Remember generic beer?
Over the past two decades. supermarkets and other retailers have done an excellent job of moving beyond black-and-white substitutes to private label offerings that even beat the national brands at their own game.
For example, Wal-Mart's Ol' Roy dogfood is more popular than Purina. 7-Eleven now sells more of its private label Santiago beer than Corona. About one out of every two fans sold in the U.S. is Home Depot's Hampton Bay brand. Especially interesting: One top-ten survey of popular apparel brands was filled with private labels, while Old Navy did not make the list. No wonder the Private Label Manufacturers Association reported private label brand sales grew 2.1% last year to $47.1 billion in supermarket, drugstore and mass merchant channels, while branded goods grew 1.8% in the same categories.
The benefits of branding a private label are substantial. Margins are generally 6-10% higher than national brands. In some categories, like nuts, average private label pricing is higher than national brands. And some have been successful at offering premium private label brands, with pricing higher than national brands. Supermarket chain Albertsons has rolled out Essensia, a premium label brand consisting of ookies,
crackers, frozen foods and frozen desserts "only available at your local store."
Private label brands are also a competitive differentiator that decreases me-too dependence on national brands. And while national brands focus on boosting a category, private label brands support loyalty to a store, increasing customer profitability.
National brands used to hate private label brands, viewing them as price-based "category vampires" that sucked profits out of a market. Now views have changed. Many like Heinz subsidize their own manufacturing with sales to private labels. Some even welcome private label agreements as opportunistic competitive weapons. Lever Ponds specifically develops private label brands to help take sales away from market leader Procter & Gamble. When film producer Agfa faced difficulties in breaking into a U.S. market dominated by Kodak and Fuji, it changed strategies and began selling private label products to supermarkets and camera retailers.
The appeal of private label brands, of course, is usually price. But as supermarkets learned from generic products, the proposition of "just as good, at a lower price" is not enough. Now the branding mantra is "expect more, pay less." Private label brands must match national brands in terms of features, taste or other benefits. For example, Consumer Reports ranks Winn-Dixie's chocolate ice cream ahead of Breyers.
Tips to brand your private label offerings:
o Complement the core brand proposition: In San
Francisco, A.G. Ferrari promotes itself as "the authentic
Italian marketplace." Naturally, its private label offerings
include olive oils and balsamic vinegars. "Cheapskate
chic" Target merchandises private label brands as
value lifestyle collections across a range of categories.
o Pay attention to packaging: Make packaging
more distinctive than national brands to set the product
apart on the retail shelf. H-E-B supermarket brands
feature the work of famous artists and Disney
illustrators. D.F. Stauffer packages private label cookies
in clear plastic tubs for placement in supermarket
bakery sections to communicate "fresh-baked." Don't
always think bigger to communicate value. Smaller
packaging can equal convenience. And consider
bi-lingual packaging for some markets.
o Support private label brands: You may not need
national TV ads, but private label brands need such
support as in-store radio, direct mail, etc. Dillard's,
May and Saks strongly advertise their proprietary
brands, Sampling, shelf literature, trial bottles, coupons
and custom packs can also entice shoppers into buying
a private label product. According to Point-of-Purchase
Advertising International, 72% of purchase decisions
are made in the store, not while engaged with TV or
print. Shoppers who buy a CVS skin care starter kit
get shampoo and conditioner samples with a
discount coupon good for CVS store brand Sellecca.
o Price it right: If the price is too low, consumers
suspect that corners have been cut. Generally, the
sweet spot of pricing is 10% to 20% below
national brands.
o Know your markets: Many retailers have in-house
product evaluation centers that constantly talk to
shoppers about current and emerging requirements
and tastes.
o Be innovative: 7-Eleven offered breath strips six
months before Listerine introduced PocketPaks.
Innovation applies to branding as well as product
development. Cosmetics giant Estee Lauder has
formed an alliance with department store Kohl's to
create and manage store cosmetics departments
beginning in fall 2004. The Lauder brands are
expected to generate $100 million in sales for Kohl's
within two years.
Of course, a private label brand has downsides as well. It requires more advanced inventory management and other supply chain skills. SKUs can proliferate. And if the private label brand does not sell, there is no one to turn to for returns or chargebacks. Gap is still recovering from its missteps with private label branding.
In general, however, the profit and advantages of a private label brand outweigh the disadvantages. However, it is not as simple as a new name and a new package. It requires a well-rounded, multiyear commitment, often backed with specialized expertise in everything from packaging to promotion.
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