Gerry Harvey vs. Ruslan Kogan – will frugal customers look for brand names or discounts?

It’s on! Retail heavyweight Gerry Harvey has launched an extraordinary attack against online tech entrepreneur Ruslan Kogan, calling him a “con” and saying customers will always choose well-established brands over cheap, discounted products which are often of low quality.

While Kogan, who sells cheap electronics goods under his own brand, has fought back by claiming his products stack up against the larger brands, the war of words has highlighted a deeper debate raging in the retail sector – will budget-conscious customers seek out well-established brands or go after cheaper, discounted goods?

“I really respect Gerry Harvey as a business man, but entrepreneurs embrace change and evolve business models. We can’t compete with the big brands on recognition because they’re spending millions, but we can compete on price and service,” Kogan told SmartCompany.

Kogan, which offers tech products and gadgets with an emphasis on LCD televisions, sources parts from different Asian manufacturers and then combines the components itself, saying these parts are the same found in popular brands’ products.

He says this sourcing strategy, combined with a pure online sales model, allows the company to offer cheaper goods.

But Harvey told The Age yesterday customers tend to avoid these discounted brands, favouring established names, and that Kogan “is a con”.

“He words it in such a way as if he’s buying from the same factory – he’s not. All of these big brands, they don’t let their products go out to someone like him. Why would they do that? They’d be setting themselves up for someone like him to launch against them.”

“When he says he’s cheaper, if he is, it’s very marginal and sometimes he’s dearer – but it’s all unbranded shit, it’s not the quality product.”

Harvey, who has previously said that online retailing is a “dead end”, also claimed that “you don’t stick around long if you sell shit… I don’t buy anything that’s not a brand”.

The debate over well-established brand names versus cheaper, newer names is especially relevant given Australian consumers are increasingly frugal, with the market now saturated with discounts and deals.

Tim Heberden, managing director of consultancy group Brand Finance, says bargain hunting depends on the industry involved and brand recognition isn’t always a guarantee in this market.

“Customers are looking to trim their budgets, and if they get the same thing for less, they’ll go for that. It all depends on the product and category though. Certainly for grocery products, there has been a shift to no-label goods. But with electronics, the established brands certainly can grow their market share.”

Heberden says Harvey has a point, noting customers will be more willing to save money on a grocery product, but when it comes to a long-term purchase like a television set, they will be more conscious and lean to well-established names.

“In environments like we are operating in now, well-established brands, with the right marketing push, can certainly expand their market power and often do. They have consistency and coherency in their marketing campaigns which people rely on.”

Kogan admits this is a significant problem. The company, which is only five years old, takes on some big names such as Samsung, Sony, LG and Phillips, and Kogan says the market is already biased against them.

“We cannot compete on brand recognition because these guys are spending millions of dollars and are just putting out their names constantly.”

Instead, Kogan believes the internet gives the company an advantage. While Harvey has shunned online retail in favour of bricks-and-mortar, Kogan claims advertising through blogs and word-of-mouth has helped the company grow.

“We simply can’t afford a disappointed customer because they are out there spreading their message. We need to make sure every single customer we have is given first class service, like responding to them instantly when they have an inquiry online.”

“Years ago the only way to judge a product was brand perception, now, anyone can go online, look up specific technical information and so on. Customers don’t have to take my word for it, they look online and see the reviews out there.”

Kogan says as long as the company touts its “same product for cheaper” line, and provides a good level of service, customers will judge the quality for themselves and continue to buy.

However, Brandology managing director and SmartCompany blogger Michel Hogan says the issue is more complicated than “customers are attracted to brand”. She believes Kogan is simply marketing to a particular demographic hungry for discounts.

“There are so many contributing factors. There is a subset of the population out there that will buy on price, and very little will change their mind. That’s what they’re shopping for. Sure, they may covet brand name, but with economic circumstances or whatever, they go for discounts. And there will always be that market.”

Kogan has certainly cracked that market, with the company saying earlier this year it expected to turnover $17 million in 2009-10. But Hogan says discounts aren’t always the answer, pointing to companies like Apple which refuse to negotiate on high price points.

“That’s not to say that brand names don’t play a role, however… there is always the question that a brand name will increase popularity. This is what Apple has done with the iMac brand, and the iPod. Computers have become commoditised… and so there is room for brand names, but also the discount names as well.”

Heberden agrees with this, but says it’s easier for newer brands to enter the market against brand-name players by emphasising word-of-mouth, especially online.

“Discount brands don’t have to market through great, big television campaigns, but there just has to be a consistency in vision. There should be a message other than the price tag, and once you have people buying the word-of-mouth should do a lot of the work.”

Kogan says he has even challenged Harvey to a live television debate, but Harvey has refused.