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Group Buying Direct: Beating the Brands

As major corporations have outsourced production to offshore production centers acting as subcontractors, individuals and entrepreneurs have an opportunity to use group buying strategies to buy direct from manufacturers to save money and develop there own brands.

Group Buying: Consumer Goods

Branding Things You Don't Make!

As more companies shifted their focus to the production of brands and not products, outsourcing production to contractors in low wage countries was rapidly accomplished. The shift toward low wage production facilities combined with an increased emphasis on marketing and brand management. This coupling enabled traditional markups between the cost of factory production and retail prices to soar. Labor in countries like China, Vietnam, and Indonesia were so low they become almost a non factor in the total retail price of the product. The lower cost of labor allowed for more money to be spent on advertising, brand management, and celebrity endorsements.

Against rising criticism, Nike made some adjustments, raising wages in Indonesia by 25 to 30% and eventually moving all production to Vietnam. Nonetheless, the Nike model has both endured and proliferated, with nearly all major brands moving production to Asia or Latin America. During this process, social activists were quick to bemoan the disparate wages paid to factory workers in the developing world, missing the fact that wages paid to sales and customer service personnel at big box retailers faired hardly better. At just above minimum wage, their income failed to provide a living wage for them as well.

In this new paradigm branded objects increasingly are not what they purport themselves to be. For example, the label of a famous Italian designer may in fact be more the result of the hard work of Chinese seamstress or carpenter than the vision of the cultured craftsman from Italy. Made in China and in other low wage countries by subcontractors, these brands, through powerful ad campaigns that often include sponsorships, celebrity endorsements, and slick New York ad agencies, have distanced themselves from the real labor and production. In realty, to know the product, I need to know about the factory floor and not the advertisement.

Nevertheless, renewed controversies over brands may modify conditions but will not overthrow the concept and power. To be sure, generic and private label products will continue to have their place and likely fair better in recessions than in growth periods. But branded products will remain because, when effective, they solve not only information asymmetries but provide a social currency and powerful referent between consumers that interact with one another.

In the past, stylistic changes emerged from the minds of manufacturers, both anticipating and responding to the changing tastes of the wealthy and elite. Today, these changes are more likely to emerge from trendsetting lower, middle income and even impoverished teens and young adults in urban centers in the United States and around the world.

Beating the Brands

1) Entrepreneurs, professional athletes, celebrities and designers will increasingly develop there own signature lines, fragmenting the marketplace to compete directly with the bigger, global superbrands. There are a plethora of examples here, from Sean Jean clothing to Martha Stewart, creating brand extensions with products, capitalizing on their already powerful names. More recently, Stephan Marbury, along Barry University Sportswear, created a $15.00 basketball shoe that effectively combines low cost offshore labor and the power of celebrity branding. Marbury has simultaneous used his celebrity endorsing power for his own objectives while exposing the pricing power (and profit margins) of his superbrand competitors.

3) Powerful consumer buying groups will emerge, bypassing global superbrands and their big box retail distribution partners. Entrepreneurial efforts by designers, athletes and celebrities will also be bypassed, as these buying groups solve the information asymmetries by sourcing the best contract manufacturers to produce their products. Additionally, as consumption evolves, consumers are more likely to resist the authority of corporate lifestyle and celebrity marketing campaigns to mark their products for them. From these groups branded products will emerge, with both individual and community signatures, fulfilling the social function vacated by global superbrands. Celebrities (representing a wider range of individuals and role types) and athletes may again be re-employed, this time as paid (at reduced levels) spokespersons for buying groups and not global superbrands.

Previous online efforts failed because they attempted to purchase branded, low margin items already bought in bulk by major, big box buying clubs and retailers. This group buying initiative is different in that consumers may source manufacturers in Asia and elsewhere directly, bypassing big box retailers and global superbrands entirely. In specific instances, where branded items may be purchased in bulk from cheaper sources, and effective group buying system can facilitate these transactions.

Savings for consumers are achieved by several means:

• Through volume. Many overseas manufacturers have minimum order requirements that require buying groups to be initiated at all. Quantity breaks are available for larger orders and are displayed on websites that represent contract manufacturers.
• Through savings in shipping charges. Since these goods are traveling farther, shipping costs represent a larger portion of costs than traditional shipping from etailing sites based in the United States like Amazon.
• Through direct sourcing. Many large scale overseas manufacturers do not make small scale purchases available to consumers or small businesses. Firms will locate those entities for pricing and aggregate enough demand to qualify as a buyer.

Consumers will not only save money on popular brand names buying direct and in groups, but they will also have the power to design and distribute their own lines of shoes and clothing. No longer will consumers be so dependant on Madison Avenue advertising firms, Tommy Hilfiger, Phil Knight or Russell or Kimora Lee -Simmons to tell them what is cool. Consumers, united, will have the power previously denied to them through the current production strategies: that is the make and influence product design and development and create, ultimately, their own brands. Nike Vs. Main Street PresentationNike.2

Levi's recently announced an open, online design challenge for the general public. People all over the USA had the chance to redesign the iconic 501. If they win, their design will be produced and sold by Levi's on www.levi.com, along with winning a $501.00 gift certificate redeemable on levi.com. $501.00 is better than nothing. And the chance to participate is better than not being able to. But why didn't Levi offer a percentage of sales, like a professional designer would make?

I do not maintain that the process of group, cooperative or collaborative consumption will change our social system whose chief currency today is a status system of objects. The status of objects will remain and will still likely evolve in a rapid succession. However, I do maintain that the group buying process that propose here will assist in restoring community participation and a co-creation of products from vital areas of society that most need it. This co-creation will help narrow the gap between production and consumption that today is filled by intermediaries whose chief job today appears to be the projection of lifestyle fantasies and the further inflation of athletes and entertainers to the position of deities. Within the current mode of consumption, our goal is to eliminate transaction costs borne by consumers that result from product branding that too often results inessential information about product differences.

For the hungry and risk adverse entrepreneurs today, Frank Lucas (American Gangster) has been mythologized as a powerful example and precursor to the programmatic vulnerability of global brands today that have outsourced production. Mr. Lucas's trip to Asia to establish a direct connection to Asian heroin production is a metaphor for a likely journey aspiring entrepreneurs of fashion and merchandising will soon make in the future.

A similar situation confronts young men and women in urban centers today. The product in question this time thankfully is not narcotics, but athletic shoes, shirts, baggy pants, and numerous other items. Students, teenagers, and underemployed young men and women in urban centers across the country are both large consumers of fashionable consumer products and innovators of numerous fashion trends. Yet they themselves remain abstracted from production and exist only as signifiers of production to participate only as consumers, overpaying for items they oftentimes inspired to create.

In final analysis, direct group buying from the very same offshore production center that branded multinational corporations maintain as their source of goods may effectively destabilize existing relations of production and consumption. As important, community direct group buying will allow alternative branding strategies to flourish. Communities (both online and offline) and individual consumers will be able to more efficiently design and brand their own products.

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* Written, May 2008

* Published, Google Knol, July 28, 2008