Private Labels: A Consumer Perspective

Private label certainly is the talk about town these days. Really, though, one has to wonder what the media buzz is all about. Private label, after all, is no new kid on the block. Retailer brands (a.k.a., private label, store brands), after all, have been hanging around national name brands for more than a couple of decades. The question was never a matter of if as much as when private label would evolve to seriously threaten national name brand dominance and primary share of shelf space.

How far have private labels come? Most would agree private label brands have more than just arrived, they are here to stay. But this should not come as a big surprise to anyone either, as study after study has shown that in recent years nearly every consumer has purchased some type of private label product at some time. Consider that in the Hartman Groups 2006 report, Private Label from a Consumer Perspective, only 14 percent of consumers surveyed indicated they had not purchased any type of private label products in the past three months.

The pitched battle over shelf space between national name brands and retailers own brands is well documented in the media. Where once the retailer bowed to the national brand manufacturers every whim, the retailer is now the one in a position to demand and the name brand manufacturer either has to concede, play by the retailers rules or go away. Bottom line: branding is no longer the sole domain of national consumer packaged goods (CPG) manufacturers; retailers have taken a page out of the manufacturing play book and called it their own. There are even some industry analysts who forecast there soon will come a day when private label brands will deliver a knockout blow to all but the mightiest and savviest of national name brands.

Consumers arguably have shown a decided preference for name brands. A select number of popular brands have come to symbolize American culture itself. Iconic brands such as Coca-Cola, Disney, Levis, Nike, Volkswagen, Budweiser, Heinz and Harley Davidson are used as much for what they represent (i.e., a means of self expression, shared values, etc.) as for their functionality.

Such big brands have long been regarded as trendsetters because they have created a must have appeal. In beverages, for example, Red Bull led the charge in pioneering the energy drink category to the point where now this category is at the tipping point of overtaking and replacing soda pop as the leader in the soft drink category. In the near-term, at least, one could say the buzz Red Bull started definitely has played a significant role in the decline of overall soft drink sales.

The emergence and success of the energy drink category did not escape private label manufacturers who were quick to innovate and create their own versions, often going beyond the recognized name brand by offering more flavors in differentiated packaging, as in the case of 7-Elevens 20-oz. energy beverages in bottles instead of cans.

The question is whether private label brands have come far enough in the minds of consumers for these brands to compete as legitimate brands in their own right. From the consumer perspective, private labels have closed the gap with national brands. As Figure 1 indicates, one-third of consumers believe private labels are identical to national name brands and almost half (49 percent) see them as close but not yet on par with name brands. About one in 10 consumers believe private labels are better or superior to national brands. Only 5 percent of consumers perceive private labels to be inferior to national brands.

Attracted by Price, but Quality a Barrier

A variety of factors influence consumers decision-making when considering whether to purchase a private label product over a similar national brand product. As this process implies, comparison is one such key factor. How important is comparison in persuading consumers to buy a store brand? Most consumers need the national name brand product to compare private labels against.We found that for nearly seven in 10 consumers (67 percent) this point of comparison was indeed important. For one-quarter of consumers, comparing private labels with national name brands is very important.

What do consumers compare? Price and quality.Yet, while saving money is far and away the primary reason consumers cite for deciding to purchase a private label product over a similar national name brand product (by over 80 percent of consumers), the more murky concepts of value and quality are extremely important components of private label shopping.

Value (defined here as quality plus price) is the primary reason behind initial trial of private label products. As Figure 2 depicts, value is the leading factor among more than 90 percent of consumers as the most compelling reason for both first time and repeated private label purchases. For consumers with no prior familiarity with private label products, price (as an integral ingredient of total value) is the primary motivation for switching from a better known national name brand product.

In conversations with consumers, however, the process of purchasing private label can be a hit or miss proposition, as they believe private label product quality varies; but because the products offer savings over name brands, they are willing to try private labels until they find a product that meets all the criteria price, taste and quality.

Trust in the store selling private label products (expressed in terms of how consumers feel about the store) and marketing tactics (advertising, at-shelf promotions, coupons, etc.) are not strong inducements in and of themselves that incite consumers to switch from a national name brand. The bottom line is that no amount of savings or lowest prices compared to national brands can overcome a bad experience.

Opportunities for Private Label Brands

The battle for brand parity may be waged at the shelf, but the larger war is in winning the largest share of consumers minds. This is particularly true as shoppers become more fickle and unpredictable about which types of stores and channels they shop. Given the ubiquity of the food world, however, creating unique products so superior to private labels that they present imposing barriers to replication is a monumental challenge for any product manufacturer and marketer.

While many consumers want private label products sold next to similar national name brands for comparison purposes, there are other consumers looking for private labels products that are unique and offer an alternativea departure from the same, tired old name brand offerings. Contemporary brands like Trader Joes exemplify what the latter group of consumers seeks: the cultural connection between the brand and the consumer world.

The opportunity to build strong private label brands today is very significant. Consumers have spent years watching the evolution and transformation of private label products from low-price, lowquality and poorly packaged generics to high-quality products, which in many cases, are unique brands themselves (think Presidents Choice). Perhaps there is no better time than now for private label manufacturers to dispel and destroy the myth that private label products are national brands in sheeps clothingthat private label goods are, in fact, the exact same products produced by national brands, just with less expensive labels and packaging.

As Trader Joes, Costco and Wal-Mart demonstrate, private label brands effectively and significantly differentiate retailers. These companies have built strong private label brand associations in consumers minds when it comes to thinking of their stores for unique, relevant and meaningful destination shopping experiences.

Laurie Demeritt is the president and chief operating officer (COO) of The Hartman Group, a leading consulting and market research firm. The Hartman Group specializes in the analysis and interpretation of consumer lifestyles and how these lifestyles affect the purchase and use of health and wellness products and services. Their client base includes a number of Fortune 500 consumer packaged goods companies, pharmaceutical firms, and mass and natural food retailers. For more on the Pulse Report: Private Label from a Consumer Perspective, contact The Hartman Group at www.hartman-group.com.