How National Brands Can Fight against Private Label

In the not-too-distant past, private-label products were discussed in the same hushed tones reserved for topics not suitable for public consumption. Consumers didn’t really want to tell anyone they bought private label, the generics of the retail world, and let on that they were willing to compromise. National-brand managers relegated private-label products to the bottom of the category shelf set, allowing a tiny portion of share to be taken by this awkward cousin—but never really took them seriously.

But in the economic crash of 2007–2009, the world of private label changed dramatically. Retailers like Tesco, Sainsbury’s and Morrisons led the way by developing private-label brands instead of individual products. By some reports, as much as 54% of Sainsbury’s sales, and 41% of Tesco’s sales, come from these owned brands.

These retailers also recognized that (in many cases) using a national brand equivalency (NBE) strategy, where one simply knocks off the aesthetics of the best-selling national brands in each category and places their product to the immediate right of said brand with a price 40% lower, wasn’t gaining any loyalty.

The private-label trend caught on globally, from Loblaws of Canada to Walmart, Target, Kroger, Aldi, Wegmans, H-E-B, The Home Depot, Lowe’s … the list goes and grows on. A 2013 Nielsen Homescan study showed private-label brands in the US make up an average of 23% of total dollar share in supermarkets, 20% in club, and 18% in dollar. In Europe, German discounter Lidl is now the fastest-growing grocer in the UK, with a 2016 marketing spend of £78 million. And now, Amazon is actively building its own private-label group, with plans to offer a considerable amount of owned, branded products across hard and soft goods.

So what can national brands do to compete in a world where they don’t control the retail space, shelf set or pricing structures? It’s a tough question to answer, but there are a few opportunities out there for brands willing to take on the challenge.

RECOGNIZE THE QUALITY OF PRIVATE LABEL

Sometimes we run into brand managers who scoff at the idea that private label might be a real competitor. Or, perhaps even worse, relegate private label to the lowest tier of the category set and figure that only consumers looking for a cheap product at a cheap price will choose it.

This line of thinking is horribly flawed. Private-label products and brands have made huge strides in quality over the last 10 years, with many of the manufacturers who support private label proudly touting the superiority of their products versus national brands. First Quality Enterprises of Great Neck, New York regularly conducts independent tests to certify that their diapers and incontinence products perform as well as or better than any national brand. Lidl and Aldi are both earning high marks for their product quality; in fact, Aldi recently ran an ad calling out Pampers in a head-to-head comparison with their Mamia brand.

When private-label brands can match, or claim to match, national-brand quality standards, it’s time to recognize their power and plan accordingly.

GET TO KNOW YOUR BUYERS AND CONSUMERS 

Most retailers build their private-label brands through in-store conversion. They spend few resources educating consumers on the values of their brands or trying to build relationships with consumers before they enter the store. This is where national brands hold the first advantage.

National brands must know the people who shop for and consume their brands and products very, very well! I’ve worked with brand managers that noted their consumer audience as “builders” or “homeowners” or “moms.” That kind of vague reference won’t get you anywhere. You must dig to understand not just the demographics of the people buying and using your products, but also the psychographics behind why they make their choices. To do this, I recommend getting out and talking with people face to face, in homes, in stores, wherever they gather or shop for or use your products. Sending out an online survey will never get you into the hearts and minds of your consumers. You must engage them personally.

CREATE STRONG BRAND EQUITIES

Make it easy for your brand zealots to discover, locate, purchase and recommend your brand and products to other like-minded fans.

I’ve been playing acoustic guitar for more than 35 years. Around 20 years ago, I came across the Taylor guitar brand out of El Cajon, California. I was drawn to the quality of the guitars they made, and the distinctive headstock made it easy to spot others playing the brand from a distance. The brand published a newsletter that looks and reads like a high-end magazine, and shipped it free to everyone who owned a Taylor guitar. These newsletters shared stories about how the brand sourced woods, built different guitars, incorporated technology in the building process and more.
They also built their brand community by using popular artists to play at local guitar shops where fans could get their hands on the very guitars being played exceptionally well by these artists. This collection of information and identifiable equity elements has helped Taylor become the number-one acoustic-guitar brand in the US.

BUILD EMOTIONAL CONNECTIONS

Studies continually show that consumers trust national brands at a level that far outweighs their private-label counterparts. The power of Coke’s long history of brand storytelling, from unique shape language to the color red, polar bears, Santa Claus and teaching the world to sing, makes it virtually impossible for store brands to compete on anything but the lowest performance measures.

When national brands focus on product function only, they open the door for private label to take away market share. Most consumers want an emotional connection to the brand. Give it to them.

INNOVATE AND LEAN FORWARD

Private-label manufacturers by their very nature race to catch up to national brands, which is why national brands must work twice as hard to change the game. This means national brands must stay in touch with consumers and market trends to see what people want now, and how their preferences are changing, so they can anticipate change and get ahead of it whenever possible.

Steve Jobs recognized that anyone could make a phone, but only Apple could make an iPhone. He looked at a category replete with lookalikes and created a new platform that shook up the entire mobile phone universe so much that a once-dominant player like Nokia, which had gotten lazy in its innovation cycle, saw market share fall from high above 50% in 2007 to just 3.5% by the third quarter of 2012.

Offering new versions, flavors or varieties of the same old products never has and never will be considered innovation. Consumers get confused by too many line extensions and default to the products they know and love anyway, so do yourself a favor and reach beyond the extension into true innovation.

USE THE ENTIRE MARKETING MIX TO YOUR FAVOR

Because consumers have an emotional connection to and therefore predisposition to purchase national brands, it is the responsibility of the national brands to do everything in their power to embrace those passionate consumers. This will never happen in one clean, concise manner. It involves strategies in pricing, placement, product assortment and promotion. Finishing this experiential journey with excellent customer service, trade relations and sales support increases the likelihood that your brand will be able to compete against the strongest private-label challenges.

—

LPK Vice President and Managing Creative Director Kelly Smith works across LPK’s portfolio, transforming organizations and building B2B and B2C brands—from small family-owned businesses to Fortune 50 companies. When Kelly’s not immersed in organizational change issues, you’ll find him buried in a business book, playing his guitar or chasing a triathlon personal record. Follow him on Twitter at @thinkhaus1 or drop him a line at kelly.smith@lpk.com