Patrick Rodmell's Private Label Buyer Guest Commentary - Key No. 3: Effective Pricing Strategies

1. PLBUYER MARCH 2011 The Ten Keys to Private Brand Success
Guest Commentary
BY PATRICK RODMELL
3
THE 10 KEYS TO
PRIVATE BRAND SUCCESS:
KEY NO. 3: EFFECTIVE PRICING STRATEGIES
Too many retailers leave money on the table by selling private label too cheap.
H
ave you heard the expression, The key is to remember that
“the most expensive lawyer I shoppers don’t make price
ever hired was the cheapest comparisons between private
lawyer I could find?” Maybe you labels like they do with national
haven’t, but I’m sure you get the brands. Ask them the price
point – value isn’t defined by price difference between private label
alone. This holds especially true laundry detergent at two grocery
for private brands, a fact that leads stores and they won’t have a clue.
us to the third key to private brand But if your Tide pricing is $1 off,
success – Effective Pricing Strategies. look out. In other words, retailers
Getting prices right on have more wiggle room on pricing
everything they sell – private of private label.
label and national brands – is the While in many product categories
Holy Grail for retailers. When there is room to close the price
this happens, consumers are gap, maintaining a healthy price
comfortable with the value equation difference to the national brand is a
and margins are maximized. But key driver of private label product
when a retailer gets undercut on trial. That said, there are a number
the price of milk, bananas, Coke or of product categories where private
Tide, you can see the smoke coming label sales work against typical
from the executive boardroom. price elasticity modeling – in other
While national brand pricing words, volume can go up when
issues are mostly a result of prices the price gets closer to the national
being too high, pricing issues with brand. Some of the questions
private label are quite the opposite that help determine where these
– they’re often priced too low. The opportunities lie include:
result is margin left on the table and, • Is there a dominant national
in extreme cases, even reduced sales brand leader in the category? If so,
as consumers don’t believe that a it’s tougher to close the gap on price. Packaging plays a major role in private label image, and the ability to price right.
product that costs so much less than • Is the primary consumer benefit
the national brand equivalent can be in the category of a functional the connection between strong criteria above and redesign the
of comparable quality. nature? In these cases, if you can branding and package design, and packaging, focusing on improving
induce trial (and your private brand the ability to improve private label the quality image and highlighting
The 10 Keys to delivers on the function), you’ve got margins. How many examples key features and benefits, then
Private Brand Success: room for margin. can you find on the shelf where apply a nominal increase. Done
• Does the retailer’s overall brand the private brand packaging is right, sales volumes should increase
1. Strategic Brand Positioning have positive equity in the product truly on par with the national even with the reduced price gap.
2. Product Quality Management category? This usually presents an brand competitor? If the quality Too bad we can’t test drive
3. Effective Pricing Strategies opportunity for a smaller price gap. perception delivered through the lawyers.
There are many price optimization package doesn’t measure up, the
4. Communication of
tools out there that can help opportunities to take advantage Patrick Rodmell (prodmell@wattintl.com) is
Purchase Drivers
with the science behind pricing. of margin that’s left on the table President and CEO of Watt International, a
5. Process Engineering But quite often it’s the factors disappear. Toronto-based integrated retail agency with
6. Product Innovation beyond the science – brand equity, All that said, price increases more than 40 years experience in more than
7. Performance Measurement package design, and quality need to be managed very carefully. 40 countries around the world. The com-
8. Associate Engagement perception – that have the greatest So if a retailer wants to test drive pany is widely known for creating such land-
9. Market like a National Brand influence on opportunities to a more aggressive private label mark private brands as President’s Choice,
capture more margin. pricing strategy, they should take Great Value and Safeway Select, and more
10. Store Execution
Too many retailers ignore a product category that fits the than 100 other private brands worldwide.