Monday, October 31, 2011

Loyalty 2011: Brand vs. Private-Label

In 2010, comScore analyzed data it collected in 2008-2010 to determine if female shoppers were willing to “buy down” or switch brands within certain categories in light of the challenging economy. Their overall finding, "Many Preferred Brands Were Losers."  In other words, when we have less money, we switch brands.  Not a surprising finding.

Well, comScore recently released their 2011 data and again the findings look bleak.
In 2008, about 54% of consumers said they bought the brand they wanted most. By 2010, this had dropped to 45% and fell further to 43% this year. Declines were observed in every category, with the overall decline being most severe in the OTC medicines category where preferences fell by 17 points and least in the household category, but with a 6 point decline nonetheless.
So, if consumers aren’t buying the brand they want most, what are they buying? It turns out that consumers are often switching brands when another “peer” brand is on sale, with 38% in 2011 saying they did this compared to 33% in 2008. But, they also more frequently turn to buying a cheaper product -- generally Private Label -- to save money. About 19% of consumers switched to Private Label in 2011, up from 14% in 2008.

In fact, according to Symphony/IRI Group's latest Times & Trends Report, Private Label: Brand Positioning in the New World Order, "private label is winning share in 72 of the top 100 CPG categories."

With total private label sales of $88.5 billion (2010). The Private Label Manufacturers Association estimates that an additional $15 to $20 billion in private label sales in channels that are not reported to Nielsen databases, such as warehouse clubs, limited assortment stores, convenience stores and dollar stores. Adding them in would likely have produced a grand total exceeding $100 billion for 2010.

Findings from a 2010 Nielsen global online survey of more than 27,000 respondents across 53 countries show that the private label phenomenon is here to stay. In fact, while more than half of online consumers surveyed said they purchased more private label brands during the economic downturn, 90%+ said they will continue to do so when the economy improves. (Also see McKinsey & Company, "Driving Innovation Through the Private Brand Organization," 2011)

According to a Mintel report, only 19% believe it’s even worth paying more for name brand products. 

Some brand label manufacturers have reacted to these trends by decreasing package sizes. And consumers have caught on: 74% of shoppers surveyed in Deloitte’s recent 2011 Consumer Food and Product Insights Survey said that they believe the sizes of some packaged foods have decreased. Instead of buying these smaller packages, most consumers switched to other brands.

  
Strategies to Counteract Private Label
Following are some of the strategies that have been recommended to compete against private label products:
  • Create price-value lines: Cheaper branded alternatives aimed at narrowing price gap between private label and manufacturer brands. P&G launched Ariel B├ísico and Pampers Simply Dry. For the first time in 38 years, P&G launched a new dish soap, Gain, in the U.S. at a bargain price. (comScore, 2011)
  • Drive new values: Private label usually needs to stick to low price/value-for-money messaging. Brands on the contrary can advocate for new values (ecology, reduce water consumption, sustainability, fair-trade, etc).
  • Innovate: According to  Jan-Benedict Steenkamp, author of Private Label Strategy: How to Meet the Store Brand Challenge studies around the world reveal remarkably robust findings that, in those categories where national brands continue to innovate, private labels are less successful and growth in private label is lower. (However, as Bain & Company points out, "innovation requires relentless focus and consistent investment. Look at what happened with Tylenol. Once the brand's innovation cycle slowed to a point where it had no new innovations in six years, private labels gained ground; penetration increased from 14% in 1991 to 42% in 2010.)  See Landor, 2011.
  • Join the other side: Kimberly-Clark makes private-label products such as diapers to improve asset utilization, particularly with older technology. (Landor, 2008)
  • Reinforce consumers' emotional connections to brands. National brand organizations from P&G on down hire and train people to build and leverage brands. That is in their DNA. They recognize that a successful brand should go beyond functional benefits and value for price and introduce other bases of relationships by delivering emotional, self-expressive, and social benefits. (Prophet, 2011)
  • Employ a multi-channel strategy. A-brands can put pressure on retailers by expanding beyond the one-channel sales approach and using direct and indirect channels. For example, in 2010, P&G launched an online store (www.pgestore.com) to sell brands such as Gillette, Pampers and Pantene for a $5 flat shipping rate (in the United States only). By doing so, P&G began competing directly with e-commerce sites operated by retailers (such as Wal-Mart) and online-only retailers (such as www.britsuperstore.com in the United Kingdom).  Nestle has effectively eliminated the retailer by selling its Nespresso brand of coffee directly online and through select department stores in which customers can see the product (the machines) and taste the coffee. The company is "selling" its new flavors and the Nespresso experience in stores, which are arguably the only place where a brand can directly gather consumer experiences. (AT Kearney, 2011)
  • Identify and assess brand-specific opportunities and risks with respect to private label: Monitor price gaps between their brands and private label alternatives to ensure an optimal price gap is maintained; understand private label performance across key categories; leverage value-oriented pricing and promotion programs to protect and grow share. (Prepared Foods, 2011)
  • Strategic collaboration. Strategic collaboration requires a different mindset between manufacturer and retailer, as well as the process and capabilities that allow manufacturers to work more closely with retailers to identify consumer demand and quickly respond to it. In those instances where collaboration is deemed the appropriate response, it requires jointly focusing on category growth and consumer return on investment, thereby eliminating the inefficiencies of working against each other. By sharing consumer and shopper insights—working together on innovation, assortment and marketing toward a mutual consumer—both the manufacturer and retailer can benefit in the form of a more loyal consumer base, stronger overall category sales, better margins and lower costs across areas such as product development, marketing and promotion. (Accenture, 2011; also see In-Store Trends)
  • Refine competitive strategies vis-a-vis private label: Maintain solid understanding of price/value perceptions across key consumer segments. (SymphonyIRI)
  • Invest in marketing the brand:
Businesses that increased ad spending during recessionary periods saw a 1.5 point increase in market share (Cahners and SPI, 2002)
Those who aggressively increased media expenditures during the last recession saw a 2.5 times increase in market share vs. average of all businesses in post-recession period (CARR Report, August 13, 2001)
Those businesses who maintained or increased media spend during the 1981/1982 recession saw a 256% relative sales growth over those who did not (McGraw-Hill research analysis of 600 B2B companies)

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