Channels / Drug / Grocery
Guest Commentary

Satisfaction No Longer Motivates

November 26, 2012
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From one perspective the news on private label could hardly be better. After all, product quality is much higher these days, and consumer perception has changed dramatically as well. Studies show that about two-thirds of shoppers believe private-label products are as good as the national brands.

“Shoppers report feeling good about buying private label products,” notes a May 2012 report by Perception Research Services International. “Over half (51 percent) say they feel smart/savvy when they buy private label products; and very few – only 11 percent – say they feel self-conscious, with almost none – 3 percent – saying they feel embarrassed when doing so.”

Moreover, according to analysts with the research firm Mintel, today’s rosier perceptions “point to the potential for continued growth in private-label food sales and share.” Other observers cite the boost provided by tough economic times. Consumers, they note, are still trading down to private label in droves.

But let’s take a step back and look at the situation from a different perspective.

When researchers still feel compelled to ask people whether they feel self-conscious or embarrassed about buying private-label brands, what does that say about the state of things? Regarding those statistics, imagine what would happen if somebody handed those numbers to a brand manager at, say, Coca-Cola. Odds are the executive would shout something along the lines of, “Oh my God! Only 70 percent of the people think our product is as good as Pepsi? Only half feel smart and savvy when they buy our brand? There are actually people who feel self-conscious or embarrassed when they walk up to the counter to buy a Coke! That’s terrible! This will not do!”

And if economic doldrums have played such an outsized role in private label’s recent growth, what does this say about how well companies have positioned their brands in customers’ minds? Or better yet, are they actually positioning brands – or are they merely putting products out on the shelf?

Satisfaction no longer motivates. Those who market, manufacture and sell private-label products should be proud of progress, yet they should not be satisfied. Amid the ferocious competition in American retailing today, private-label brands need to be aggressive. The goal should be to build consumer loyalty, provide a point of difference and, ultimately, drive profits – not just to beat national brands at their own game.

As private-label growth stabilizes and consumers tire of frugality for frugality’s sake, private-label brands will be under the gun to seek deeper connections with consumers. In 2009, one-third of adults said they expected to buy more private-label foods over the prior year, according to NPD Group. But in 2012 that number had dropped to one fourth, as the economy improved and national brands did more to fight back. The time is now to secure a better, more lasting perception in consumers’ minds and hearts.

To be sure, those merchants with the highest share of private-label sales – names such as Safeway, Wegmans, Kroger and Target – know how to create, market and merchandise brands with skill. But many retail companies are still fuzzy on the critical distinction between product-led and brand-led strategies.

A typical approach to a product-led strategy may run something like this: Presented with a product to sell, the retailer evaluates its market sales potential, decides to include it in his category mix, and then says, “Now what brand should this go in? Do we have a brand that suits this? No? OK, then we’ll create another brand.”
I’m exaggerating, but not too much.

In a brand-led strategy, by contrast, the retailer marries deep-dive market and customer analysis with a long-term vision that includes the customers the chain would like to have in the future, as well as the kind of image it would like to have in the market. The private-label strategy hinges on creating brands that serve all of these objectives. Some of the parameters of those brands might be related to quality, but the brand is not driven primarily by individual product attributes.

Duane Reade’s Good n’ Delish brand, created in partnership with CBX, is an example of how customer insights and desired positioning can drive brand-development.

Here, the Walgreen Co.-owned, New York City drugstore chain took a close look at its affluent customer base and identified a substantial opportunity to sell more premium food. Duane Reade knew its stores were in a very affluent marketplace and had a deep understanding of its customers and their preferences. Delish as a brand name offers a touch of urban slang that you would hear in New York City all the time. For Duane Reade, the positioning is all about New York living made easy. By offering a premium brand of food that New Yorkers could relate to, Duane Reade saw a surefire way to connect with its core customers. With each product addition to this brand – premium cookies, candies, pastas and more -- Duane Reade has been able to make this brand’s story come to life in its customers’ minds, a destination point that differentiated those stores from the competition.

This is an approach to private label in which brands are regarded as assets. Although Coca-Cola certainly has billions of dollars in factories, trucks and other physical assets, just think of the massive value of the Coke brand itself, which is the best-recognized brand on the planet.

By thinking about private label a bit differently – in other words, as a marketing tool versus a margin enhancer – retailers can set themselves apart, bolster shopper loyalty, improve price perception and boost their bottom lines through the higher gross margins these products deliver.

The best retailers think of their private-label vendors as partners, not as mere procurement sources. They work together to create a reason for customers to believe in a brand. They also merchandise with pride, and promote their brands as though they were national leaders – not lower-tier alternatives.

When you really think about it, the statistics for private label are positive, yes, but should you be satisfied? I say “not.”

By taking a step back and thinking about things a little differently, retailers and manufacturers can take private label to the next level. The trick to staying ahead of the curve is easily summed up in a straightforward slogan: “Never be satisfied.”

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