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Tactics Watch: Brand Tiering

May 9, 2011
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A spat of private label introductions in early 2010 signal that retailers are diversifying their private label portfolios with new tiers that go beyond their traditional national brand equivalent offerings.

If you plan to join the rush, consider: How large does the line need to be? What will be the price points in relation to brand competitors? How does your company create a buzz about the new tier among consumers?


Here’s how to successfully introduce a new brand tier into your private label portfolio.
 
A spat of private label introductions in early 2010 signal that retailers are diversifying their private label portfolios with new tiers that go beyond their traditional national brand equivalent offerings.

If you plan to join the rush, consider: How large does the line need to be? What will be the price points in relation to brand competitors? How does your company create a buzz about the new tier among consumers?

To introduce an entirely new product tier, explains Los Angeles-based marketing consultant, Rob Frankel, companies should:

1. Assess potential market size
2. Create a competitive overview
3. Conduct financial projections
4. Create a map of distribution
5. Forecast promotional spending
6. Forecast an advertising budget
7. Finalize a marketing plan
 
FIND YOUR NICHE

“Since most retailers have fairly well-developed national brand equivalency programs, we’re seeing most introductions take place away from that area,” says Neil Stern, senior partner at the Chicago-based retail consultant firm McMillian Doolittle LLP. “Value-tiered private label, premium private label, niche/lifestyle opportunities like natural, organic, kids, environmental, etc., are ripe areas for private label innovation today.”

And its not just premium lines being introduced this year.

 “With the exception of Walmart, retailers were hesitant to invest in lower-tiered brand launches during the recession. Even though shoppers were feeling the pinch, there was a poor quality perception with value private label lines,” says Natalie Berg, global research director for London-based retail consulting firm Planet Retail. “However, the success of the [Walmart] Great Value re-launch showed a lot of retailers that value lines can work if the quality and marketing investment are there. A combination of socially accepted frugality and improvements in quality make this work.”

Tiering is all about consumer needs and wants, not just about creating lines of lower/higher products with different price points, says Scott MacLennan, director of store brands at the Canton, Mass.-based quality assurance company Specialized Technology Resources (STR).
 
THE RIGHT TIER

As a retailer, you have a variety of options and strategies to choose from when introducing a new tier.
“Most retailers use a three-tier strategy for their private label offerings,” says Ricardo de la Blanca, chief executive officer and founder of Miami, Fla.-based multicultural branding company the DLB Group.

The tiers are value, the lowest price approach; national brand equivalents, which traditionally sell below competing national brands, and premium private label, which are “sometimes unique, specialty items [which] compete more on quality and innovation than they do on price. These items can truly expand their category sales, not just cannibalize the name brands, if done right,” de la Blanca says.
 
THE RIGHT TIME

“There are a number of indicators that broadly suggest a brand is ready for product expansion, much of it beginning where the brand is currently situated,” says Frankel. “The signs reveal themselves somewhat differently if the brand is perceived as low-end, middle or premium.”

There is no one right time to introduce a new tier.  New tiers should be customer driven.  If you identify a customer need in the marketplace, then the time is right, says MacLennan.

Your company could decide to introduce a new tier because a competitor’s upscale new tier is causing excitement in the marketplace or because customers are expressing market needs to the retailer through research and formal consumer feedback such as home use tests or consumer panels. 
 
SPEAKING TO THE CONSUMER

You must have a detailed understanding of why and what would cause customers to potentially tier up or tier down. Multi-tiered similar products need distinctive features in order for customers to be able to differentiate and not become confused during the shopping experience, explains MacLennan.

One of the best investments you can make is conducting customer research to quantify potential product benefits. “Take the time to place ideas and mock-ups of tiered products in front of consumers. Let them, through design of a small experiment, comment on what they see as differences.

“Consumers can give insight into ingredient differences, flavor profiles, pricing and aesthetics of packaging. Retailers that can carve out the attributes and segments that customers are looking [for] will have successfully created a tiered strategy,” he says. 

Your current value tier customer may be completely satisfied with his or her current purchases and not want another tier option.  A deep customer focus, complaint tracking, customer feedback analysis, private label return trends, along with formal consumer panels, can provide the insight needed.

Once you’ve established guidelines for a new tier, remember to plan for enough marketing support to get it noticed by your target market. Marketing can begin with something as seemingly simple as picking the name  for your new line.

 “The key to successful private label products is how the stores brand their items. Using just the store’s name for all tiers of private label products will not work. That’s because consumers view brands by category and by price,” says de la Blanca. “They do not want to buy the same brand for ice cream as they do for toilet paper. They also will not pay a premium price for a product if they see the same brand in another category at a bargain basement price. The idea is to get consumers to buy the mid- and upper-tier private label products without them realizing that they are buying private label. For this to occur, grocery stores need to think and start acting like their branded vendors when it comes to product and package design.”
 

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