmaceutical industry, however, the ability to produce generic medicine depends on the patents associated with the medication.

How it works (Example):

For example, let's say John Doe wants to buy some cola. He could buy Coca-Cola, or he could buy the generic grocery-store cola. The Coca-Cola brand cola has a famous logo and a price tag of $6. The generic brand has an obscure, less appealing logo but is only $3. Both taste about the same to John, so he buys the generic brand.

Why it Matters:

A generic brand is a nondescript brand of product that does not have a widely recognizable logo and is sometimes called the "house brand."