Drive Store Brand Growth.
A recent Nielsen global study, "The State of Private Label around the World," polled more than 30,000 online respondents in 60 countries and examined their attitudes about private label versus name brands. The study revealed that a global shift has occurred in consumer sentiment about private label products: It is now overwhelmingly positive.
To leverage private labels relatively newfound respect in the marketplace, U.S. retailers could do some very specific things to help store brands compete with their more recognized name-brand counterparts. But first they must understand under what conditions store brands do and do not do well. Private label products do not do well under conditions where there is a:
* Higher innovation rate. Launches in categories such as hair care, for example, require significant investment, making it more difficult for private label to compete.
* High product differentiation. Manufacturers in the hair care category, for example, have developed products to serve a wide array of consumer needs, including anti-dandruff, color protection and damage repair.
* Strong marketing support. In 2012, for example, name-brand manufacturers spent approximately $6.8 billion* globally on personal care products.
* Strong brand equity. Name-brand manufacturers' investments in innovation and marketing have created strong brand loyalty among consumers. In fact, more than one-third (34 percent) of respondents in Nielsen's survey said they are willing to spend more than the average price on shampoo because it's worth paying extra.
* Longer purchase cycle and heavy promotional activity. Consumers purchase hair care items, for example, less frequently than they purchase some other categories. Since purchasing is more sporadic, the higher price tag for brands is less of a barrier, making more price-competitive private label brands less of a contender.
Conversely, name brands encounter a tougher time in competing with store brands in categories that showcase the following attributes:
* Minimal differentiation and low brand equity. Perceived differences among milk products, for example, are low. There are many suppliers, and it is easier for retailers to create similar store brand products at lower cost.
* High price sensitivity and high purchase frequency. In developed markets such as the United States, milk, for example, is a low-involvement, low-risk purchase. In addition, it has a fast purchase cycle, making its price more noticeable to most consumers.
* Low innovation rate. In general, innovation is less common in commodity categories, and at a global scale, new products represent less than 0.5 percent of same-year sales.
Maximize category success
Store brands are here to stay, and a key piece of the puzzle for their growth and success is the assortment challenge. It is a misconception, however, that increasing the breadth of assortment will automatically drive sales. Retailers must pursue the right selection, not just a bigger selection.
Consequently, necessary delisting decisions should be taken with great care. In the United States, where the retail market is fragmented, 31 percent of sales come from the category leader, 17 percent from private label and 52 percent from all other brands. Removing too many high-penetration, high-frequency or strong niche brands from store shelves could drive shoppers to the competition.
To determine an optimal assortment strategy, retailers need to have a keen understanding of market dynamics and consumer consumption patterns. While the right assortment varies by market conditions, retailers need to understand that consumers want to comparison-shop. More than three-quarters (78 percent) of U.S. respondents prefer to see name-brand and private label items next to each other on the store shelf so they can easily compare prices.
Additionally, manufacturers must adopt a collaborative mindset and help retailers win across the store with both private label and name brands. Consider joint promotion opportunities, for example: If one group of consumers prefers a name brand in a category while another prefers private label, both brands could be promoted in the same week.
*According to AdAge estimates
Carman Allison is vice president of consumer insights for New York-based Nielsen.