Here is the final post in a series of three from the Interbrand publication “Private Brands: A global guide to the rise of private label brands”. This article from Leigh Bachman, the Executive Director, Strategy and Research at Interbrand discusses Private Brand as a threat to CPG’s. Her article should be a call to action for both complacent CPG’s and retailers.
The CPG industry: Doesn’t it seem like we’ve been talking about the “emerging threat of private labels” for years?
Originally, this threat was due simply to private labels offering a lower price that appealed to price-conscious consumers. Then the threat shifted to private labels encroaching on a brand’s visual equities so that the national brand no longer “owned” its own color, logo or shape. And, more recently, the private label threat has emanated from consumers no longer being ashamed to buy the private label due to improved perceptions of quality as well as the “discount chic” image that retailers like Target have made fashionable.
In fact, private label products account for more than US$ 81 billion (16.2 dollar share) in the US, up 10.2 percent over the past year. And with the country experiencing a major economic downturn, private labels seemed to be poised better than their branded counterparts to weather the storm. In September, Walgreen’s, for example, announced its previous quarter private sales were up 15 percent versus the previous year. In addition to what can already be seen at the checkout counters, new data revealing Americans’ perceptions of private labels seem even more threatening to CPG brands. According to a new survey by The Nielsen Company, 72 percent of consumers believe that private labels are good alternatives to branded products. The same survey said that nearly two-thirds (63 percent) of consumers believe that the quality of the private label brand is as good as name brands and one-third (33 percent) of consumers believe some store private labels are higher in quality than the name brands.
Let’s face it, private labels are no longer an “emerging” threat; they are a daily threat to CPG companies. And as the economy teeters on the brink of Depression with a capital “D,” that threat is no longer something CPGers can afford to look at over their shoulder, or even down their nose — it is front and center.
Yet despite all this, I think CPGers can count themselves lucky that the damage being done to them at the hands of private labels isn’t far worse. For all that private labels have evolved over the years, the private label retailers in the US are still a long way off from having “figured it out” like their Western European cousins have. US retailers seem to puzzle endlessly over what their strategy should be every day, with little progress being made. Should we use a masterbrand strategy across the store, or offer a house of brands? Or a hybrid of the two? Should we look like the national brand equivalent in each category, or have a holistic design strategy across all categories? What about when we offer different tiers – premium, base and value?
Sure, a new and effective private label strategy pops up here and there among the retailers, but for every Publix or Target, there are a dozen retailers that waffle in indecision…thinking they have next year or next quarter to figure it out. But if the train hadn’t already left the station before, it’s clearly long gone now that we are in a full-blown economic recession.
Case in point: everyone has known Tesco was coming to the States for some time, and yet, how many private label retailers have changed their strategy and launched or relaunched their store brands in a revolutionary, game-changing way? Instead, retailers’ waffling and indecisiveness has led to inertia. As sales for private labels increase, retailers are patting themselves on the back for a job well done – but this has not been because of a well-thought-out private label strategy; rather, in spite of one. Private labels have ridden the wave of natural industry forces and most recently a tanking economy, but imagine the tsunami they could be riding if more retailers get off the fence, pick a strategy and implement it with excellence.
I think whether a retailer chooses to pick the masterbrand strategy or the house-of-brands strategy or some other strategy is immaterial, in some ways. Sure, one may work better than another in different circumstances, depending on the overall retailer’s strategy, and we each have our own professional opinion on what that should be. But the more important choice to make, regardless of the strategic approach, is one that leads to compelling and consumer-relevant package design.
No one debates the statistics that at least 80 percent of purchase decisions are made at shelf in the CPG industry. And estimates have put the time spent making that purchase decision from as much as three seconds to as little as one-fifth of a second (the latter being much more likely). So let’s use a little common sense: when you are reacting to something that quickly, are you thinking about all the functional claims the national brand makes, how that brand can really help your life, and how much this lower priced alternative looks like the national brand and might do just as good a job?
Or, in that fraction of a second, is your brain thinking only, “ooh, pretty … I want that,” much like my five-month-old daughter does when she sees a shiny object just out of reach?
I don’t mean to oversimplify what makes for a good, consumer relevant package design, but I think you get my point. Because of the way the brain reacts on instinct, truly compelling design is what can build a brand and motivate shoppers to actually purchase. This phenomenon of human physiology is going to be true for a national brand or an attractively-priced private label. So why shouldn’t the private label brands take a cue from nature and take advantage of design?
Private label retailers need to play by the same rules as the CPGers: Get in the game with package design. Design to delight the consumer, not to try to fake the consumer into believing that because it walks like a duck and talks like a duck, it’s a duck. The consumer is smarter than that. Use design to allow the product to win on its own merits, as a real brand that supports the retailer’s consumer proposition, that actually is good quality and that — whoopee! — has a fantastic price.
In these tough economic times, the bases are loaded for private label brands. Retailers can choose to rely on price and continue to walk in the run or they can swing for the fences with package design.
Executive Director, Strategy and Research,