PLBuyer: Beyond National Brand Equivalent

Discussion
Oct 19, 2007

By Denise Leathers

Through a special arrangement, what follows is an excerpt of a current article from Private Label Buyer, presented here for discussion.

For years, retailers have touted their private label products as “national brand equivalent or better.” But until recently, they’ve been a lot more “national brand equivalent” than “better.” Oh sure, the Wegmans and Trader Joe’s of the world have been beating the national brands at their own game for as long as anyone can remember. But the rest of the retailing community has been slow to jump on the bandwagon. Why such reluctance to stray from the national brand standard?

“Retailers were afraid shoppers wouldn’t understand the [private label] product proposition if it didn’t mirror the national brands,” answers Michael Kelter, director of marketing in the consumer division at Nice-Pak. In the past, he explains, retailers didn’t have the advertising budgets – or the marketing savvy – of large CPG companies to educate consumers about individual private label products. Nor did they have the category-specific expertise necessary to create store brand products with unique features that might appeal to consumers. But that was then.

“‘Compare to’ doesn’t mean anything to consumers anymore,” claimed Lori Katz, VP of Epsom Salt Plus. “It’s just expected from store brands.” If retailers want shoppers to choose their store over the one next door, “your private label products have got to be better than or different from the national brand because anyone can do me-too.”

Indeed, savvy retailers are now using private labels more to differentiate themselves from the competition and make a statement about quality. And that whole low-price thing never really made much sense in the first place, said Larry Wilhelm, owner/president of Custom HBC. First of all, the price advantage disappeared as soon as the national brand went on sale. And in categories like hair care where there’s already a strong collection of value-priced national brands, there’s simply no room in the marketing mix for less expensive national brand equivalents.

Putting your name only on lower-priced alternatives to the national brands also sends a message that often contradicts what higher-end stores in particular want to say about themselves. “At best,” said Steve Fay, EVP and sales team leader at Berner Foods, “you miss a substantial opportunity to communicate your marketing strategy to the customer. At worst, you confuse customers about what your store is all about… Store brands have gone from being used purely for their economic merit to helping market the total store image.”

That’s one reason Mr. Fay suggests retailers eliminate the premium private label tier currently used to house “unique” or “upscale” store brand products in favor of a single program that offers high quality at reasonable prices. Such an approach “maximizes shelf space, makes the set easier to shop and sends a clear message to consumers that their retailer stands for quality.”

Discussion Question: To what degree are low prices still a requirement in driving private label sales? Do you think premium/value tiered pricing in private labels should be eliminated? Do you think a single program of high-quality/reasonable-priced products sends a clearer branding message to customers?

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12 Comments on "PLBuyer: Beyond National Brand Equivalent"


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Janet Dorenkott
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Janet Dorenkott
14 years 7 months ago

Customers expect low prices when choosing a private label. Price availability and brand name…private labels don’t have a brand name. If they manage their inventory well, they can make sure it is available. If the customer does not have the impression that the product is better, then the price better be lower. That is what is expected. I think companies trying to change that image will have a tough time.

Doron Levy
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Doron Levy
14 years 7 months ago

The whole core premise behind private label’s existence is that they are a lower priced alternative to brand names. Removing the price point factor may hurt some labels while others may see flatlines in sales. I do agree that some house brands such as President’s Choice, Life Brand and Safeway’s O Organic probably exceed the name brand in terms of quality. I also see a trend in offering products with no brand name alternative. In those cases I would say there is no rule in price point matching. But generally speaking, private label needs to grow its market share and the way to do that is through aggressive price lines and shelf exposure.

Warren Thayer
Guest
14 years 7 months ago

Unless my zip code was 90210, I’d still want a value tier in my private label program. But obviously, at long last, retailers are making strategic use of high-quality private label as a marketing tool to enhance their image. Look at Costco and the cult-like following of Kirkland Signature. It helps make Costco a destination, and does a great deal to help Costco brand itself in the marketplace. Finally, some good CPG-style thinking at retail. I don’t know why it took so long, except that perhaps the wrong people were in place at the top.

Dr. Stephen Needel
Guest
14 years 7 months ago

I’m not sure where Mr. Fay gets his information that a single PL product line “maximizes shelf space, makes the set easier to shop and sends a clear message to consumers that their retailer stands for quality.” None of this is necessarily true. As the two before me have noted, and I’m sure those after me will write, PL is about value. It can be downscale value, like many paper products where low price is the key, or it can be upscale value, like President’s Select in Kroger, President’s Choice from Loblaw’s, etc. Value is independent of real price–it is dependent on relative price.

Sue Nicholls
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Sue Nicholls
14 years 7 months ago
Private Label strategy depends on the target consumer coming into the store. For retailers that are targeting large, mid-income families with kids, a private label strategy with the lowest price in all categories may be the right one. But for retailers that are targeting higher income, smaller household families, a quality element may need to be tied in. Based on this focus on different consumers, private label can and should have different tiers (that are merchandised differently based on consumer demographics for each store). But it should almost always be priced below the comparable national brand–even if by a few cents. As noted in the article, when national brands run prices that are lower than the private label comparable products, it literally “kills” the sales of the private label for that week. The important thing for retailers to consider is what the profit implications are on the total category when they “lowball” the price on a national brand item. If they are making little or no margin on the national brand, and then the sales… Read more »
David Biernbaum
Guest
14 years 7 months ago

It is a mistake for the private label industry to attempt to find a one-size fits all answer for how private brands should be positioned. Different retailers have different marketing images to uphold, and private label should always be a restatement of the very image being portrayed by the individual retailer.

In as much as it makes tremendous sense for an upscale retailer to market premium private label brands as its main strategy and course of action–for example, Trader Joe’s–it makes every bit as much sense for a mainstream middle-road retailer–such as Kroger or Safeway–to provide simply everyday national brand equivalence at a value-cost. However, a retailer that wants to make a “price” statement as its main point of difference should provide very low cost private label on an every day basis to reinforce that image–for example ALDI. In the later case, the quality actually remains part of the statement, image, and reputation.

In any case, private label should be treated like a real brand with appropriate marketing, fanfare, and promotion.

Lee Peterson
Guest
14 years 7 months ago

A great example of not having to “sell out” in terms of private label is Safeway’s O label for organic products. Their p.o.v. is that people will pay a premium for something that’s important and good for them, and of course, they’re right.

An ancient example is The Limited’s foray into their own brands in the 80s: Forenza and Outback Red. Both were extremely viable and highly profitable because they offered timely fashion and could charge a premium for perceived value.

Given these examples as precedence, certainly other retailers can do the same. It’s not about generic–it’s about the strength of your own brand.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
14 years 7 months ago
In the mid-80s, during the popularity of “generics” during the recession, manufacturers ran out of low-grade product to package with black-and-white labels. They had to substitute “fancy” grade and eventually “extra fancy” grade. It’s simply the law of supply and demand. (In the early days of generics, I was the guy who had to deliver a free case of the customer’s preferred brand when she found a grasshopper or a rock in her can of generic green beans.) This concept is true today regarding private label (which “generics” were). Consumers can never be sure that the next can of store brand green beans will be exactly like the last. An example is Trader Joe’s “Two-Buck Chuck” (Charles Shaw) wines. Customers rarely find the exact same vino in the exact same bottles the next time they buy. It’s a crapshoot. Private label ice cream? The amount of over-run (air pumped into the mixture) varies by the price of raw materials. When butter prices go up, more air is pumped in. Whey solids are increased when the… Read more »
Ted Hurlbut
Guest
Ted Hurlbut
14 years 7 months ago

I believe there’s a place for premium quality private label programs. Opening price point programs establish price competitiveness with price shoppers, but there is a lot to be said for building store banner equity through carefully developed premium programs that appeal to a quality and cachet consumer. Of course, the devil is in the details. Building these programs takes time, marketing commitment and a dedication to the highest quality.

Building store banner equity, regardless of the retail format, is critical to any retailer’s success. It’s no longer enough to be known as an outlet for national brands. Building store banner equity is critical to differentiating a retailer from the competition. Premium quality private labels programs have a role to play in that effort.

Brent Buttolph
Guest
Brent Buttolph
14 years 7 months ago
By focusing solely on price you are missing key components of the value proposition of private label, tier strategy and market differentiation–Quality and Innovation. Consumer decisioning with any product is not based solely on price and neither is a properly executed tiered-strategy…not sure where Mr. Fay is seeing a retailer abandoning the premium tier, but my guess is that it is not a retailer many would want to emulate. There are many examples of truly premium and unique offerings in the marketplace from retailers other than the niche player’s like Trader Joe’s, etc. Look beyond ‘center store’ and you will find ‘traditional’ retailers such as Safeway and HEB dominating if not outright replacing national brands in all tiers…and we will continue to see more pervasive examples of these new and innovative premium offerings in center store from market leading FDM retailers. I think a more compelling question to ask here is “why do retailers (or consumers) need more than one national brand in the majority of center store categories anyway?” Agreed that it has taken… Read more »
Mike Blackburn
Guest
14 years 7 months ago

Can’t argue with any of the above. But, we’ll soon see what Tesco has to say about building private label brands in the US. A key element of their growth in the US will be built upon their private brands, representing a much higher % of a store sales than the typical 20%. They are even bringing in their own suppliers from Europe.

Mark Lilien
Guest
14 years 7 months ago

The phrase “private label” has different meanings to different folks. To many, it simply means “the lowest cost commodity.” To others, it means “a permutation not found in any other store.” To some it means “we copied the dominant national brand.” A single retail chain can use 1 or 2 or all 3 meanings.

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