Private labels continue to gain market share in most Western countries, ranging from Europe to North America to Australia. How are brand manufacturers to thrive in this environment. I outline three options, the 3Cs: competition, co-opetition, and cooperation. While there is no silver bullet, careful use of these strategies help you to continue to grow your company

1. © Prof. J-B.E.M. Steenkamp
Not to be reproduced without permission
Jan-Benedict E.M. Steenkamp
C. Knox Massey Distinguished Professor of Marketing,
Chairman of the Marketing Area,
Executive Director AiMark &
iSIG Fellow, Fudan University (Shanghai)
The 3Cs of Manufacturer Strategies in a
World of Strong Private Labels:
Competition, Co-opetition, and
Cooperation
Keynote presentation at the Global Tissue Conference,
Karlstad (Sweden), 2016

2. © Prof. J-B.E.M. Steenkamp
Not to be reproduced without permission
11.5%
13.7%
30.4%
34.0%
2.6%
6.9%
16.2%
19.8%
1.2% 1.1%0%
5%
10%
15%
20%
25%
30%
35%
40%
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
Global Western Europe Eastern Europe USA Lat Am
The new private label world: PL share around the
globe

3. © Prof. J-B.E.M. Steenkamp
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Consumer perceptions of private labels
Source: Nielsen (2014)

4. © Prof. J-B.E.M. Steenkamp
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Tissue is not exempt from the private label
onslaught
Source: Euromonitor (2016)

5. © Prof. J-B.E.M. Steenkamp
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3C Options for manufacturers in a
world of strong PLs
“Competition”
Focus on your
own brands
“Cooperation”
Dedicated PL
manufacturing
“Co-opetition”
Dual tracker –
NB & PL
manufacturing

6. © Prof. J-B.E.M. Steenkamp
Not to be reproduced without permission
Options for manufacturers in a
world of strong PLs
“Competition”
Focus on your
own brands
“Cooperation”
Dedicated PL
manufacturing
“Co-opetition”
Dual tracker –
NB & PL
manufacturing

7. © Prof. J-B.E.M. Steenkamp
Not to be reproduced without permission
Lost prospect
Consider
brand
purchase
Envisage brand
purchase Image/Liking
+
-
Compete with PLs by creating a winning
proposition for your own brand
Imperatives:
• Innovation
• Advertising
• Distinctive packaging

8. © Prof. J-B.E.M. Steenkamp
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Innovation as barrier to PL success
Index
PL share
(100 =
average)
Low High
NB innovation activity in the category
134
86

9. © Prof. J-B.E.M. Steenkamp
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Innovation in kitchen towels – Bounty
DuraTowel
• A kitchen towel with more
fiber content than regular
products, which holds
together well even when
wet.
• Grows category by
persuading households to
do away with re-usable
cloths, citing reasons of
hygiene.
• Procter & Gamble was
responsible for almost all
absolute value growth in
2013

10. © Prof. J-B.E.M. Steenkamp
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Advertising the new benefit
https://www.youtube.com/watch?v=3UR789pfN9M
https://www.ispot.tv/ad/7dDN/bounty-duratowel-spaghetti-cleanup

11. © Prof. J-B.E.M. Steenkamp
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Packaging to generate sales

12. © Prof. J-B.E.M. Steenkamp
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Lost prospect
Lost sale
Brand
purchase
Consider
brand
purchase
Envisage brand
purchase
Image/Liking
Price
Gap
+
+
-
-
Compete with PLs by creating a winning
proposition for your own brand

13. © Prof. J-B.E.M. Steenkamp
Not to be reproduced without permission
Key factors in consumer willingness to pay
a price premium for manufacturer brands
Source: Own research
Factor Relative
importance
Strong belief that “you get what you pay for” 22%
Large perceived quality gap with SBs 16%
High involvement with the category 14%
Other factors (packaging, advertising…) 48%

14. © Prof. J-B.E.M. Steenkamp
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Consumer perceptions in facial tissue (index)
Willingness to pay factor Overall mean
(1=low, 5=high)
Country scores (index vs.
overall mean)
Germany U.S. China
You get what you pay for in
tissue
3.10 91 99 112
Perceived quality gap 3.08 90 110 --
Involvement with facial tissues 3.23 93 103 116
Source: Own research

15. © Prof. J-B.E.M. Steenkamp
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Lost prospect
Lost sale
Lost goodwill
Brand
purchase
Consider
brand
purchase
Envisage brand
purchase
Repurchase;
recommend to
others
Image/Liking
Quality
Price
Gap
+
+
+
-
-
-
Compete with PLs by creating a winning
proposition for your own brand

16. © Prof. J-B.E.M. Steenkamp
Not to be reproduced without permission
Walmart
Target
Costco Walgreens
CVS
Family Dollar
Bounty Dura
Bounty Extra
Soft
Viva
BrawnyBounty Basic
Scott
20
30
40
50
60
70
80
90
100
$1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50
Quality
Price ($/100 sq. ft.)
Paper Towels in U.S.
Price vs. quality

17. © Prof. J-B.E.M. Steenkamp
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Plus
Jumbo
Aldi AH
Lidl
EdetNalys
Page
Popla
50
55
60
65
70
75
80
85
€ 0.10 € 0.15 € 0.20 € 0.25 € 0.30 € 0.35 € 0.40 € 0.45
Quality
Price (€/100 Sheets)
Bathroom Tissue in the Netherlands
Price vs. quality

18. © Prof. J-B.E.M. Steenkamp
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Relative failure to maintain a winning proposition in
tissue in Western Europe has eroded brand success
Source: Euromonitor (2016)
PL share in Western Europe in 2014

19. © Prof. J-B.E.M. Steenkamp
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Lesser B and C brands are especially vulnerable –
Evidence from Germany
24.8 25.4 24.0 24.1 24.2 24.4 24.5 24.6
9.2 10.1 10.7 11.4 12.0 12.6 13.0 13.2
37.0 35.6 35.8 34.9 34.4 34.3 33.5 33.3
19.1 18.9 19.1 19.1 19.1 19.1 19.1 18.7
9.9 10.0 10.4 10.5 10.3 9.6 9.9 10.2
201220112007 2013201020092008
Other private labels
Middle brands
Market leader
Discount-level
private labels
Premium brands +0.3%
-0.4%
-3.7%
Change in
sales
2007/2014
% points
-0.2%
+4%
34.0
Overall private
label share (in %)
35.5 34.7 35.5 36.2 37.0 37.5 37.8
2014
Source: GfK (2015)

20. © Prof. J-B.E.M. Steenkamp
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Assessment of each option
Competition:
Focus on your own
brands
Co-opetition:
Dual tracker (NB and
PLs)
Cooperation:
Dedicated PL
manufacturer
Required
key skills
• Brand management
• Innovation
• Consumer insight
Advantages • Higher profitability
• More stable cash flows
• More control over your
destiny
Challenges • Inability to keep the
quality edge
• High failure risk of
innovations
• Power shift to retailers
• Bifurcation into strong
NBs and PLs

21. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a PL world
– Dedicated PL supplier
• Manage complexity in production

22. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a PL world
– Dedicated PL supplier
• Managing complexity in production
• Thrive on razor-thin profit margins

23. © Prof. J-B.E.M. Steenkamp
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Value breakdown of private label versus branded
dishwasher tablets
Source: De Jong (2015)

24. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a PL world
– Dedicated PL supplier
• Manage complexity in production
• Thrive on razor-thin profit margins
• Deep knowledge of costs – activity-based costing

25. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a PL world
– Dedicated PL supplier
• Manage complexity in production
• Thrive on razor-thin profit margins
• Deep knowledge of costs – activity-based costing
• Internet-auction skills
• Try not to live by price alone

26. © Prof. J-B.E.M. Steenkamp
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Not by price alone: Premiumization of PLs –
Walmart in Mexico
• Wal-Mart’s Great Value toilet paper is being marketed under the names
Original and Premium, with the Premium product being softer in texture.
• With the current economic slowdown that has occurred in Mexico, multi-tiered
pricing has allowed Wal-Mart to meet consumer demand for both high quality
and low prices, while still retaining private label brand loyalty.

27. © Prof. J-B.E.M. Steenkamp
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Assessment of each option
Competition:
Focus on your own
brands
Cooperation:
Dedicated PL
manufacturer
Required
key skills
• Brand management
• Innovation
• Consumer insight
• Cost leadership
• Fast follower
• Ability to handle high
production complexity
• Activity-based costing
• Internet auctions
Advantages • Higher profitability
• More stable cash flows
• More control over your
destiny
• No need for expensive
marketing or risky R&D
• Focus only on retailer
• Guaranteed demand
Challenges • Inability to keep the
quality edge
• High failure risk of
innovations
• Power shift to retailers
• Bifurcation into strong
NBs and PLs
• Low profitability
• Short-term contracts
• Monopsony
• Attracting the best talent

28. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a
PL world – Dual Tracking
• Manage the economics of PL
manufacturing

29. © Prof. J-B.E.M. Steenkamp
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The costs of private-label manufacturing by a brand
manufacturer: Example of US food company
0
0.5
1
1.5
2
Manufacturer brand Private label
$0.23
$0.17
$0.17
$0.87
$0.74
$0.32
$0.32
Dollarsperpound
$0.06 Profit
Fixed costs
Fixed costsProfit
Cost of
goods sold
Cost of
goods sold
Retail margin
Retail margin
$1.59 selling price
$1.29 selling price
$0.97 Manufacturer
selling price
$0.23 Contribution
$1.27
$0.40
$0.23
$

30. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a
PL world – Dual Tracking
• The economics of PL
manufacturing
• Sharing technology

31. © Prof. J-B.E.M. Steenkamp
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Sharing technology
3
1
Lebensmittelzeitung:
“...Because the private label
section directly profits from the
qualities and innovations of the
brands. This is exactly what
makes SCA different from its
competitors.“
“We attach as much importance to
the quality of our private labels as
to the quality of our brands.
Guaranteed!“

32. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a
PL world – Dual Tracking
• The economics of PL
manufacturing
• Sharing technology
• Co-branding

33. Co-Branding
© Prof. J-B.E.M. Steenkamp
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34. © Prof. J-B.E.M. Steenkamp
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Manufacturer strategies in a
PL world – Dual Tracking
• The economics of PL
manufacturing
• Sharing technology
• Co-branding
• Access to retailer shelves

35. © Prof. J-B.E.M. Steenkamp
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PL manufacturing to gain access to retailer shelves for your own
brand - Evidence from Aldi (Germany) and Mercadona (Spain)
37%
57%
-10%
0%
10%
20%
30%
40%
50%
60%
No Yes
Likelihood of
being included in
Aldi/Mercadona
assortment
PL manufacturing for Aldi/Mercadona?
Source: Ter Braak et al. (2013)

36. © Prof. J-B.E.M. Steenkamp
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Assessment of each option
Competition:
Focus on your own
brands
Co-opetition:
Dual tracker (NB and
PLs)
Cooperation:
Dedicated PL
manufacturer
Required
key skills
• Brand management
• Innovation
• Consumer insight
• Combination of both NB
manufacturer and PL
supplier
• Cost leadership
• Fast follower
• Ability to handle high
production complexity
• Activity-based costing
• Internet auctions
Advantages • Higher profitability
• More stable cash flows
• More control over your
destiny
• Utilizes spare capacity
• Access to retailer shelves
for NB
• Manage PL quality
• No need for expensive
marketing or risky R&D
• Focus only on retailer
• Guaranteed demand
Challenges • Inability to keep the
quality edge
• High failure risk of
innovations
• Power shift to retailers
• Bifurcation into strong
NBs and PLs
• Subsidizing PLs with your
own brands
• Organizational
schizophrenia
• Conflicts with NB
production schedule
• Stuck in the middle
• Low profitability
• Short-term contracts
• Monopsony
• Attracting the best talent

37. © Prof. J-B.E.M. Steenkamp
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To conclude
• Private label buying is a global phenomenon, and strong
in tissue
• Private label buying is helped by commoditization of
tissue categories, low involvement, reduced perceived
quality gap, reduced confidence that you get what you
pay for.
• However, commoditization differs between world regions
• Manufacturers have three options in this new private label
world: create a wining value proposition for their own
brand (competition), become a dedicated private label
supplier (collaboration) , or become a dual-tracker (co-
opetition).
• There is no single best option - each option has its own
required key skills, advantages, and challenges.