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Do private labels represent a sustainable branding strategyDocument Transcript
Position Paper onDo private labels represent a sustainable Branding strategy? By UMA M 11397100 DMS - PU
Do private labels represent a sustainable branding strategy? IntroductionAs retailers have become more powerful and global, they have increasingly focused on their own brandsat the expense of manufacturer brands. Rather than simply selling on price, retailers have transformedprivate labels into brands. Consequently, manufacturers such as Johnson & Johnson, Nestle, and Procter& Gamble now compete with their largest customers: major retail chains like Carrefour, CVS, Tesco,and Wal-Mart. The growth in private labels has huge implications for managers on both sides. Yet,brand manufacturers still cling to their out-dated assumptions about private labelsThe Definition: Private label products or services are typically those manufactured or provided byone company for offer under another companys brand. Private label goods and services are available ina wide range of industries from food to cosmetics to web hosting. They are often positioned as lowercost alternatives to regional, national or international brands, although recently some private labelbrands have been positioned as "premium" brands to compete with existing "name" brands. PrivateLabelled Brands are also called Store BrandsThe Reason for Private Brands – Shift in Paradigm:A recent survey conducted by Perception Research Services (PRS), shows that the vast majority ofshoppers are purchasing some private-label products on a regular basis (86%, on par with the 84% seenin November 2010). This is true across income groups and other types of classifications.The latest datashows that more types of private-label products are being purchased as significantly more shoppersclaim to have bought more private-label products than they did in 2010 (38% vs. 32%), and reportedpurchasing 54% more product categories (7.4 vs. 4.8).High levels of private-label purchases continue for paper products, cereals, cleaning products, and canned andfrozen vegetables. And for the first time, cookies and salty snacks have now moved into the top tier of regularlypurchased private-label products as well.Overall, the largest gains seen for private-label penetration were for:• Soft drinks (carbonated and noncarbonated)• Salty snacks• Frozen meals• Vitamins/medicine• Cookies According to the report, shoppers report feeling good about buying private-label products. Over half (51%) saythey feel smart/savvy when they buy private-label products; and very few (only 11%) say they feel self-conscious,with almost none (3%) saying they feel embarrassed when doing so. In some cases, shoppers are willing to go outof their way to buy some private-label products. This is especially true at specialty stores such as Trader Joe’s and
Whole Foods—known for high-quality, distinctive offerings. This suggests that with the appropriate level ofproduct innovation, private-label products can turn a retail chain into a shopping destination.In many instances, private labels have surpassed a national brand’s capacity to deliver on visibility,consumer interest, involvement and appeal. Proprietary brand decision makers are often able tocommand close to parity or parity pricing for their products, without articulating cost as thedifferentiating factor. This represents a point of departure from the past: there is an acknowledgementthat today’s proprietary brands have the ability to transcend the negative baggage and problems oftraditional store brands, creating unique, resonant benefit propositions for consumers.Retailers are beginning to recognize that they cannot simply rely on national branded products to drawconsumers into their stores and sustain loyalty. This is due to the fact that manufacturers’ product brandsoften have the ability to transcend geographic location, distribution channel or retailer (e.g., Bountypaper towels are available at a wide array of grocery stores, drug stores and mass merchandisers acrossthe United States.) Due to this pervasive presence of national brands, consumers need not have a strongrelationship with a particular brick-and-mortar store setting to have access to these products. It is onlythe proprietary brands, exclusively available at a specific retailer that can be a magnet to draw peopleinto its store versus others and accrue direct meaning and loyalty to the overarching banner.A Brief time Travel of Private Brands:The first age of private label was as a simple, budget purchase for hard-up consumers. In 1919 ayoung demobbed soldier called Jack Cohen used his servicemans gratuity to set up a market stall inLondon. It flourished, but Cohen was ambitious and wanted to sell his own products. In 1924 he signeda deal with tea producer TE Stockwell to sell its tea under his firms brand. Taking the first three lettersof the tea companys name and the first two of his surname, he gave the Tesco name to Britains firstprivate-label product.The second age of private label was a move upmarket. Marks & Spencer began to sell its own productsunder the St Michael brand in 1928. Named after the founder of the company Michael Marks, the brandcame to stand for quality and value to three generations of British shoppers and demonstrated thepotential of private labels to provide more than simply a budget offering.The third age began in 1992 with the launch of Sainsburys Novon washing detergent. Rather thanrepresenting a cheap, budget equivalent closely aligned to the store master brand, Novon was astandalone product. Thanks to in-store promotions, Novon quickly doubled Sainsburys share of thedetergent category and proved that private labels could stand on their own merits.The fourth age marked a period when private labels became brazen in their attempts to replicate andreplace manufacturer brands.The sixth age has seen a shift away from basic store brands toward a brand architecture of privatelabels. The big supermarkets have moved from a simple house structure to use private-label sub-brandsto offer distinct organic, budget, healthy and premium lines – a multifaceted offering that surroundsmanufacturer brands on all sides.In 2007 we saw early evidence of the next step for private labels: category leadership. Asda haslaunched tea bags made from nylon mesh under its premium Extra Special label. These tea bags costabout four times the price of traditional paper ones. Whats important here is that there was nothing likeit being sold in Asda by a big-name brand. Until now, for all their advancement, private labels havebeen second movers: undercutting and improving on big-brand offerings, but always following. Now,
however, supermarkets are using store data, category knowledge and strong supplier relationships tobegin to lead the market.Advantages of a Private Label:Establishing a store brand accords businesses the opportunity of establishing trust between the store andthe client. This is because the client can readily identify the group responsible for branding the product.Additionally, businesses get the chance of making repeat sales through this approach. This is becauseclients will always associate the product directly with the specific store. Furthermore, a particularbusiness can distinguish and differentiate themselves from other competitors in the market placeThere are various advantages for the retailers to go for private label brands. The advantages include Control over pricing of the product/service, Put forth own ideas on marketing plans, Create personalized image which in turn leads to higher customer loyalty, Higher control on production, marketing, distribution and profits, Give their own inputs, additional materials, logos, tag lines, etc. Customers changing preference - drive towards private label products.These points provide an edge over the other brands. Private label brands are available in a broad range of varietiesfrom food to cosmetics. These brands help create a personalized and unique brand for retailers. Retailers withpretty good private label brands will be able to create better sales opportunities for themselves. They can buildvalue and recognition from the customers. Private brand products allow retailers to differentiate their productsfrom competitors products, and provide consumers with an alternative to other brands.The flip Side:However, within typical channels, there are some categories in which shoppers are resistant to buyingprivate-label, as roughly one-third stated they would not buy private-label versions of personal products;vitamins/medicines; or frozen meals. It would seem these types of products represent a bit more ―risk‖ ifthe product quality is sub-par, and in standard venues such as grocery and mass (where most private-label purchases are made), the perceived quality seems lower in these categories.The Road ahead:Every coin has two sides unless it is biased. In the case of Private Label brands there exists fairly a goodchance of success if the following points are considered.Overall Strategy:Overall chain strategy in terms of commitment to quality, breadth of private labelofferings, use of own name for private label, a premium brand offering, and number of storesconsistently enhance the retailers store brand performance in all categories. Also, the extent to whichthe retailer serves a customer base containing less wealthy and more elderly households and operates inless competitive markets improves the performance of the store brand.Pricing Strategy:The everyday low price (EDLP) positioning benefits the store brand but only in lowerquality categories where the value positioning of the store may be better aligned with the priceadvantage of the store brand.
Support Promotions: Retailer promotional support can significantly enhance private labelperformance.Balancing Act:Retailers often use national brands to draw customers to their stores. Retailers whopursue this traffic building strategy usually carry more national brands, deeper assortments, and offerbetter everyday (lower price gap) and promotional prices on national brands. Each of these actionsworks against the retailers own brands, highlighting the important balancing act the retailer mustperform to profitably manage the sales revenue and margin mix in each of their categories. At the sametime, adding a higher quality premium store brand program may mitigate this trade-off.On Par Quality:premium store brands offer the retailer an avenue for responding to the national brandsability to cater to heterogeneous preferences. This appears more likely in categories where store brandsalready offer high quality comparable to the national brands.Product Innovation:It seems as if creating product innovations is the key to success—for retailers toachieve additional growth in those categories that have been met with some resistance, and for nationalbrand manufacturers, who must give shoppers a meaningful reason to pay more for their offerings. Inthe long run, increased innovation will be a winning formula for all.Compelling Brand Voice:In order to have a consistent and compelling brand voice, retailers need tounderstand the contribution and role of proprietary or "own" brands within their business and alsowithin the lives of their consumers. ―Own‖ brand products, branded communication and expressionsshould all be developed in accordance with this thinking.In addition, a clear commitment to superior product, a store environment that furthers the brandproposition and well defined merchandising strategies round out the strategic direction of this retailer.A New Approach to Private Label Branding:In order to be truly successful, retailers must advance from the generic or store brand mindset of the pastto a new private label paradigm. Many retailers have begun to describe their private label brands as―own‖ brands because there is recognition that these proprietary, exclusive offerings are tools thatrepresent momentous power and potential for the retail store.The term ―own‖ brands acknowledges that today’s visionary retail marketers have powerful proprietaryportfolios that they control and manage and there is potential to reap bigger and better rewards by takinga closer look at the way they orchestrate the role and expression of these brand offerings in the eyes ofconsumers in each product category. Those retailers who appreciate the magnitude of this brandopportunity have created a new industry standard in their realm of influence and activity.―Own‖ brands are articulated and developed in a way that they not only fit with the brand promise of theretail store, but if effective, they also give consumer drivers a key point of departure to enhance andcelebrate the overall retail brand proposition to keep consumers coming back for more.
Conclusion:In consumer marketing, brands often provide the primary points of differentiation between competitiveofferings, and as such they can be critical to the success of retailers and manufacturers. Private labelbrands have made tremendous inroads over the past two decades. Although the success of private labelshas been limited to certain product categories and segments of consumers, retailers continue to expandthe domain of private label offerings. In this exploratory study, our objective was to assess how PLBsare perceived in a multicultural context. Findings comprise some main points that are valuable for retailfirms operating in multi-cultural contexts. First, an array of statements is found to be highly associatedwith PLBs image including convenience, youth, economy, reason and simplicity. Some of these items(i.e. convenience and reason) were previously associated with national brands.The real golden era of private labels is only just beginning and manufacturers are glimpsing the truechallenge that awaits them. Brand managers will have to compete against private labels that are cheaper,more premium, more profitable, better merchandised, more trusted and easier to market – and face theprospect of trying to enter categories created, and now led, by private labels.Retail firm may try to encourage consumers to compare the taste of their brands versus national brandsin their campaigns of communication. In addressing the question whether consumers from differentcultures but living in the same context perceive differently PLBs image, the findings of the studysuggest that there are much more similarities than differences of PLB image perceptions. Only twoattribute statements (related to convenience and youth) on eleven are differently perceived byconsumers. This result is interesting in a strategic level because similar image perceptions in amulticultural context allow retailers to standardize their retail offer and communications. This meansthat they spend much less money on communication.Category management and brand management must work together to fuel the marketing strategy. Onecannot replace the other. Both product and positioning points of difference set the ―own‖ brand apart inconsumers’ minds. A consumer-centric approach is at the heart of ―own‖ brand development andelevates above the product-centric thinking of the past.
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