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Focus: Manufacturing

Feature Article from Our Manufacturing Subject Area - See All

From SCDigest's On-Target E-Magazine

Nov. 20, 2012

Supply Chain News: Will Consumers Pay more for US-Made Goods?


New Boston Consulting Group Research Says Yes, but Will it Hold True at the Moment of Truth at the Store Shelf?


SCDigest Editorial Staff

There remains much excitement about the potential for a return of manufacturing to US soil from offshore locations, a possibility perhaps even more likely with recent news that the value of China's yuan currency continues to rise against the US dollar. The yuan has recently been trading at around 6.3 per US dollar, the highest rate since 1994, when China launched a new currency-trading system. It is up more than 2% against the dollar since late July, giving US manufacturers in effect a cost advantage of the same amount from the status quo in mid-Summer.

SCDigest Says:


There was a large range between categories of those that said they would pay 10% or more for US made goods. That ranged from 37% for baby food to 20% for toys.

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The higher the value of the yuan, the higher the prices of goods imported from China, all things being equal, although Chinese companies could and do lower prices to keep their exports competitive, often in tandem with government subsidies.


US companies also often pay Chinese suppliers of course in US dollars, which would keep the apparent cost unchanged, but mean less revenue/profit for Chinese manufacturers, meaning they would be pressured to push up prices in dollar terms to stay even. (It is actually more complicated than that, since many commodities are purchased by Chinese manufacturers using US dollars, but we'll end it there).

No one has been more on top of these manufacturing dynamics than the team at Boston Consulting Group, which since 2011 at least has released a series of research that in general is bullish on the possibility of reshoring, at one point even predicting a US "manufacturing renaissance," as the China cost advantage would disappear by 2015 against the most competitive US regions. (See New Study from Boston Consulting Finds China Manufacturing Cost Advantage Over US to Disappear by 2015.)

In the latest of these research efforts, BCG did a series of surveys with consumers relative to whether, if at all, consumers would pay more money to purchase a product that was labeled "Made in USA" versus one labeled "Made in China."

That test was done across 10 different product categories, ranging from appliances to baby food to electronics.

The "headline news" was that across all categories, 80% of US consumers are willing to pay a premium to obtain products made in USA, and that over 20% of consumers are willing to pay more than 10% for goods made domestically.

In fact, 60% of Chinese consumers, who were also surveyed, said they were willing to pay more for a made in America label.

Naturally, the amount of price increase US consumers were willing to pay varied by product category.

(Manufacturing article continued below)




The chart below shows the percent of consumers that were will to pay more by each product category, broken into those that said up to 10% more, and those indicating more than a 10% price premium.




Source: Boston Consulting Group

As can be seen, the percent that would pay something more was actually quite consistent across the categories and averaged 66% in total, but there was a large range between categories of those that said they would pay 10% or more for US made goods. That ranged from 37% for baby food to 20% for toys.

The survey also drilled down into some very specific products, asking consumers at what level of price premium for a US made product over the Chinese made product would they still consider the price a good value.

Here again there was a wide range, with consumers willing to spend just 8% more for made in USA athletic shows, but a whopping 63% for wooden baby toys. In between were gas ranges (19% premium) and cell phones (30%).

The top reasons for paying the price premium were to "keep jobs in the US," respondents said, followed by "feel better about the quality" and then "enjoy the feeling of buying American made."

All told, the results should be encouraging for US manufacturers and retailers - if the results of the survey would play out in the real world.

A fellow named Sam Walton had a similar idea for his Walmart stores with its "Buy American" marketing campaign in the 1990s, but in the end, consumers decided mostly that they would rather have the lower price from China.

What's your reaction to this data from BCG? Do you think it reflects itself in the real world? Let us know your thoughts at the Feedback section below.

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