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Private Label vs. National Brands: the Key to Co-existence

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Private label products generally offer substantial savings to customers versus their national brand counterparts — about 28% on average. In 19% of product categories, the savings when consumers purchase private label items increases to 50%, as cited by an IRI Trends Report. And in 25% of categories, there is less than a 10% differential.

Since most consumers know that many “generic” store brands are made by the same companies that produce name-brand products with similar ingredients and characteristics, they also believe that private label items offer the same or better value vs. their national brand counterparts, and 80% feel the quality is the same or better. So the notion that higher priced means better quality starts to disappear.

Since sales of store-brand products are usually more profitable than similar national brands, big chains have been concentrating more on bringing generic versions to their shelves. But in the last year or so, generic product sales have been flat, rising only to 17% share of U.S. consumer spending vs. 83% for national brands. Consumers still seem to favor value—almost 46% say they intend to buy affordable brands more frequently this year.

Brand loyalty is not as prevalent as in years past, whereas a product's "appeal to multiple people in the household" has gained influence. According to the IRI report, 20% of consumers generally have a few brands in each category to which they are loyal.

Trying to figure out how to target consumers is difficult because affordability is relative from shopper to shopper and can mean something different across channels, categories and moments in time. CPG (Consumer Package Goods) marketers are trying to determine how their most coveted consumers define affordability, not in everyday terms, but at key buying times.

The gap between generics and national brands has been getting smaller, with the proliferation of premium-tiered private label products. Commodity pricing swings are also disrupting private label and national brands’ momentum. Additionally, there is pressure on all brands from online price comparison-shopping.

Private label assortment is growing in the drug store sector, i.e. Walgreens and CVS, but declining traffic and basket size are impacting overall sales as well as private label items. Additionally, national brand innovation has been strong in beauty, a key drug channel department, as manufacturers work to deliver products that make beauty more affordable to all. It’s in this area that national brands have gained traction across most CPG channels.

Private label is strong in the mass merchandise/super store channel, with innovation and growing assortment supporting momentum. Target, for instance, has been focused on differentiation and newness, adding assortment to its upscale beauty selection. The retailer is also looking to solidify its status as a one-stop shop, providing greater selection of dry, dairy and frozen foods, particularly in its P-Fresh format.

National and private label marketers need to determine how to turn shoppers into heavier buyers, build customer loyalty, and deliver the right products to the right people at the right time. Forming collaborative marketing partnerships is a step in the right direction, such as co-marketing national and private items, like name brand coffee with a private brand creamer. This can work to increase basket size and capitalize on price elasticity.

Marketers must be more aware of developing and executing comprehensive, seamless communications across channels, ensuring the messages are consistent and highly targeted. Reinforcing the brand story, emphasizing value while connecting the brand with specified needs and wants of core shoppers is a must for driving national and private brand growth simultaneously. 

TAGS: retail, retail trends, retailers, work in retail,
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