Description
report is to analyze the contribution of brand management, in specific retailer brands (private labels) to the overall retail positioning.
Private Labels and Store Brand Image
Table of Contents
Table of Contents..................................................................................................................................2 Private labels and store Brand Image...................................................................................................3 Private Labels: AC Nielsen Survey:.....................................................................................................3 Private Label strategies:.......................................................................................................................4 Trading-up and the consumer perceptions of own-brand quality.........................................................4 Impact of Own Brands on the Retail Brand:........................................................................................4 From a customer perspective, brands have four main functions -........................................................5 Retailer’s commitment to consumer choice and hence driving loyalty................................................5 Primary Research Findings...................................................................................................................6 References............................................................................................................................................9
2
Private labels and store Brand Image
Retail Branding has developed to such an extent that, today, retailers are perceived as being brands in themselves rather than as distributors of manufacturer brands. The strong consumer traffic and hence consumer franchise that retailers have developed has led to the situations that customers are more loyal to the retailer than they are to the manufacturer's brand. Retailers have been rewarded for their focus on customer needs and aspirations by increased levels of trust from customers. The objective of this study was to analyse the contribution of brand management, in specific retailer brands (private labels) to the overall retail positioning. The growth of retailer brands, variously known as own brands, own labels, private labels and store brands, has paralled the growth of multiples, particularly in the grocery sector. It was in the 1960s that the major multiple retailers began to realize that they could increase their margins significantly if they did not have to pay for manufacturers' branding overheads. Own brands have proved popular with consumers, particularly during periods of economic difficulty when value for money is becoming increasingly important to consumers. Private Label brands are defined as a product line which is owned, controlled, merchandised and sold by a specific retailer in its own stores. They enable a retailer to attain higher margins by providing higher value to the customers and by saving costs. They also increase a retailers’ bargaining power with the suppliers of national brands. Shopper's Stop gets more than 15 per cent of its total sales through private label brands. Private labels should be more consumer-centric. They should fill up the consumer need gaps. Retailers are quite close to the customer and observe the shopping behaviour of the consumers and thus are in a better position to design suitable products. The question was: Should a private label contribute to the store's image or should store's image be used to market a private label?
Private Labels: AC Nielsen Survey:
Westside chain of stores is heavily dependent (more than 90 per cent) on private labels. Food World is increasing its count of private labels. Europe has the heights value of shares of private labels at 22 per cent. In dollar terms, North America is the biggest market for private labels at 16 percent. These days there are premium private labels, which cost, higher than competitive brands, e.g., Shoppers' Stop markets – Kashish a premium ethnic-wear brand. Its Stop brand is economical and Life brand is a fashion label.
3
Private Label strategies:
Private Label Strategy Discounting Copy-cat branding Remarks No-frills, generic brand at a discounted price Imitation of manufacturers brand in appearance and trade dress. Generally a lower priced version and of lower quality Invitation of manufacturer's brand in appearance and trade dress. But quality is on par with the national brand. The price is lower Better quality than that of the national brands. Modest price saving
Invitation-to-compare branding
Premium Private Labels
Trading-up and the consumer perceptions of ownbrand quality
In order for retailers to successful position themselves against manufacturers' brands, as own brands trade up, they need to communicate the improved quality of the products to customers. Initially, private label brands developed a low-priced strategy to compete with national brands. They aimed at attracting low-income consumers who were price-conscious. By making price as the cornerstone of strategy, the private label brands grew at the expense of some of the heavily advertised national brands and items. And until recently, research has shown that consumers rate own labels as inferior in comparison with national brands on a number of important product attributes including quality. At equal prices, consumers preferred the national brand to a private label (Narasimhan and Wilcox, 1998). This preference asymmetry was attributed to perceived quality differences between the national brand and private label (Hoch and Banerji, 1993) as well as differences in image-building advertising support. This is despite the fact that in many cases the quality of own labels is the same or higher than manufacturer brands. This suggests that other informational cues such as price and product positioning, packaging are being used by consumers to assess quality.
Impact of Own Brands on the Retail Brand:
It is implicit in the very concept of an Own Brand that it shall have a bearing on the retail brand and vice versa. With some own-brand strategies the retailer attempts to maintain a distance between itself, that is the retail brand and the own brand. With other strategies such as house brand and fascia brand strategies, the own-brands are an integral part of the retail brand itself. Hence, retailers have to be clear about where the own-branding strategy fits in with their overall branding strategies for the store. This also implies that retailers must constantly monitor the relative contribution of own brands and manufacturer brands to their overall retail brand image. For 4
example, it is widely regarded that one of the factors in Sainsbury's loss of UK grocery market leadership to Tesco was that the proportion of own brands in its stores had become too high. Category management, the process of managing products as categories rather than individual brands or product lines, can help retailers manage the balance between own brands and manufacturers more effectively.
From a customer perspective, brands have four main functions Identification Information Guarantee of product quality Symbolic associations In the main, the success of own-label products has occurred because retailers have demonstrated that they can perform the first three functions just as well as the brand manufacturers. And that the manufacturer’s brands have an advantage relative to own brand where symbolic associations and/or product innovation are important to customers. Conversely, where symbolic associations and product innovation are less important there is an opportunity for retailers to compete successfully with manufacturer brands if they can demonstrate comparable product quality and provide value for money. Manufacturers of national brands had the realization that it would be almost impossible to beat private labels’ prices on a regular basis and therefore competitive advantage for national brands relied on superior quality and highly differentiated images via advertising, product innovation, creative and aesthetically pleasing design
Retailer’s commitment to consumer choice and hence driving loyalty
Retailers, by and large, do not stock private labels in only one particular category, but provide a number of private label brands in their assortment to consumers. Overall retail store strategy in terms of commitment to quality not only enhances the retailer’s store brand performance in all categories but also influences customers’ choice of store as preferred destination
5
Primary Research Findings
As part of the project a selected set of stores were visited and studied: • Shoppers' Stop – Juhu • Tata Croma – Juhu • Next Retail – Sakinaka • Mumbai Central - Goregaon Store managers, marketing heads and department heads were interviewed for their views on private label management and the responses we got shall be categorised as: “Store Brands give retailers a better bargaining power against national brands, but at the same time can also risk the national brand withdrawing partially or completely from the store itself”Shoppers' Stop “Store Brands help the retailer offer a wider assortment of products within the same category” Shoppers' Stop “Once Store Brands are established, how to market them outside of the Stores also”- Next Retail “Gap filling or consumer need filling” - Tata Croma “Need for advertising but that shall increase expenditures and hence the cost or margin advantage would be lost” - Tata Croma “ Consumer database and preferences are available and hence promotions can be appropriately directed” - Mumbai Central “Product quality perceptions hamper growth for own label, especially in high involvement products like Laptops” - Tata Croma and Next Retail “Price perceptions play an important role, for example in apparel consumers would go for national brands at same price points, similarly in case of laptops at similar or lower price points consumers go for national brands or national brands that are priced lower say “Zenith pcs” - Shoppers' Stop and Next Retail “Visual merchandising plays an important role in pushing in store brands” - Tata Croma “Positioning it near national brands gives us the visibility rather than a standalone kiosk” - Tata Croma All the responses elicited from a qualitative data gathering from the selected retail stores elicited to us the fact that these were actually in tune with a lot of the findings of research work done on private labels. The concerns raised by Ram Herstein and Eugene D. Jaffe about the importance of increase in the depth of the category, Diane Halstead and Cheryl B. Ward's comment in their work on increased costs due to need for advertising and promotions. Narasimhan and Wilcox, 1998 observation that consumers prefer national brands at comparable price points was also substantiated by the above study.
6
“Store Brands give retailers a better bargaining power against national brands, but at the same time can also risk the national brand withdrawing partially or completely from the store itself”- Shopper’s Stop
Store brands may carry the store’s name (e.g., Pantaloon, Westside) or a name unique to the retailer (e.g., Life, Stop at Shopper’s Stop). But even in one individual store, the situation on the shelf can be quite complex. A shopper may face multiple tiers of private labels: generics offered at substantially lower prices than brands; “imitation” brands designed to emulate the quality of brands at a reduced price; and premium offerings at price parity or slightly above brand pricing. In Emerging Markets like India, sales of Private Label products are growing at 10% per annum, which is twice the overall rate. It is a result of a complex situation with contributions coming from brand manufacturers, retailers, and shoppers, accelerated by changes in economic conditions and the media environment. The Manufacturer: For many years, manufacturers have focused their marketing activities on the “consumer” to the detriment of the “shopper.” By using continual price promotion and reduced advertising, marketers undermined loyalty to their brands. Meanwhile, the retailer focused on people’s shopping behavior and found ways to improve the experience of people visiting their stores. Only recently have manufacturers teamed up with retailers to create programs that focus on the consumer in a shopping role. The Retailer: Retailers have a great deal to gain from growth in private labels. Not only do they gain margin from their own brands, but they can also differentiate themselves from the competition with unique offerings. Now retailers have more opportunity to successfully launch brands under their own banners with minimal marketing investment. This loss of mass-marketing opportunity favors the emergence of more narrowly targeted products. Retailers, because of their close relationships with shoppers, can take advantage of this and target specific lines to match local needs. As media have fragmented, it has become harder to generate mass communication on the scale that is typically used to launch brands. The Shopper: There are primarily two main reasons for the success of private label among the shoppers. • Generally low price of the private brand • Ignorance at the part of the shopper, not knowing that the product that they purchased is a private label. While the former is true during a recession or a period of escalating prices (like the one we are currently experiencing), consumers are more willing to try private label products. While many will return to traditionally branded products when the economy turns around, some will stay with private labels, thus driving up the baseline level for those products. The latter reason is true mainly in apparel and durables. Retailers typically emulate the packaging of the leading brand to signal the shopper that they product is similar to the branded product that he is looking for. 7
Disadvantages of having too many Private Label Despite the activity surrounding private brands, Indian retailers recognize that it is highly unlikely that a private label will unseat the number-one player in any category. In fact, the conventional wisdom is that when a private label enters a category, it is more likely to take away market share from the brands in second and third place. Most retailers are aiming for about 50% revenue from their own labels, though there are exceptions. Pantaloon, the Future Group's apparel store, has an own-brand ratio of more than 80%, while the ratio is even higher for Trent's Westside stores. Consultants advise against tilting too much in favor of private brands. If manufacturer brands decide to walk out and the in-store variety is compromised as a result, customers may follow. Steps Marketer or Brand manager can take to protect its brand from Private Label 1. They can work to increase consumers’ perceived risk of switching. This means changing the competitive equation from price paid to value delivered. If brands persist in excessive price promotion, consumer loyalty to brands will continue to erode. Brands need to innovate, differentiate and clearly communicate why they are worth their price. This mainly happens in Beauty or Cosmetic products. It is critical for shoppers to trust these products, and brands have invested a great deal in developing high levels of trust. 2. Manufacturers should strive to “move up the food chain.” That is, they should process, refine, and generally get as far as possible from the generic or commodity status of the category. The more value you add, the less likely you are to be emulated or undercut on price. 3. Marketers should try creating exciting brand experiences in retail. Nokia Priority Centre, Sports brand like Reebok, Adidas etc showed how brands can take control of the consumer experience and use it to enhance the way they are perceived. In this way the consumer and shopper experiences come together, both fully managed by the brand marketer.
“Store Brands help the retailer offer a wider assortment of products within the same category” - Shoppers' Stop
Retail chains by the virtue of its place in the supply chain are placed closest to the end consumer. They are thus positioned to understand the consumer, its preferences, its behaviour in the most elaborate and extensive manner and hence can design product that are customized to suits the consumers need in the best possible manner. Hence, unlike national brands where such differences are muted, with private labels, customizing their offering is critical. For eg Food Bazaar came up with a private label called “Tasty Treat” a few year ago. Understanding the consumer behaviour and preferences they have placed “Tasty Treat Kasundi” in the areas where there is significant Bengali population and “Tasty Treat Thepla and Khakra” near Gujrati population. The fundamental reason for the success of private labels is their price advantage, made possible by their nonexistent or very limited spending on product development and brand promotion. The bulk of the products are reverse-engineered copies of category leaders and they are promoted within the store, not advertised outside. The bulk of the communication, to the cutomers happens at the store level. That's because most retailers accept that 80% of purchase decisions are made at the store shelf, and the store is where they have maximum control. Thus, most retailers work on creating 8
multiple touch points within the store, through extensive in-store advertising and placement strategy. Following are the reasons that might have resulted in such a sudden upsurge of Private Brands in India 1. Higher Margins For retailers, gross margins on private labels are, on average, 25% to 30% higher than on those of manufacturer brands. In consumer products especially, retailers' margins on national brands are in the 12% to 17% range, which is not enough to offset the cost of modern trade overhead. With a house brand, the margin can be upward of 40% 2. Greater Leverages with Manufacturer The introduction of a store label also gives the retailer greater leverage with manufacturer margins and an increased ability to ride out business cycles, because the retailer has more leeway in pricing, marketing strategies and long-term planning. 3. Helps Retailers differentiate themselves Retailers view manufacturer brands as little more than commodities that can be easily procured from any outlet. Store brands, then, help retailers differentiate themselves. If a store brand becomes popular enough to become a destination brand, it has implications for customer loyalty and profitability. 4. Economic downturn arouse Cost consciousness among consumers Private label sales typically increase during a recession as cost-conscious consumers trade down from branded products. While brands tend to return to favor when the economy recovers, the correction isn't to the same degree and hence there is a net positive effect on the consumer base of private label. 5. “Contract” Manufacturing and trained Sales Personnel are added advantage Retail stores' sales personnel also play a role, especially when communicating the store brand's advantages. The price angle is rarely the focus of the sales pitch. Instead, the emphasis is on how the house brand is superior or similar in quality to the leading brand. Most retailers in India source their private label products from "contract" manufacturers. Importantly, big brands often source from similar third-party suppliers, a move that has implications for the retailer. Not only do margins increase, the quality of the private label product is likely to be closely matched with the national brand. For consumers who are sitting on the fence, that argument is often the clincher
References
• “Why do leading brand manufacturers supply private labels” – Tomez Gomez and Laurentino Bello • “Assessing the vulnerability of private label brands” – Diane Halstead and Cheryl B.ward • “Launching store brands in emerging markets: resistance crumbles” – Ram Herstein and Eugene D.Jaffe • Personal interviews with Store Managers and Department heads of o Shoppers’ Stop – Juhu
9
o Tata Croma – Juhu o Mumbai central – Goregaon o Next Retail - Sakinaka
10
doc_938229966.doc
report is to analyze the contribution of brand management, in specific retailer brands (private labels) to the overall retail positioning.
Private Labels and Store Brand Image
Table of Contents
Table of Contents..................................................................................................................................2 Private labels and store Brand Image...................................................................................................3 Private Labels: AC Nielsen Survey:.....................................................................................................3 Private Label strategies:.......................................................................................................................4 Trading-up and the consumer perceptions of own-brand quality.........................................................4 Impact of Own Brands on the Retail Brand:........................................................................................4 From a customer perspective, brands have four main functions -........................................................5 Retailer’s commitment to consumer choice and hence driving loyalty................................................5 Primary Research Findings...................................................................................................................6 References............................................................................................................................................9
2
Private labels and store Brand Image
Retail Branding has developed to such an extent that, today, retailers are perceived as being brands in themselves rather than as distributors of manufacturer brands. The strong consumer traffic and hence consumer franchise that retailers have developed has led to the situations that customers are more loyal to the retailer than they are to the manufacturer's brand. Retailers have been rewarded for their focus on customer needs and aspirations by increased levels of trust from customers. The objective of this study was to analyse the contribution of brand management, in specific retailer brands (private labels) to the overall retail positioning. The growth of retailer brands, variously known as own brands, own labels, private labels and store brands, has paralled the growth of multiples, particularly in the grocery sector. It was in the 1960s that the major multiple retailers began to realize that they could increase their margins significantly if they did not have to pay for manufacturers' branding overheads. Own brands have proved popular with consumers, particularly during periods of economic difficulty when value for money is becoming increasingly important to consumers. Private Label brands are defined as a product line which is owned, controlled, merchandised and sold by a specific retailer in its own stores. They enable a retailer to attain higher margins by providing higher value to the customers and by saving costs. They also increase a retailers’ bargaining power with the suppliers of national brands. Shopper's Stop gets more than 15 per cent of its total sales through private label brands. Private labels should be more consumer-centric. They should fill up the consumer need gaps. Retailers are quite close to the customer and observe the shopping behaviour of the consumers and thus are in a better position to design suitable products. The question was: Should a private label contribute to the store's image or should store's image be used to market a private label?
Private Labels: AC Nielsen Survey:
Westside chain of stores is heavily dependent (more than 90 per cent) on private labels. Food World is increasing its count of private labels. Europe has the heights value of shares of private labels at 22 per cent. In dollar terms, North America is the biggest market for private labels at 16 percent. These days there are premium private labels, which cost, higher than competitive brands, e.g., Shoppers' Stop markets – Kashish a premium ethnic-wear brand. Its Stop brand is economical and Life brand is a fashion label.
3
Private Label strategies:
Private Label Strategy Discounting Copy-cat branding Remarks No-frills, generic brand at a discounted price Imitation of manufacturers brand in appearance and trade dress. Generally a lower priced version and of lower quality Invitation of manufacturer's brand in appearance and trade dress. But quality is on par with the national brand. The price is lower Better quality than that of the national brands. Modest price saving
Invitation-to-compare branding
Premium Private Labels
Trading-up and the consumer perceptions of ownbrand quality
In order for retailers to successful position themselves against manufacturers' brands, as own brands trade up, they need to communicate the improved quality of the products to customers. Initially, private label brands developed a low-priced strategy to compete with national brands. They aimed at attracting low-income consumers who were price-conscious. By making price as the cornerstone of strategy, the private label brands grew at the expense of some of the heavily advertised national brands and items. And until recently, research has shown that consumers rate own labels as inferior in comparison with national brands on a number of important product attributes including quality. At equal prices, consumers preferred the national brand to a private label (Narasimhan and Wilcox, 1998). This preference asymmetry was attributed to perceived quality differences between the national brand and private label (Hoch and Banerji, 1993) as well as differences in image-building advertising support. This is despite the fact that in many cases the quality of own labels is the same or higher than manufacturer brands. This suggests that other informational cues such as price and product positioning, packaging are being used by consumers to assess quality.
Impact of Own Brands on the Retail Brand:
It is implicit in the very concept of an Own Brand that it shall have a bearing on the retail brand and vice versa. With some own-brand strategies the retailer attempts to maintain a distance between itself, that is the retail brand and the own brand. With other strategies such as house brand and fascia brand strategies, the own-brands are an integral part of the retail brand itself. Hence, retailers have to be clear about where the own-branding strategy fits in with their overall branding strategies for the store. This also implies that retailers must constantly monitor the relative contribution of own brands and manufacturer brands to their overall retail brand image. For 4
example, it is widely regarded that one of the factors in Sainsbury's loss of UK grocery market leadership to Tesco was that the proportion of own brands in its stores had become too high. Category management, the process of managing products as categories rather than individual brands or product lines, can help retailers manage the balance between own brands and manufacturers more effectively.
From a customer perspective, brands have four main functions Identification Information Guarantee of product quality Symbolic associations In the main, the success of own-label products has occurred because retailers have demonstrated that they can perform the first three functions just as well as the brand manufacturers. And that the manufacturer’s brands have an advantage relative to own brand where symbolic associations and/or product innovation are important to customers. Conversely, where symbolic associations and product innovation are less important there is an opportunity for retailers to compete successfully with manufacturer brands if they can demonstrate comparable product quality and provide value for money. Manufacturers of national brands had the realization that it would be almost impossible to beat private labels’ prices on a regular basis and therefore competitive advantage for national brands relied on superior quality and highly differentiated images via advertising, product innovation, creative and aesthetically pleasing design
Retailer’s commitment to consumer choice and hence driving loyalty
Retailers, by and large, do not stock private labels in only one particular category, but provide a number of private label brands in their assortment to consumers. Overall retail store strategy in terms of commitment to quality not only enhances the retailer’s store brand performance in all categories but also influences customers’ choice of store as preferred destination
5
Primary Research Findings
As part of the project a selected set of stores were visited and studied: • Shoppers' Stop – Juhu • Tata Croma – Juhu • Next Retail – Sakinaka • Mumbai Central - Goregaon Store managers, marketing heads and department heads were interviewed for their views on private label management and the responses we got shall be categorised as: “Store Brands give retailers a better bargaining power against national brands, but at the same time can also risk the national brand withdrawing partially or completely from the store itself”Shoppers' Stop “Store Brands help the retailer offer a wider assortment of products within the same category” Shoppers' Stop “Once Store Brands are established, how to market them outside of the Stores also”- Next Retail “Gap filling or consumer need filling” - Tata Croma “Need for advertising but that shall increase expenditures and hence the cost or margin advantage would be lost” - Tata Croma “ Consumer database and preferences are available and hence promotions can be appropriately directed” - Mumbai Central “Product quality perceptions hamper growth for own label, especially in high involvement products like Laptops” - Tata Croma and Next Retail “Price perceptions play an important role, for example in apparel consumers would go for national brands at same price points, similarly in case of laptops at similar or lower price points consumers go for national brands or national brands that are priced lower say “Zenith pcs” - Shoppers' Stop and Next Retail “Visual merchandising plays an important role in pushing in store brands” - Tata Croma “Positioning it near national brands gives us the visibility rather than a standalone kiosk” - Tata Croma All the responses elicited from a qualitative data gathering from the selected retail stores elicited to us the fact that these were actually in tune with a lot of the findings of research work done on private labels. The concerns raised by Ram Herstein and Eugene D. Jaffe about the importance of increase in the depth of the category, Diane Halstead and Cheryl B. Ward's comment in their work on increased costs due to need for advertising and promotions. Narasimhan and Wilcox, 1998 observation that consumers prefer national brands at comparable price points was also substantiated by the above study.
6
“Store Brands give retailers a better bargaining power against national brands, but at the same time can also risk the national brand withdrawing partially or completely from the store itself”- Shopper’s Stop
Store brands may carry the store’s name (e.g., Pantaloon, Westside) or a name unique to the retailer (e.g., Life, Stop at Shopper’s Stop). But even in one individual store, the situation on the shelf can be quite complex. A shopper may face multiple tiers of private labels: generics offered at substantially lower prices than brands; “imitation” brands designed to emulate the quality of brands at a reduced price; and premium offerings at price parity or slightly above brand pricing. In Emerging Markets like India, sales of Private Label products are growing at 10% per annum, which is twice the overall rate. It is a result of a complex situation with contributions coming from brand manufacturers, retailers, and shoppers, accelerated by changes in economic conditions and the media environment. The Manufacturer: For many years, manufacturers have focused their marketing activities on the “consumer” to the detriment of the “shopper.” By using continual price promotion and reduced advertising, marketers undermined loyalty to their brands. Meanwhile, the retailer focused on people’s shopping behavior and found ways to improve the experience of people visiting their stores. Only recently have manufacturers teamed up with retailers to create programs that focus on the consumer in a shopping role. The Retailer: Retailers have a great deal to gain from growth in private labels. Not only do they gain margin from their own brands, but they can also differentiate themselves from the competition with unique offerings. Now retailers have more opportunity to successfully launch brands under their own banners with minimal marketing investment. This loss of mass-marketing opportunity favors the emergence of more narrowly targeted products. Retailers, because of their close relationships with shoppers, can take advantage of this and target specific lines to match local needs. As media have fragmented, it has become harder to generate mass communication on the scale that is typically used to launch brands. The Shopper: There are primarily two main reasons for the success of private label among the shoppers. • Generally low price of the private brand • Ignorance at the part of the shopper, not knowing that the product that they purchased is a private label. While the former is true during a recession or a period of escalating prices (like the one we are currently experiencing), consumers are more willing to try private label products. While many will return to traditionally branded products when the economy turns around, some will stay with private labels, thus driving up the baseline level for those products. The latter reason is true mainly in apparel and durables. Retailers typically emulate the packaging of the leading brand to signal the shopper that they product is similar to the branded product that he is looking for. 7
Disadvantages of having too many Private Label Despite the activity surrounding private brands, Indian retailers recognize that it is highly unlikely that a private label will unseat the number-one player in any category. In fact, the conventional wisdom is that when a private label enters a category, it is more likely to take away market share from the brands in second and third place. Most retailers are aiming for about 50% revenue from their own labels, though there are exceptions. Pantaloon, the Future Group's apparel store, has an own-brand ratio of more than 80%, while the ratio is even higher for Trent's Westside stores. Consultants advise against tilting too much in favor of private brands. If manufacturer brands decide to walk out and the in-store variety is compromised as a result, customers may follow. Steps Marketer or Brand manager can take to protect its brand from Private Label 1. They can work to increase consumers’ perceived risk of switching. This means changing the competitive equation from price paid to value delivered. If brands persist in excessive price promotion, consumer loyalty to brands will continue to erode. Brands need to innovate, differentiate and clearly communicate why they are worth their price. This mainly happens in Beauty or Cosmetic products. It is critical for shoppers to trust these products, and brands have invested a great deal in developing high levels of trust. 2. Manufacturers should strive to “move up the food chain.” That is, they should process, refine, and generally get as far as possible from the generic or commodity status of the category. The more value you add, the less likely you are to be emulated or undercut on price. 3. Marketers should try creating exciting brand experiences in retail. Nokia Priority Centre, Sports brand like Reebok, Adidas etc showed how brands can take control of the consumer experience and use it to enhance the way they are perceived. In this way the consumer and shopper experiences come together, both fully managed by the brand marketer.
“Store Brands help the retailer offer a wider assortment of products within the same category” - Shoppers' Stop
Retail chains by the virtue of its place in the supply chain are placed closest to the end consumer. They are thus positioned to understand the consumer, its preferences, its behaviour in the most elaborate and extensive manner and hence can design product that are customized to suits the consumers need in the best possible manner. Hence, unlike national brands where such differences are muted, with private labels, customizing their offering is critical. For eg Food Bazaar came up with a private label called “Tasty Treat” a few year ago. Understanding the consumer behaviour and preferences they have placed “Tasty Treat Kasundi” in the areas where there is significant Bengali population and “Tasty Treat Thepla and Khakra” near Gujrati population. The fundamental reason for the success of private labels is their price advantage, made possible by their nonexistent or very limited spending on product development and brand promotion. The bulk of the products are reverse-engineered copies of category leaders and they are promoted within the store, not advertised outside. The bulk of the communication, to the cutomers happens at the store level. That's because most retailers accept that 80% of purchase decisions are made at the store shelf, and the store is where they have maximum control. Thus, most retailers work on creating 8
multiple touch points within the store, through extensive in-store advertising and placement strategy. Following are the reasons that might have resulted in such a sudden upsurge of Private Brands in India 1. Higher Margins For retailers, gross margins on private labels are, on average, 25% to 30% higher than on those of manufacturer brands. In consumer products especially, retailers' margins on national brands are in the 12% to 17% range, which is not enough to offset the cost of modern trade overhead. With a house brand, the margin can be upward of 40% 2. Greater Leverages with Manufacturer The introduction of a store label also gives the retailer greater leverage with manufacturer margins and an increased ability to ride out business cycles, because the retailer has more leeway in pricing, marketing strategies and long-term planning. 3. Helps Retailers differentiate themselves Retailers view manufacturer brands as little more than commodities that can be easily procured from any outlet. Store brands, then, help retailers differentiate themselves. If a store brand becomes popular enough to become a destination brand, it has implications for customer loyalty and profitability. 4. Economic downturn arouse Cost consciousness among consumers Private label sales typically increase during a recession as cost-conscious consumers trade down from branded products. While brands tend to return to favor when the economy recovers, the correction isn't to the same degree and hence there is a net positive effect on the consumer base of private label. 5. “Contract” Manufacturing and trained Sales Personnel are added advantage Retail stores' sales personnel also play a role, especially when communicating the store brand's advantages. The price angle is rarely the focus of the sales pitch. Instead, the emphasis is on how the house brand is superior or similar in quality to the leading brand. Most retailers in India source their private label products from "contract" manufacturers. Importantly, big brands often source from similar third-party suppliers, a move that has implications for the retailer. Not only do margins increase, the quality of the private label product is likely to be closely matched with the national brand. For consumers who are sitting on the fence, that argument is often the clincher
References
• “Why do leading brand manufacturers supply private labels” – Tomez Gomez and Laurentino Bello • “Assessing the vulnerability of private label brands” – Diane Halstead and Cheryl B.ward • “Launching store brands in emerging markets: resistance crumbles” – Ram Herstein and Eugene D.Jaffe • Personal interviews with Store Managers and Department heads of o Shoppers’ Stop – Juhu
9
o Tata Croma – Juhu o Mumbai central – Goregaon o Next Retail - Sakinaka
10
doc_938229966.doc