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12/04/2020

Creating the right pricing strategy for private label brands

Almost nine out of 10 consumers trust private brands as much as they do national brands, signaling massive sales potential in the category as shoppers become less brand loyal and more concerned about availability. The pandemic is driving this behavioral shift even further, which means the trend towards store brands will only continue to grow.

To fully take advantage of this opportunity, retailers must understand how to create the right pricing strategy that will ensure their private label brand pricing is accurate and competitive without cutting into demand. Here are three questions that retailers should ask themselves as they prepare the right pricing strategy for their store brands.  

What Is the Purpose of the Brand?
First, a retailer must establish the goal or purpose of the private label brand. It could be to attract more price-conscious consumers looking for a value or substitute brand, which means items should be priced according to the national counterpart. Or the goal could be to create a quality product that differentiates itself as a unique and premium alternative, which means focusing more on the ingredients than on offering entry level prices.

Some retailers may have numerous private label brands that serve different purposes. For example, Target has its Market Pantry brand as its opening price point brand where consumers can get a bag of frozen fries at a low price. An example of one of Target’s differentiating brands is Good & Gather, where it can potentially charge more because shoppers recognize it as a unique and quality option with great flavor profiles. By understanding the purpose of the private label brand, retailers will have a better sense of whom they’re targeting and how to set their pricing strategy accordingly.

What Is Your Global Brand Perception?
Just like with any brand, retailers must have a global strategy that’s consistent and applied across all buyers. Retailers who don’t have a global pricing strategy won’t be cohesive across all products. For instance, they could end up pricing private label mashed potatoes 10% higher than the national brand and everything else 10% lower. An incoherent global strategy will create price gaps that confuse shoppers and does a disservice to the overall brand image.

Retailers must also properly build the brand gap architecture for each category level. They need to move away from looking at the cost structure and basing the price point on margins. Instead, savvy retailers will use analytics that listen to consumers and what they’re saying about that product. It also requires using elasticity signals to learn about the evolving trends of the private label brand and how it should compare to its competitors or counterparts. Who knows? The private label brand product may have a devout following and become even more popular than the national brand product, with the optimal price gap strategy shifting over time as demand changes.

How Do You Determine Your Competitive Position?
As retailers think through their pricing strategies, they must also understand which products to index their private label price against. For example, do you compare with a national brand counterpart like Chobani or with a competitor’s, like Kroger’s or Walmart’s, private label brand? This is one of the most difficult things for many retailers to figure out.

Retailers can look at the data to understand customers’ cross shopping behaviors. By investing in advanced pricing platforms that can price against both national brands and competitor private labels dynamically, they don’t have to do one or the other. Instead, they can take both national and competitor brands into account and make sure they’re priced competitively against both national brands and competitors’ private label brands, setting a competitive strategy structure that wins on both fronts. 

AI Can Help Enforce Your Private Label Pricing Strategy
People are less brand loyal than they have been in a long time, making pricing for private label brands even more important. The key is to look at all the data to build the architecture gap, enforcing rules that will actively monitor all structures to ensure brand integrity is maintained. Advanced analytics can help set a private label strategy upfront, changing as consumer demand develops and ensuring that private label brands are priced optimally to increase profits and win over customer share. Once the strategy is set, AI is the powerful force that enables the evolving optimal prices.

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Matthew Pavich, is managing Director, global strategic consulting at Revionics, an Aptos company. The Austin, Texas-based company manages AI-driven pricing optimization.

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