New research published in the Journal of Marketing attempts to explain how national brand marketers can protect market share and better compete with cheaper private label goods. The research further clarifies what every national brand and Private Brand marketer in America could already verify. “Marketing spend is good, more marketing spend is better.” The recommendations the study makes are almost universally true no matter who owns the brand or product. Yet it continues to validate a number of erroneous assumptions:
- Americans know who owns the brands they buy.
- Americans care who owns the brands they buy
- Private Brands are always cheaper copies of national brands.
In economic downturns, consumers are more receptive to the lure of private label packaged goods, which are often priced anywhere from 20% to 60% less than their branded counterparts. Because of consumers’ price sensitivity in hard times, those are the times where private label brands can more easily capture market share. New research that analyzes sales data for products in more than 100 product categories shows how marketers’ behavior during economic upswings and downswings impacts the popularity of private labels. The research, published in the January 2012 issue of the American Marketing Association’s Journal of Marketing, also advises marketers on what they can do to take or protect share.
In analyzing more than 20 years of market share data, study authors Lien Lamey, Barbara Deleersnyder, Jan-Benedict E.M. Steenkamp author of the now classic book, “Private label strategy: How to meet the store brand challenge” and Marnik G. Dekimpe found that national marketers, through their actions in tough times, give ground to private label brands by cutting ad and promotional spending and holding back on product innovations that could help differentiate their products from private labels sold at cheaper prices. “In contractions, national brand promotional activity declines relative to private-label activity, just when brands need it the most,” the authors write. “This results in a significant increase in private-label share in recessions, which subsequently leaves permanent scars on national brand performance.”
The authors say brand manufacturers should try to maintain–or if possible even raise–current marketing spending during downswings because marketing plays an important role in helping protect market share. The authors suggest brand marketers work with retailers to run more price promotions on their national brands or lower prices temporarily to narrow the price spread between branded products and private labels.
The authors say retailers marketing their own private label products are getting it right by expanding retailer marketing and promotional activity in a way that gets their store brands into customers’ carts. They say by getting customers to consume private-label products store brands will gain more customers and it will be difficult for brand manufacturers to win them back, even when the economy recovers.
More of the study’s findings can be found in the article “The Effect of Business Cycle Fluctuations on Private-Label Share: What has Marketing Conduct Got to Do With It?” in the AMA’s Journal of Marketing.