One of the highlights of this past weeks PLMA’s 2009 Private Label Trade Show. was the Monday, November 16, 2009 morning keynote address from Scott Lucas, the Executive Director of the Cincinnati based branding agency Interbrand. Scott has graciously provided his entire speech, please take a few minutes to read it through he has some interesting insights.
Good morning, and thank you, Brian (Sharoff), for that gracious introduction.
Interbrand is here today because we believe in the power of brands — all brands, including private label brands. We have a long relationship with PLMA, and with retail and private brands around the world through our work with Stop & Shop, Marks & Spencer and Carrefour.
What I want to share with you today is how in Interbrand’s world of brand development, brand value and brand asset management, we are seeing great activity and great potential for brands — more specifically, private label brands — to use innovation as a way to leverage this intersection of economic downturn and private label growth and thereby gain customers and market share and drive profitability long into the future.
The private label brands that take advantage today of shoppers seeking value and consumers open to starting brand-based relationships, will have the greatest potential to retain these new value-seeking customers long after the economy improves and life returns to normal.
The State of Private Brands
Private label brands are growing faster and getting stronger. Retailers are moving and positioning their private label brands to be more distinctive and premium…and they are supporting them like never before.
At the same time, consumers are no longer purchasing private brands just because of price, although the current economy certainly weighs in on their purchase decisions. Today’s consumers perceive private label products to be of similar quality to national brands — if not better.
Private label brands provide many inherent advantages, relevant products like Nature’s Promise and value without sacrificing performance like Up & Up. As a result, they are becoming much more powerful and winning with the consumer. Private brands also are becoming one of the most important assets to the retailer and the retailer brand itself – driving traffic, sales and overall preference.
Private label share in the United States has risen dramatically across retail channels and product categories during the past two years as consumers struggle with challenging economic conditions. This trend will likely continue through 2009 and beyond, representing an unprecedented opportunity for private label brands.
Many retailers are boosting customer service, value and the quality of their private brands to build customer loyalty and profit. As competition increases for share of the consumer wallet, private label brands are providing retailers with a unique point of difference and the ability to boost overall shopper satisfaction, store loyalty and profitability.
Let’s review some statistics:
The private label market is at an all-time high of $74.2 billion:
- 60% of shoppers are buying more private label products
- 4 out of 5 consumers are “sold” on private label
- 77% of consumers across all income levels believe that private label products are equal to national brands
- Over 1/3 rate private label quality as superior
- 2/3 of consumers feel that store brands provide an “extremely good value”
- 35% are willing to pay more for a store brand vs. 24% for national brands
- Between 1997 and 2005, private label sales grew 64%. National branded sales grew only 30% during the same period
- Consumer habits have changed drastically over the past couple of years in response to adverse economic conditions
- Consumers now rank low price as the most important factor for what/where they buy
- By 2010, U.S. private label food sales will surpass $100 billion and will account for 25% of total food spending
- The economic downturn is estimated to continue up to 5-8 years; even as it eases, consumers are remaining strongly in savings mode
A higher-than-average proportion of younger households buy private labels, which is promising for future private label growth. These new generations will likely remain private label loyalists as they age.
Middle- and high-income consumers are more likely than lower-income consumers to increase private label purchases in the coming year. Shoppers who buy private labels also frequent those stores more often and spend more money when they do.
These trends translate to an unprecedented opportunity for retailers’ brands and a threat for national brands.
Quality & Innovation
Many retailers have “closed the gap” with regard to quality and innovation in their private label offerings. A halo effect is becoming increasingly evident, which leads to increasing acceptance of private labels across all channels. This halo is tremendously valuable, as it not only can encourage sales of that particular private label brand portfolio but also drive traffic into the store and, potentially, increase the overall register ring.
Because private label brands are the unique assets of a particular retailer and retailing brand, each retailer has the opportunity to create an individual experience with their shoppers and, ultimately, for their consumers, through their portfolio of private label brands. At Interbrand, we spend a lot of time and energy working with our clients on understanding the differences between shoppers and consumers. Shoppers make their decisions based on more dynamic influences at retail – we describe this as how one behaves when choosing a brand – and consumers make their decisions based on more learned behavior – what we describe as how people behave when using a product.
Shoppers and consumers can be the same person at different points in the decision-making process. The consumer is at home, in the kitchen using a particular brand of pasta sauce and forming opinions about everything from how the package opens, to how the product smells, to the taste and the all-important test of “do the kids like it.” If that brand and product have a positive impact on that consumer, it goes on the shopping list.
But when the consumer becomes the shopper and is now seeking that brand/product in the grocery store, she has a new set of stimuli and information to contend with – other brands, differing packaging, promotion, price…even down to the shelf-set orchestration.
Will the shopper stick with the same product/brand, or will she make a different decision than the consumer desired?
By creating brands that engage and delight their shoppers in a differentiated manner, retailers can do much more than drive sales: they can drive loyalty to their store and the shopping experience they create. Driving this loyalty is particularly important in today’s economy, which features more limited consumer dollars and greater competition than ever before. Most of the top retailers carry roughly the same subset of national brands, so it is through their own private brands that they can create added value and interest for their consumers.
If you consider that all the traditional marketing vehicles which were once the domain of national brands are now being used very effectively by retailers for their private label brands, the gap has really closed. For example, look at how Walmart has so quickly and successfully built the Canopy brand, with its relaxed living and on-trend styling. At every touch point this brand has been managed in a consistent and emotionally engaging manner, from advertising to online to unique packaging and the in-store experience.
Most national brands would love to have such a consistent and compelling launch of a new brand. But it is Canopy’s synergistic impact that is so exciting; how the brand has helped to further bring to life the “live better” equity of the Walmart brand. Walk through a Walmart, and you’ll notice how the Canopy brand lives and breathes throughout the store.
We like to tell our clients that 80% of a consumer’s brand interaction occurs through the package. First you must consider that the primary role of the brick-and-mortar brand is creating a brand experience and forcing brand choice at the retailer level. However, there is a second, amazing opportunity to connect, communicate and engage shoppers via the packaging for private label brands. National brands simply can’t match this opportunity to combine the forces of both environment and package.
At every step in the purchasing process, retailers have an opportunity to create a unique brand experience and to make a promise to consumers about what a particular product can do for them…to draw the attention of shoppers with branding, package design, retail design and merchandising that truly speaks to them…to show them how, as a store, they are behind this compelling brand. This experience becomes something much bigger than a low price and a list of features that compares a private label product to a national brand.
Frankly, the key to success is “brand” — whether private, retailer, or national, the best ideas are just that, brands, and that is what Interbrand is passionate about. We work on both sides of the branding debate, for national brands and leading retail brands. We start with understanding the consumer and the shopper, to find the idea that truly connects with them, and to create a compelling strategy and plan behind that brand.
Then we use our expertise and people to bring that brand to life at all steps of the process, from the concept to the architecture to the design strategy and the packaging. We address the entire strategic and creative process and all the touch points it takes to bring a brand fully to life.
An essential component of this process is innovation. It is through the use of innovation that retailers are building brand value, shopper excitement and consumer loyalty.
Innovation can take many forms for private brands:
Portfolio Strategy – How many brands do you have? How many do you need? How do they relate to each other? Can they cross aisles? What is the stretch opportunity, and what are the limitations?
Brand Strategy – What is it that your brand stands for in the hearts and minds of consumers? Who is the prime prospect?
Design Strategy – As the brand comes to life, what guides the development of image and identity assets? How do you define your media-agnostic equities that work across all media? Do you have a consistent set of design principles or diverse set of equities across brands and aisles?
Naming – What is the ideal nomenclature, tone of voice and story behind your brand? Beyond the visuals, how can your brand be remembered by consumers and found by shoppers?
Package Design – Packaging is the face of the private label brand, often the lead marketing spend for the brand and the vehicle by which your product becomes the consumer’s brand.
Shelf Optimization – This is the truly unique opportunity for private label manufacturers…to exploit ownership and control of the retail environment to orchestrate the ideal shopping experience.
Merchandising – Taking advantage of your role as retailers to create an advantageous presentation of the private brand to help generate awareness, trial and repeat purchase.
Influencing Choice, Securing Demand
Brands are directly and positively related to behavior. Rather than specifically asking shoppers to change their behavior, brands influence their behavior by informing the choices that shoppers make on both rational and emotional levels. This influence is how brands derive their value. By providing specific contributions to purchase decisions, brands can influence choice and secure ongoing customer demand. When brands contribute to the rise in sales of private label products in a visible and demonstrative way, it is by first creating demand for products that people need and then delivering value and performance. Brands are a unique mechanism to generate lasting change around both attitudes and behaviors. That’s why there is a real opportunity for private label brands to benefit more than national brands from the current economic state. While many retailers understand the need for getting private label products to shelf, not all recognize the importance of taking the extra step of leveraging traditional brand development as a business practice. Through our annual Best Global Brands ranking, which assigns an economic value to the intangible asset that is a brand, Interbrand has proven that taking this step creates true brand value and guarantees a long life for the business.
So my challenge for you is to build your private label brand on a foundation of shopper insights and consumer understanding, leverage all the weapons of the national brands and create meaningful and profitable relationships with customers that will thrive today and survive long after the economy has bounced back.
For more information on any aspect of my presentation, please stop by Interbrand’s booth in the Innovation Hall. We will be more than happy to discuss how investing in your private label brands can help you build brand value and customer loyalty – and ultimately secure sales well beyond the current economic climate.
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