Winning the War Against Private Label Brands

The market landscape is changing as the availability and quality of retailer brands continues to increase. What can national manufacturers do to win the war in the mind of the consumer and in the market? A focus on regaining "share of mind" and on controlling the multiple "moments of truth" in the consumer experience can make the difference between winning and losing the war.

Private label brands continue their relentless march towards market acceptability. In the minds of consumers, the line of demarcation between national brands and private label brands becomes increasingly blurry, driven by a combination of the economy and the quality of the offering. To wit, from a recent Ipsos survey, 7 out of 10 shoppers believe private label products are as good as, or better than, national brands in the same category.

Given that on a typical supermarket trip to purchase grocery and household items consumers can save up to 30% by purchasing store brands¹, is it any wonder that based on the same Ipsos survey 4 in 10 identify themselves as "frequent" store brand shoppers?

In the U.S., unit share of store brands is approaching 20%². Share is increasing across all categories, Walmart is relaunching its Great Value brand with 80 new products and 750 reformulated products³, and Safeway grew its O Organics line from $150 million in 2005 to a projected $400 million in 2008⁴ and is offering it to other retailers. The question is no longer whether or not private label brands are going to be a threat to national manufacturers. The question is: will the US evolve to more closely resemble the UK where, for example, private label already makes up more than 50% of Tesco's sales?⁵

Why Some National Brands are Losing the Battle

There was a time when national manufacturers clearly had the upper hand on retailers when it came to the shelf. There were relatively few (as compared to today) products available within the grocery segment. Those products carried brand names that were familiar to consumers, with strong equity perceptions driven by a consistent advertising presence. And as consumers, we obliged national manufacturers by gathering around our television sets on a nightly basis to select from one of the three available channels.

However, over time, that landscape has changed, and power has in many ways shifted to retailers:

• The proliferation of close-in brand extensions and the ever-increasing need for shelf space at the retailer have resulted in two unintended consequences. First, brand equity for many products has been diluted, as now a brand is being asked to stand for many benefits instead of just a few. Second, the business model of retailers has shifted to reflect the importance of slotting allowances, meaning they are now in some cases as interested in selling shelf space as they are in selling products.
• In parallel, private label brands have become more attractive to retailers. Margins on retailer brands are 8 to 10 percentage points higher than what they make on national brands⁶. As well, the quality of private label has improved (sometimes driven by national manufacturers using plant capacity to produce store brands), making them a less risky option for consumers than in the past. In fact a certain `cache' is now associated with shoppers of all socioeconomic classes who are smart enough to take advantage of value products.

National brands no longer enjoy the easy leverage created by traditional mass media advertising. The multiple, fragmented, self-selected sources of information available to the consumer today reduce the ability to deliver a singular message to combat the infringement of private label competitors.

To reclaim the high ground from retailers, national manufacturers need to focus on regaining share of mind from store brands and on controlling the multiple moments of truth.

Regaining Share of Mind

Clearly, there has been a convergence of perceptions between national and private label brands. As the Ipsos survey results cited previously in this paper indicate, it's not that consumers are lowering their expectations - it's that private label products have raised their game. The truth is, from a functional perspective many private label products are as good as products from national manufacturers. If overall quality is at parity, the competition turns into a pure price play. This means that national brands have to own the emotional component of the purchase decision to create meaningful differentiation and avoid consumers relying solely on price comparisons to make their decisions.

By focusing on what Ipsos would describe as both the "body" (function) and "soul" (emotion) of the brand, national manufacturers can:

• Emphasize and differentiate via the added emotional value they can provide
• Communicate personality and prestige benefits, beyond the product function
• Forcefully communicate what makes a brand better
• Create a compelling total brand experience

The challenge, particularly in today's economic environment, is that these messages must be communicated to consumers on an ongoing basis. Historically, this has meant consistent national advertising; however, some companies (Kellogg and Reckitt Benckiser are two recent and public examples) have determined that online activities have "high enough value relative to cost to be a meaningful part of their media mix."

Further enhancing the total brand experience through various promotion and participation touchpoints, both electronic and tactile, can also help to build the brand's relevance. Regardless of the approach, without consistent communication it is very difficult to create relevant differentiation, or to reinforce the emotional brand drivers. Advertisements are a tool seldom if ever pursued by a private label brand. However, recently both WalMart and Target have been ramping up their retailer brand advertising support - clearly a call for action from national brands.

However, recently both WalMart and Target have been ramping up their retailer brand advertising support - clearly a call for action from national brands.

By creating and reinforcing this emotional connection with consumers, national brands gain in two areas. First, they increase their share of preference versus store brands, increasing volume. Second, they reclaim the right to charge a premium for their brands, as consumers realize that products are less a commodity than they might believe today.

Multiple Moments of Truth

Much attention has been paid to the first moment of truth - when consumers are looking at a grocer's shelf and deciding which product to select. Private label brands have thrived in this environment, mimicking national brands and defining the terms of the competition via lower prices. However, national brands have an advantage in that they can move that moment of truth earlier in the process with their advertising. Much as college athletic programs have early signing periods, national manufacturers should look at the shopping list as their opportunity to gain an early commitment - or at least maintain a prominent share of the considered set. To the extent that an increased number of consumers are using shopping lists in the current recession, the shopping list becomes an even more important battleground. Getting your brand name on the shopping list is no guarantee a consumer will purchase your brand, but it certainly is an indication they intend to. The shopping list becomes one of the call-to-action outcomes of effective advertising, promotion and brand experience. It means that the private label product probably has to be better than, not just as good as, the national brand. The bar has been raised.

However, a focus on the shopping list does not in any way lessen the importance of point of purchase for national manufacturers. In-store promotion and merchandising programs, as well as packaging, are all tools at the disposal of the national manufacturer for both swaying consumers and communicating value to retailers (through driving store traffic). That said, though national manufacturers spend countless dollars and man-hours on early stage innovation and product development, often packaging and promotion get less attention than they deserve.

To have an advantage at shelf, national manufacturers should consider:

• Developing products with a relentless focus on competitive context and advantage - what products will be on the shelf next to it (including private label products, which are often ignored during concept or product testing), and what steps are required to influence the consumer purchase decision.
• Increased attention to the growing importance and power of packaging, including readily identifiable branding mechanisms and attention to the impact packaging has on generating visibility and persuasion in addition to structural / functional aspects.
• The number of brand extensions available, and the potential those extensions have to dilute perceptions of brand value. Consideration might be given to pruning bloated product lines.

Defeating Private Label with...Research?

When the economy was growing at a brisk clip, the threat of private label products very much lay dormant. The fact that national manufacturers didn't focus on them was of little consequence. But now that the weight of price within the product selection hierarchy has undoubtedly increased, the threat of private label has come to the forefront.

Research tools need to keep pace with this threat, with increased emphasis given throughout the entire innovation process to:

• Emotional Brand Drivers: Utilizing a bottom-up approach to brand equity measurement (such as with Ipsos PERCEPTOR174Plus) allows for an understanding of the contribution of functional versus emotional benefits within your specific product category. Our experience suggests the mix can vary dramatically across categories.
• Competitive Context: Looking at concept acceptance and product performance within a competitive context (such as is seen with Ipsos DESIGNOR174 for forecasting or PACKEvolution174 for packaging testing) insures that consumers consider national product introductions in relation to private label, not just in relation to other national brands (or in isolation, as is seen in monadic testing).
• Selectively Extend Brands: Having both a short- and long-term brand extension strategy (driven by a tool such as Ipsos BRANDStretch(TM)) built upon selected drivers of brand equity insures that the brand maintains a meaningful, non-diluted point of difference from private label.

National Brands Can Win the War

In the US, national brands are at a turning point. Will private label market share stabilize, meaning business as usual? Or will the US become more like Europe, where private label has begun to define the product landscape and national brands have to look at alternatives to mass distribution to maintain shelf presence at individual retailers?

It is worth noting that recent meta research by Professor Gerry Tellis of USC's Marshall School of Business suggests that the sales `bounceback' after previous recessions for national brands never quite returns to prior levels - essentially indicating some long term continuous leakage to Private Label.⁷

Grant McCracken, Ph.D., author and member of Convergence Culture Consortium at the Massachusetts Institute of Technology, has posited that there are a number of reasonable directions consumer habits will take as we have entered and ultimately emerge from this economic downturn⁸:

• Demand is scaled back, but consumer priorities are unchanged. We buy all the same things, just less of them, and ultimately our purchase habits return to their pre-recession form.
• Demand is scaled back, but consumers pick selective luxuries. Consistent with the type of trading up behavior in which consumers have historically engaged, they continue to look for indulgences. Again, this scenario presents minimal risk to national manufacturers.
• Consumers engage in a balanced pattern of buying down and trading up. A pattern such as this one seems more permanent in nature, presenting opportunity for some national brands and tremendous risk for others.
• Consumers develop a permanently changed set of priorities. This has the greatest potential to impact national manufacturers, and argues that they need to be diligently looking for the emotional connection to become one of those priorities.

None of us know which of the aforementioned scenarios will play out (or whether some not-as-yet-contemplated scenario will come to pass). However, through emotionally connecting with consumers, focusing on multiple moments of truth, and having specific brand extensions strategies, national manufacturers do have the ability to create a playing field tilted in their favor.

¹PMLA Press Advisory, March 2009 ²IRI Times & Trends, January 2009 ³Maestri, Nicole. Reugers, 3/16/2009 ⁴Hughlett, Mike. Chicago Tribune, 11/21/2008 ⁵Birchall, Jonathan. Financial Times, 3/16/2009 ⁶Hughlett, Mike. Chicago Tribune, 11/21/2008 ⁷Tellis, Gerald J. ARF Convention: Re:think 2009, March 2009 ⁸McCracken, Grant. 3/2/2009