"When U Know the Cost You Know the Margins"

Readers, today we're going to travel a little afield from the domain of food. Although not as far afield as you might think.

We're going to address a consumer products domain that separates more people from more money than perhaps any other: sneakers. And we'll do so by way of an interesting series of statements from the founder a budget-priced shoe brand called Starbury Shoes, retired pro basketball player Stephon Marbury.

Marbury hit the news recently to announce the relaunch of Starbury sneakers, and he caught a lot of publicity, much of it negative, when he said that Starbury sneakers, which retail for just $15, are made in the same factories as Nike's Air Jordan sneakers, which retail for as much as $200.

Made in the same factories. Hmmm, now wait just a minute. Does this sound vaguely familiar? Where oh where have we seen higher-priced branded products produced at the same facility--often with the same materials--as lower-priced or unbranded goods?

Why, in the food industry! It's a theme long-time CK readers know by heart: lower-priced generic or store-brand foods are often not only indistinguishable from much higher-priced branded foods, but often they are made in the exact same facility, by the exact same third-party food manufacturer, with the exact same ingredients.

We see this across countless products in our grocery stores: canned vegetables, pasta, juices, frozen foods, and many consumer products categories. And these branded and unbranded products sit right next to each other on your store shelves, at wildly different prices, just waiting for your "brand awareness" to needlessly separate you from your money.

Well, well, well. So the same exact thing happens in the footwear industry. And yes, Stephon Marbury is right: all too often, you'll find high-priced, high-end sneakers (as well as most other types of clothing) manufactured at the exact same facility as low-priced, discount versions of the same item. With the same materials too.

It's the same dark secret. The same cruel joke played on status-minded consumers.

I give a lot of credit to Marbury both for what he's doing and for how he frames up the issue for us. And I'm actually blown away by an insightful and sophisticated statement he offered up on Twitter to someone mocking him for his low-priced shoes:

"when u know the cost you know the margins."

Why is this statement sophisticated? Aside from the fact that you'll see this exact phrase used all over Wall Street (nowadays probably with the same spelling), here's why: once a consumer becomes fully and deeply aware that their precious and seemingly worth-it $200 sneakers...

1) are made from a few dollars worth of foam, plastic and glue,

2) sit on the retail shelf next to shoes at wildly different price points, all made at the same factories with the same materials,

3) have a minimal or even negligible quality differential from shoes priced at $15, and

4) are astonishingly profitable for the company selling them,

...one of two possible things will happen in the mind of that consumer: ego resistance, or righteous anger.

So, if after learning the dark secret of the food processing industry it suddenly irritates you to pay, say, 30-40% more for a branded can of beans, how does it make you feel to pay 1,200% more for sneakers?

Consumers rarely know what they are paying for in terms of materials, product quality, manufacturing and so on. More importantly, the consumer products companies selling to us do not want us to know. Correction: they cannot have us know. Why? Because once we know we're paying $200 for a few bucks of foam, plastic and glue, we feel duped. Taken advantage of. We feel like suckers.

And until we fully understand this, we are suckers.

For further reading:
1) The Do Nothing Brand: Required reading to understand the true nature of the food and consumer products industry.

2) Why the Return of the Starbury is a Very Good Thing at Pacific Standard Magazine.

3) Coming Soon: Stephon Marbury to relaunch $15 Starbury sneakers at The NY Daily News.

4) Wikipedia on Starbury Shoes: See in particular the segment "Findings On Shoe Quality."

5) Stephon Marbury Defends His Affordable Sneaker Being Rereleased at The Root. Interesting here to read the fierce ego defense implicit in various comments, quotes and tweets from consumers clearly habituated to high-priced footwear brands. Companies love consumers like this--it's all too easy to separate them from their money.

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