Opinion: own brands are accelerating fast
Own brand or private label products have been in ascendancy over the past couple of years. By Helen Dickinson, head of retail at KPMGIn the current recessionary environment a range of factors - such as higher utility bills, spells of rising food inflation and declining consumer confidence - have converged to make consumers question the contents of their shopping baskets and try to make savings where possible.
One of the ways that we've seen this has happening has been through shoppers swapping branded products for ones with a private label. These sales were expected to grow by a compound annual growth rate (CAGR) of 4.2 percent between 2006 and 2011 according to Global Business Insights.
As private label products often cost less than branded goods it's an obvious way to make a saving. A survey conducted by Nielson Company in the US last year found that two thirds of consumers interviewed considered private label products as “extremely good value for money.”
At the same time the consumer perception that private label goods are inferior to branded ones is changing, with the same survey finding that 72 percent of consumers thought that private labels were good substitutes for branded products.
Far from letting this trend just run its course for the duration of the recession, the grocery chains have been actively using it as a key part of their marketing campaigns. Examples include Sainsbury's “Switch & Save” campaign which includes more than 500 products and offers consumers a way of indentifying potential cost savings on its website.
And retailers are looking to maximise on this opportunity by effectively marketing products in all segments, from low-value and standard lines through to premium ranges.
Private labels bring opportunities for product development too. It's a way of interacting directly with customers, and this in turn can allow retailers to develop better own brand products. By using feedback and customer insights, new products can be tested in-store and improvements incorporated quickly, with lower research and development costs than those incurred by manufacturers of branded goods testing a new product through a retail channel.
And there's also an opportunity to increase customer loyalty. After all, if shoppers purchase private label goods regularly and like what they buy, they aren't going to be able to buy exactly the same product elsewhere.
While branded products have the advantage of heritage and tradition, private labels score on simplicity. However, by simplifying their product positioning, manufacturers of branded products can counter the competition from simpler and cheaper private label products. Many are successfully achieving this through focusing on simple brand messages that help customers relate to the brand's heritage and tradition and by following traditional processes for new product development and communicating this to the customers through effective marketing.
Innovation remains the key to ensure success. Some consider branded manufacturers to be better placed to innovate than retailers and private label growth is certainly less successful in those categories where brand manufacturers continue to innovate.
This area is another interesting example of how the recession is shaping different aspects of the industry, with economic forces giving retailers an opportunity to showcase their private labels goods and set about changing the perception that they are a compromise or a lower quality alternative to branded products.
As the economy continues to be difficult and consumers remain price-sensitive, this trend doesn't looks like changing any time soon. And whether the charge of the private label will carry on after a recovery depends on whether retailers continue to deliver quality and innovation. As I often say, recessions create a clearer gap between the winners and losers and in the battle of the brands. It's all to play for.
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