What Paying More for Premium Brands Is Really Costing You

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Those who follow a budget diligently are better off for knowing where the money goes. But even those who know where they're spending their money might not know why. What makes someone choose a car, a designer outfit or a cup of coffee with a mermaid instead of one without?

In many cases, it's the branding. And it's everywhere.

"Consumers are integrating marketing and brand information into their social identity," says Art Stewart, a Boston-based brand strategist and professor at Emerson College. "They're looking for alternative validations for identifying who they are, and are looking to identify others by the way they use those same products and services."

%Poll-82946%%Poll-82951%The phenomenon is nothing new.

"From the beginning of advertising, ads for the first refrigerators and Electrolux vacuums all worked to tap into affiliations that someone wanted," says Kathy Baird, a senior vice president and partner at FleishmanHillard. "Maybe it was the housewife or the businessman who wanted to look sophisticated in the new auto. It's still the same, but on a much wider scale."

What Brand Loyalty Really Costs

Buying brands isn't always a bad thing. In some cases, buying higher-quality items that will last longer than lower-quality ones is the smarter move.

In other cases, it's a waste of money.

"In many cases, value is perception," says Ted Grigsby, a financial adviser with Human Investing in Oregon. "What we see is that people have a tendency to purchase brand name items at the cost of their budget and their long-term retirement savings."

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Food can be an expensive part of a family's budget, and one of the easiest areas in which to cut costs. The USDA's Cost of Food at Home report for April 2013 shows that a family of four with two adults and two children can spend more than $1,000 a month at the higher end, but a "thrifty plan" costs about half that. Switching to store-brands is one easy way to bring those costs in line.

There's a generic/store brand savings calculator that can help put those savings into perspective. Determined to buy Advil instead of store-brand ibuprofen? At Walgreens (WAG), that difference will typically cost $4, unless Advil is on promotion. Entering those figures into the calculator, along with interest rate, current age and expected retirement age, shows a dramatic savings over a lifetime.

Sometimes, the store brand may even have better quality than the brand name. The annual Consumer Reports sun survey found that store-brand sunscreen made by Target (TGT) and Walgreens protected better than premium brands -- and the store brands cost $3 an ounce less than the premium brands.

Breaking the Brand Pattern

Brent Shelton, spokesperson for the online coupon site FatWallet.com, says that joining a community of budget-minded consumers can make weaning off buying brands for brands' sake easier. "This kind of community helps you with knowledge of the generic comparisons," Shelton says. "I've found online communities useful for both finding enough savings to help me make the change, and vetting out which generic products are no-brainers."

Thinking of making the switch, but don't want to spend money on cereal the kids might refuse to eat or drugs that won't work? Websites like ConsumerSearch.com or Viewpoints.com offer user-generated reviews on everything from food and beauty to household products and travel. Shopping in-person and don't have reviews handy? Some chains, including Trader Joe's and Food Lion, offer a refund if customers don't like their products.

Of course, some customers absolutely have to have their premium products, and refuse to settle for generics. If you want to have your familiar brands without breaking your budget, we recommend clipping coupons or waiting for a sale.