New U.S. private label research from ACNielsen, Daymon Worldwide, DemandTec and McKinsey, released earlier this month, aimed to demonstrate how retailers can build profitable customer loyalty and competitive differentiation though private label brands.
Key insights (from the portion of the study developed by ACNielsen):
- Retailers with greater focus on private label (i.e., those with higher overall private label shares) are effectively shaping more positive consumer attitudes towards private label products and encouraging more solid buying behaviours as a result.
- While heavier private label buyers offset “branded” spending with private label spending, they are in stores more often, buying both private label and branded products, providing retailers with opportunities to drive store loyalty.
- Heavier private label buyers offset branded spending with private label buying – enabling consumer savings and allowing retailers to compete in a “value-oriented” environment.
- Study findings suggest an opportunity to narrow existing price relationships between private label and branded products.
- Consumers who spend the most at retail have a weaker private label commitment, but these are also the consumers where private label sales opportunities are the greatest – suggesting a need for greater focus on premium private label offerings.
- Private label is no longer limited to the historic buyer profile of low to middle income, blue collar families. Nielsen see high buyer development in households with US$70,000 plus incomes, particularly among households who are top-spend private label buyers who shop in retailers with strong private label commitment.
Consumer Attitudes towards Private Label
Private label is in a position to compete on quality with national brands:
- Up to 85% of top-spend private label buyers say they are a good alternative to brands
- 59% of consumers say they are “just as good”
- One third of consumers state that some private label items have “higher quality” than brands
- 4 of 5 consumers think private label products are acceptable when quality really matters
Improvements to private label packaging are paying off:
- Even low-spend private consumers have a positive image of packaging
- 9 of 10 consumers say they feel comfortable serving private label to their guests
Consumers have positive attitudes towards private label’s value proposition:
- 2 out of 3 consumers believe private label is “an extremely good value”
- Consumers feel that private label is no longer for ‘lower income’ families
- 73% of consumers do not think brands are worth the extra price
- 36% are willing to pay the same or more for private label items they really like
- About half of consumers compare private label prices between retailers
Opportunities to expand private label assortment:
- Almost half of consumers state they would buy more private label products if a larger variety was available
ACNielsen’s recommendations as a result of the research:
- Private label provides retailers with the ability to compete in a “value-oriented” world & drive store loyalty
- Stop thinking about price gaps & start aligning private label pricing to reflect the quality of your private label offerings
- Expand or enhance your private label products to target demographic segments & attract most valuable shoppers
Encouraging news if you’re a retailer. But if you’re a branded product manufacturer, the news seems grim. How did this happen? What can be done? Australia’s Assent Consulting tackled the issue three years ago, in an article in their FAST journal of October 2003:
Clearly the branded manufacturer’s position is not as strong as it was. How did this happen?
There are a number of reasons.
- Manufacturers haven’t really mounted a response to economy category generics. Many have simply gone into denial; it is still not uncommon to hear complaints along the lines of “It’s not fair – the battle for the consumer is fought in-store and they are giving their brands disproportionate shelf, time and focus.We can’t compete with these margins!”
- It has been put in the too-hard basket.
- Marketing has, in many cases, foisted it onto Sales,and vice versa.
- A number of manufacturers have believed their so-called strategy was to make Private Label themselves. (The Harvard Business Review of 1996 said quite clearly, “If you aren’t making Private Label now, don’t start”.)
- The decline and fragmentation of traditional mass media – in both reach and effectiveness – is an acknowledged cause. It is no longer easy to plant authoritative messages in consumers’ minds with an obvious ROI.
- A lot of manufacturers believe that the aspirational quality, emotional benefits and image cues they have built up through years of advertising can never be replicated by Private Label – yet the introduction of Private Label into mainstream categories is challenging this. Most at risk, consequently, are second and third tier brands since they lack these image and quality cues.
So what can be done?
There are several strategies, most of which are not new. However, the six reasons outlined above, as to why it happened in the first place, contain the real answers to the problem. In many ways, retailers are simply a strong competitor who is brilliantly copying established innovators. So, the solution is clear – more product and sales innovation, more quickly, to a higher quality. Radical strategies such as diversification into new channels, or NPD, will then back up traditional brand strategies.
However, denial, the too-hard basket, Sales versus Marketing, arrogance as to brand strength, as well as lack of insight as to consumers’ real view on large companies (particularly overseas ones), have allowed a succession of marketing directors to ignore the problem. Here’s how to start the comeback.
Brand management versus product stewardship
If the category is full of products with no emotional benefit, no aspirational quality and therefore no image, it is obviously at risk from (1) any kind of competitor and (2) strong retailers in particular. Therefore, brand strategies (not line extensions, sales strategies or a few hastily cobbled together promotions) are essential. This means that good brand managers must have a good process, and rather than ducking, everyone in the organisation above their level should support them in addressing the opportunities and threats they have identified.
Portfolio strategy to support brand strategies
Brand strategies must be complemented by portfolio strategies. A typical CPG category contains six large sub-categories.
- First, there is the super premium category – probably not large volume in grocery, very profitable, generally imported.
- Then there is premium –while marketers are busy making this, the salesforce are often busy getting it on frequent and deep discounts so that it can become mainstream. While this tactic has merits in encouraging trial and shifting lots of pallets, it has to be done sparingly. The premium category will have a good price premium, may have authentic local cues or may be from overseas. It will be chockablock with real (emotional) brands.
- Then comes mainstream. Often the largest, again contains good strong brands with good blue-collar socio-economic cues, sensibly priced, often discounted. This category can be very cluttered.
- Value is another often cluttered category.
- Next is economy which is the heartland of the original Private Labels. Its cues: large pack sizes, ‘buy one get one free’, banding together of packs. The consumer who regularly buys only on promotion is particularly strong at this level.
- Finally, there is sub-economy. Budget and No Frills are familiar brands here. Until now, only the courageous have shopped at this level, or people who are or have to be genuinely bargain-obsessed.
Many manufacturers simply don’t segment in this way. While it isn’t the only segmentation model that should be used, it is the most fundamental model for running health checks on your category.
If you don’t have real (emotional) brands playing in all these categories, you will be under attack from any kind of competitor. It follows that if you play in economy, you must have an economy brand, and if you play in mainstream, you must have a mainstream brand. Brands are often associated only with premium categories. Not so. Some of the world’s most powerful brands sit in mainstream. It can be argued that McDonald’s, for example, sits across mainstream and value categories.
Winning in the portfolio, and in the category
So, it is essential that as well as having a portfolio of brands across the key categories, you have brand strategies in each. You can be as aspirational in lower-value categories – for example, I am a thrifty Mum – as you can be in premium or super premium – for example, don’t I look good eating, drinking this? If branded manufacturers do not field a brand in the value or economy category, a competitor (retailer) will!
The good news, from a strategic perspective, is that retailers are copying the established leaders. True, they may be playing unfair in-store with shelf space, facings and obvious priorities. True, they are now advertising. But they are copying. So, if they have copied product quality, if they have copied packaging quality, if they have copied advertising, then obviously the way to address this must be – to borrow from Edward De Bono – sur/petitious. Sur/petition is leaping over the competition.
If your next sur/petitious idea is not around yet, getting it should be top priority. How about a new processor manufacturing technique that gives some capability, that will take at least three or four years for the competition (including the retailer) to copy? A core competence in generating better creative is much more likely to succeed than “Let’s hope this year’s advertising does the trick”.
If you have not yet discovered an emotional benefit to build on the functional benefit of your product, this must also be top priority. For example, if your product genuinely does taste better, it’s time to turn up those messages about discerning consumers, how the difference is important, and get into competitive advertising/communication. If you believe that value (the functional benefit – “I buy it because it saves some money”) will help you build a sustainable strategy, then bring in an emotional value benefit now. Emotional value cues come as: nurturing, being clever with money, stretching the budget, being a good Mum, getting one over on the big boys.
Sounding too hard?
Already, this will be sounding too hard. Most strategies in CPG are too hard. By definition, CPG is so intensely competitive, with such low barriers to entry, such focus and reliance on a few key retailers, and such established manufacturing technology, that keeping your brand different and real is always in the too-hard basket!
Think of it as seeds and harvest. By continuing to brand-build the way you have for a few key brands with budgets concentrated on these and no alternative form of brand development, firms are in effect continuing to harvest the ideas built many years ago.
Retailers still get us in-store
True, there is little sense in forward-thinking marketing strategies being put in place if you don’t have talented key account managers to keep banging the drum. Key Account Managers need to be involved at the portfolio level of strategy. They need to be goaled, motivated to prevent down-trading from premium to mainstream, and so on. They need their own strategies and tools to persuade retailers of the (obvious) benefits of true emotional brands.
We can do this
As with so much marketing, this article basically recommends that the strategies that have worked so well in the past should be reviewed and re-engineered. Where it goes one step further is in the urgency that is required. If brands cease to own (through continual innovation) every aspect from flavour/efficacy/performance, to aspirational image/quality, to the way they dialogue with consumers, the industry will change irreversibly towards store brands. There will be more CPG people working for retailers, there will be fewer second and third tier brands and SKUs on the shelves, and the consumer will become loyal to their retailer brands.
Is this really something that CPG CMOs can continue to put in the too-hard basket?