Through a special arrangement, presented here for discussion are excerpts of a current article from Refrigerated & Frozen Foods Retailer magazine.
"Pricing private label off the national brand is simply the wrong way to approach the issue, although this is what everyone does," said Frank Dell, president, Dellmart & Co. It's not uncommon to see a 30 percent gap between national brand and private label, but this gap just gives away private label gross margin, he notes.
Typically, private label pricing should be low when products are introduced, to create trial. Pricing rises as volume builds and share rises, and reaches its highest point (or narrowest gap versus national brands) when volume and share objectives are achieved, said Mr. Dell.
Of course, when you're talking about a commodity product, it makes sense to price it off branded competition, he explains. Don't forget to do to competitive price comparison on commodity items. But in general, Mr. Dell says it's better to price private label off the individual product's strategy or marketing plan. For example, extremely low prices on high quality, unique items simply undermine their quality image.
Derek Smith, VP of retail industry marketing, DemandTec, is seeing smaller price gaps between national brands and private label, with private label also adding more tiers. This allows one tier to fulfill the opening price point in a category, with the other tier playing roughly on par with the national brand or even priced above it.
"You also have to understand what price gap is necessary to get the consumer to trade up or down," depending on your strategy, he adds. For example, you might want to incent shoppers to trade down to your private label, so you get more margin. So... do you raise the price on the national brand, lower the price on the private label, or do a bit of both? Once again, it will depend on your customer set and their purchasing history.
Lyle Walker, VP of marketing, KSS Retail, has seen some of the retailers he has worked with raise prices on their private label without losing sales - thus significantly increasing category profits.
"We build demand models with two years' worth of POS history, and then dynamically adjust elasticity values based on weekly updates of POS data," said Mr. Walker. "I'm not talking a 50 percent increase - it's pennies here and pennies there, but it all adds up."
Discussion question: What do you believe is the approach for a retailer to price its store brands versus national brands to achieve maximum sales and profits? Are there any retailers you believe are particularly adept at this?