PLs Inherent Advantages
Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
Figure 6
Private label brands have reached critical mass in the United States, and soon the scales will tip in their favor. In fact, private brands have inherent structural advantages which, when managed correctly, may help them to eclipse national brands.
For most of my life, I have been a private brand snob. It all started one day in my childhood, when a large plastic bucket of no-name peanut butter appeared in our family pantry. When I pried off the enormous lid, my worst fear was confirmed as I viewed with dismay a layer of oil swimming on top. Resigned, I dug into the brown goo and began to make my PB&J. “What next?” I thought. “Will it be the Oreos? Or maybe I’ll never again see the smiling countenance of Captain Crunch from across the breakfast table.” My preference for and loyalty to name brands blossomed then and there into a long-term love affair, solidified over many years at Procter & Gamble, where I worked on everything from Ivory to Comet cleanser to Old Spice.
Over time, though, my opinions began to change. While working on the men’s grooming category I found myself at a Boots store in London. There I saw a depth and range of products that far exceeded what was available in the U.S. Intrigued, I bought a bunch of products to try. During the next few months, I discovered that the products I liked most were those branded under the Boots name itself. “Hmm,” I thought. “This is unexpected.”
More recently, as I’ve been working on branding and strategy for several top retailers’ brands, I have found that consumers view private labels as just another brand that they buy and trust. I believe that private label brands have reached critical mass in the United States, and soon the scales will tip in their favor. Hopefully, those of us in the branding community will also soon eliminate this artificial linguistic separation between national brands and private label brands.
The Evolution of PL
Today’s private label brands have evolved from mere fiscally conscious choices to true consumer preferences (see Figure 1). They’ve grown from a margin-driven merchandising decision to actually driving consumers to shop at a particular store.
Consumer PL purchases confirm this trend: Between 1997 and 2005, PL brand sales grew at twice the rate of national brands.1 In addition, research shows a shift in consumers’ perceptions and beliefs: 77 percent of consumers across all income levels believe that private label products are equal to national brands.2 Furthermore, 30 percent of consumers say they are willing to pay more for a store brand compared to only 24 percent who would pay more for a national brand.3 Perhaps most compelling is the fact that a higher average portion of younger households seem to be buying private labels and will likely remain loyal to them as they age 4.
These facts and many others demonstrate that consumers increasingly view private brands as simply “brands.” They are purchasing them more often and becoming loyal to their favorites. As a result, PL brands are becoming important assets to both the retailer and the retail brand itself – driving traffic, sales and share.
Brand Relationship Model
Over the past decade, there has been an evolution of the traditional and static marketing mix model with its classic “4Ps” to a more dynamic and holistic Brand Relationship Model (see Figure 2). This model reflects the more interactive, ongoing relationship that today’s consumer has with a brand: from the moment a consumer becomes aware of a brand or a shopper first experiences it to the product proposition itself to the all-important value equation where price and experience interact to help build sustainable loyalty.
Looking at the four components in greater detail (see Figure 3), it is evident that private labels are not only leveling the playing field, they actually have structural advantages over national brands. For the rest of this article, we’ll review the Brand Relationship Model and how private brands have inherent advantages across each component.
The Product Proposition
Once considered a second-class alternative, private label brands have been closing the product quality gap versus national brands. Case in point is Walmart’s Great Value brand; each product in the line has a guarantee that states “this product is every bit as good as the national brand.” In fact, many of today’s PL brands provide the kind of on-trend, top-notch quality and innovation that rivals national brands. Take, for example, the beauty and elegance of Boots’ No7 beauty line (see Figure 4) at Target (a UK private label brand that is achieving success for the U.S. retailer) or Supervalu’s Wild Harvest organic food line that addresses consumer concerns for healthier fare (see Figure 5).
Combine product quality and innovation with a growing sophistication in packaging and design, and a private label brand can easily compete at the same level or even above name brands. Case in point is Walmart’s Canopy line, which offers the same high-quality features and benefits as national brands, such as antimicrobial towels, stain-resistant fabrics and organic cotton sheets. Then Canopy goes one step further to create a special and personal product experience with clever, high-end packaging, such as an organic cotton bag for sheet sets and a present-like, ribbon-wrapped shower curtain. In doing so, Canopy evokes the style and specialness of more exclusive brands and stores; its products are something wonderful that the consumer is able to purchase at a greater value.
The Consumer Connection
I was traveling recently with agency partners from New York, and the major topic of conversation was finding and gaining access to the 24 Target pop-up stores in order to snag items from the new Zac Posen clothing line. I couldn’t help but reflect on the brilliance of offering one line at Saks and another at Target, with both receiving heaps of praise in the style press. But the unique, only-in-NYC experience of the Target pop-up stores shows how the consumer experience with private label brands is constantly evolving.
Private brands have eagerly adopted national brands’ mass-marketing tactics of advertising and public relations, effectively neutralizing the heightened consumer awareness that national brands have traditionally enjoyed. A NASCAR fan can cheer for Jimmy Johnson and Team 48 one day, then enjoy Jimmy’s commercial for Kobalt Tools the next. Each new season sees another ad for the Better Homes and Gardens Collection in women’s magazines, showing how this line at Walmart – just like Pottery Barn’s décor – can update and refresh the home.
When it comes to online marketing, many PL brands have leveled the playing field completely: Check out www.canopyliving.com to see how a brand’s personality, position, almost the entire consumer experience can be brought to life. Or click on the Giada De Laurentiis video at www.target.com and be swept away by an engaging, compelling experience that is perhaps the best branding this food star has ever had. These examples are just the beginning…PL brands will continue to touch and talk to us in many exciting, new innovative ways.
The Shopper Experience
Before they are consumers people are shoppers, and it is this portion of the brand relationship model that PL wins hands-down. The retailer “owns” the shopping experience; therefore, PL brands own it, as well. From in-store signage and marketing to powerful brand-blocking and placement-engaging signage, as well as the all-important first moment of truth when packaging and at-shelf communication come together, retailers and PL brands can have enormous influence on the all-important purchase decision.
Private brands have another leg up on national brands because retailers have a strong, pre-existing relationship with the consumers that come into their stores. If a shopper/consumer already trusts a retailer, they are favorably predisposed toward the brands and products they discover there. Retailers can surround shoppers with PL brand messages – hanging from the ceiling, on shelf, via the influence of sales associates, etc. – to generate a powerful in-store experience. Most important, private brands are able to change and evolve with a nimbleness that turns other brands green with envy. Look at how Target transformed a low-end home brand, Room Essentials, into a vibrant, engaging and relevant brand that revitalized that section of the store, encouraging shoppers to REstyle, REfresh, REorganize and REnew.
Let’s revisit that crucial at-shelf moment of truth to see how packaging can showcase a PL brand. Many private brands are making excellent use of brand logo, visuals, colors and design consistency to grow in sophistication and strengthen that emotional connection. If that moment occurs when a shopper picks up the package to read it, then an opportunity exists for private brands to use packaging to tell a compelling brand story. Looking at the back label of two brands that I already mentioned, Wild Harvest and Better Homes and Gardens, we can see how a story and relationship is crafted (see Figure 6). Wild Harvest shares all the ways that it enhances life for you, your loved ones and future generations. BH&G, in contrast, offers ideas on how to create just the right look for your home (and emphasizes how its products complement each other.)
The Value Equation
The economic downturn has been a great help to private brands’ growth given their typically lower price, especially as consumers currently rank low price as the most important factor for where and what they buy.5 This isn’t likely to change significantly in the near future, as the downturn is expected to last up to eight years.6 By closing and surpassing the product quality gap, private brands now have a distinct advantage in price and flexibility given their inherently better internal cost structures. This advantage goes even further when you consider that savvy marketers are now creating holistic ibrands that connect with consumers on many more levels than price. Thus private brands’ overall value equation is structurally better.
One last point about price and financials: Size is an advantage. Private brands can easily surpass the size of more traditional brands. Already, the number of private brands that surpass the magic $1 billion mark is staggering. For example, the sales of the Great Value brand alone equal the total domestic sales for McDonald’s.7
Implications for All Brands
As I sit down to enjoy a sandwich made with my Great Value peanut butter and Great Value honey, I can’t help but realize how much times have changed for national and private label brands. So what are the implications going forward?
For the Traditional Brand Professional – Take a deep breath and remember that national brands are not going away, even though the number of individual brands will continue to decline. Set your goals high: Being the number-one or -two brand in your category ensures your place in the shelf set. Never forget that no one should know your consumer better than you do: What new insights can you provide? What segments are growing or changing? Understanding how your consumer plays into the retailer’s strategy will give you a distinct advantage. And finally, remember that you have the advantage of time in market. Understand what consumers love about your brand and seek to delight them at every turn.
For the Private Brand Professional – Just because private brands are winning doesn’t mean that your particular private brand is. The failure rate for PL brands is significant. Sure, you have many advantages, but you also have unique challenges. Chief among these is a lack of data, research and in-depth background that many national brands have.
Yet don’t forget your “ace in the hole,” the experience of your merchandising partners and in-store associates. This kind of real-time, real-world insight is something any brand manager would kill for. Continue to build this dialog and partnership wherever you can. Become your brand’s advocate, spokesperson and champion. Remember that brands are living, breathing entities, and the more people you have looking out for them, the better. It may feel like an uphill battle, and it is, but that is a whole lot better than a downhill one. n
*Mike Taylor has worked on branding and strategy at industry leaders such as Procter & Gamble, Johnson & Johnson and Kimberly Clark. He is currently director of brand strategy at Interbrand, where he works on national and global brands as well as private label brands for such top retailers as Sears, Lowe’s and Stop & Shop.
For more information, contact: mike.taylor@interbrand.com.
1 Alix Partners, Consumer Segment Index, April 2008
2 IRI 2009 Private Label Report
3 PL Yearbook, Private Label Manufacturers Associations, 2008
4 IRI “Private Label Report PLMA Consumer Affection
For Private Label,” Datamonitor 2008
5 Reuters, “New IRI PL Report Uncovers Emerging Trends
& Key Success Factors in a Challenging Economy,” April 2009
6 “The New Value Mindset,” Iconoculture 2008, July 2008
7 Advertising Age, September 7, 2009
