This is the final post in a three part series of guest posts from Rob Wallace the Managing Partner, Strategy at Wallace Church, a Manhattan and San Francisco based brand strategy and design firm working with both private and national brands such as Target, P&G, Whole Foods, Nestle, Coca-Cola, Bacardi and Dell.
What’s Different, What’s the Same, What’s Next?
Private Brand: Leadership Through Innovation
Rob Wallace
In the past, game-changing innovations have been, for the most part, the province of big CPGs. They have the experience and the money to invest in trend forecasting, consumer research and product development. To a great extent, large CPGs have been forced to innovate in order to maintain margins and slow the ongoing erosion of sales to Private Brands. Now Private Brands are creating new brand experiences and building new-to- the-world product innovation. The Private Brand-focused retailer has several essential advantages over CPGs that will continue to fuel this transition.
What’s the Same: Perceived Differentiation Drives Market Share
The most successful brand innovations so effectively identify and tap into an unmet consumer desire that their brand experience is perceived as being proprietary to that brand, making it much harder for others to copy. Iconic brands like Ipod and Swiffer own more than 70% of their respective market share because they somehow “own” their unique experiences, even though their competitors’ products do much the same things.
No longer the fast followers, Private Brands are now taking the lead in innovation. OfficeMax , for example, has adopted a truly fashion-forward innovation strategy for DiVoga, their file organization suite brand. Rather than change the design once a year, like competitive CPG’s, they update this brand offering every season. Mike Kitz, OfficeMax’s Vice President of Brands and Product Development , states:
“The decision to change DiVoga’s design three times a year was driven by a consumer insight. Many women want to refresh their office environment, and we listened. CPG brands are not achieving this pace. “
What’s Different: Research vs. Real World
When it comes to the new product innovation process, Private Brands have a distinct advantage. CPG’s have higher success hurtles, tougher barriers to entry. Because CPG’s often manufacture their own products, a large capital investment and a long-term commitment to growing the brand is required at the onset. CPG’s almost always do exhaustive, time consuming and expensive BASES testing and both qualitative and quantitative consumer research. They spend this time and money seeking assurance that their brand premise is relevant and their large and long-term investment is warranted. Unfortunately, the results of these tests often do not accurately reflect how the new brand will fare in the real world.
Brand-driven retailers, on the other hand, are much more nimble. They are often closer to their consumer, can more quickly develop a product, find a partner to produce it (often without a long term commitment) and get it in their stores– the ultimate research scenario where consumers vote with their dollars. The Private Branding process can be significantly faster and more efficient. Because its relevance is tested in store, a Private Brand’s initial success results are more accurate, unequivocal and projectable.
The smartest retailers are using this real world proving ground to launch both incremental innovations (significant improvements over existing brands), and in a growing number of cases, new-to-world innovations. Retailers are also more fully supporting their innovations with an integrated marketing communications platform including national advertising, in store communications and viral marketing.
What’s Next: Private Brand Leadership
The next generation of billion dollar brands will not come from traditional CPGs but from their brand-focused retail counterparts. Value-seeking consumers may have fueled the recent growth in Private Brands, but as the economy rebounds, the most progressive Private Brands will develop innovation and own leadership at every value tier. I foresee the Marks & Spencer model invading our shores where innovative, fast moving Private Brands will represent close to 100% of a specific retailers’ product offering. But this leadership requires an investment in true radical innovation not simply incremental product improvements. The future belongs to those retailers who take the fullest advantage of their immediate access to their customers, their fast response to emerging needs and their continued commitment to Private Branding.
What’s Your POV?
You are invited to participate in this on-going dialog by adding your comments. Only with shared insights will processes advance. Your insights are critical to its success, so please contribute.
Other posts in the series:
Private Brand: Hierarchies & Architectures
Private Brands: What’s Different, What’s the Same, What’s Next?
Christopher Durham
Latest posts by Christopher Durham (see all)
- Fifty2, The MPB Project: Sears – Kenmore – May 16, 2013
- Durham & Seelert To Present Walmart SIGHTLINE At PLB360 Conference – May 16, 2013
- Woolworths South Africa Redesigns Slimmers Choice – May 15, 2013
Terrific insight. It should be noted that retailers are not only closer to their customers, as you point out, but their customers are a more closely knit market than the broad national market that CPG manufacturers must address. Further the cost and risks of tooling up to manufacture the smaller quantities required for a private label product are less than those faced by national brands. All of this supports your argument that private brands will continue to grow in their leadership role.
However the number of retailers capable of building billion dollar brands is probably limited.