Retailers Branding Private Labels

in Business Management
Private Label Product

Stores Expanding Their Own Brands to Strengthen Customer Loyalty

Product promotion wars are moving from the mass media to the store shelves as national brand manufacturers find themselves competing with their own retailers.

For a variety of reasons, customers may develop more loyalty to their retailers these days than they do to national product brands.

That change is pitting national product branding against retailer institutional branding, creating an apple-versus-oranges competition in the marketplace.

The changing loyalty is also prompting retailers to enhance their marketing strategy by offering more private label products. The new retailer approach is encouraged by:

  • Growing evidence that private labels can indeed compete with national brands;
  • Realization that each retailer must compete against more aggressive marketing by its rivals.

Store Brand Can Differentiate Retailer

Part of the new strategy, at least among some retailers, is to develop a high quality, economical line of private label products that complement other items in their marketing mix.

The retailer can use the store label to differentiate his firm from his competitors, just as he does with location, convenience, management, service, pricing and community service.

Private label products can normally be sold cheaper than national brands because they do not require as much advertising. Retailers can promote their own products by featuring them in their normal advertising at little or no additional cost.

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In some cases, the changing scene is forcing national brand manufacturers and distributors to compete with the retailers they have relied upon for decades, an uncomfortable position for them.

But Jim Lucas (Evanston Consulting Group) said that instead of competing, the manufacturers and distributors should work with the retailers.

Help With In-store Media

In an article in Ad Age, Lucas said:

“Today’s challenge for brand marketers is to help leverage retailers’ marketing-mix tools (the shelf, category organization, in-store media or loyalty programs) or co-create new tools (new media, unique offerings, tailored products or packaging) to help retailers build stronger, better brands.”

Manufacturer brands must be “tailored to retailers’ needs and objectives,” he added.

There are reasons that successful retailers are flexing their muscles in their relationships with name brand manufacturers. The Private Label Manufacturers Association (PLMA) says “41 percent of American shoppers now describe themselves as frequent store brand buyers.” Five years ago that number was just 36 percent.

According to PLMA, store brands now account for a fifth of all items sold in U.S. supermarkets, drug chains and discount stores. That amounts to $65 billion in retail revenue.

Ralcorp Attributes Good Value

Ralcorp, one of the nation’s major producers of private label products, attributes that growth to “the growing awareness of the good value store brands offer.” It adds that store brands usually cost less than national brands and they are at least equal to their national brand competitors.

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Lucas attributes at least part of the private label growth to the increasing rapport between consumers and retailers. Consumers have more contact with their stores than with national brands and retailers are trying to enhance their relationships, he said.

Retailers are trying to strengthen and capitalize on the loyalty factor because they realize that it is easier to expand profits through established customers than by developing new customers.

With a loyal customer base they can use more “data-driven, shopper-insight” marketing. They can develop private label products and stock their shelves with national products that are targeted to well defined audiences.

They can use shopper-loyalty programs. They can experiment with store and department sizes to make shopping a more pleasant experience.

Sources:

  • Jim Lucas, AdAge
  • Ralcorp website
  • Private Label Manufacturers Association website

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