Take ownership now
Consumer packaged goods (CPG) manufacturers are known for having deep pockets. This reality allows for tremendous R&D and marketing power, giving them an edge over retailers and their store brands in a number of categories and allowing them to dominate in those areas.
However, retailers have a major advantage over CPG giants when it comes to product development: Because they are much closer to their shoppers, they can better understand these folks’ needs and desires, says Jonathan Asher, executive vice president, Perception Research Services, Teaneck, N.J. By learning how to meet these needs and desires, retailers increase their chances of creating winning products and lines that help them own a category.
“In this age of customization and personalization,” he explains, “that can be a very powerful market advantage.”
Where commitment lies
In many categories, consumers aren’t committed to either national brands or store brands, says Susan Viamari, editor, thought leadership with Information Resources Inc. (IRI), Chicago. Instead, they are considering both options, looking on a category-by-category basis to see what solution best meets their definition of value at the moment of purchase.
“Consumers are constantly evaluating packaged goods solutions in pursuit of value,” she says. “But the definition of value means different things to different people. In fact, definitions of value will vary across categories, channels and even purchase decisions.”
For instance, Viamari notes that consumers’ at-home eating behavior and a do-it-yourself attitude are huge trends that provide own-brand marketers with considerable opportunity to develop within and own a category. However, behaviors and attitudes vary from person to person.
“Some cook from scratch; some prefer heat-and-eat,” she states. “Some like premium beauty products as a lower-priced alternative to the salon; others are looking for the least-expensive option overall. In many categories, brand name is less important than it was a few years ago, while ‘broad household appeal’ is a weightier consideration. Store brand marketers need to understand what these differences mean to their categories and brands.”
Consider three things
When determining whether or not to enter a category, retailers need to take three consumer-focused factors into mind, says Jim Lucas, director, global insights and strategy with SGK, Des Plaines, Ill. First, they must identify their core shoppers — those who visit and spend the most — and understand what motivates them to make a purchase in a given category. Shopper loyalty programs are particularly useful in helping retailers understand what’s in patrons’ carts.
Andres Siefken, chief marketing officer of Stamford, Conn.-based Daymon Worldwide, agrees, adding that along with loyalty card data, syndicated tools also are critical in understanding shoppers and developing products for them. For instance, retailers should look at shoppers’ behavior within a category — such as purchase frequency and tendencies to switch between products and brands. Meanwhile, they should examine cross-shopping data from key competitors to see where else shoppers are purchasing in the same category, if those shoppers are open to buying store brands at other retailers, and what the motivating factors behind the purchases could be.
Social listening, too, provides helpful insights regarding what shoppers’ think and feel about categories and brands, Lucas states. It also helps retailers to speak better in shoppers’ language.
“Increasingly, activation programs are becoming very good ways to harvest insights,” he states.
And be sure to have store associates and brand managers trained to speak with shoppers, says Ron Klein, director of the retail and consumer practice division of multinational professional services provider PricewaterhouseCoopers.
Viamari notes that insights gained from learning how, where and why consumers buy and consume products is critical to the innovation process and affects everything from concept and packaging design to the marketing story. However, retailers and manufacturers must go through the business-planning process in a very connected and collaborative matter when using these insights to ensure that the right products are developed and placed on shelves.
Second, retailers need to identify general consumer and retailer trends, Lucas states. For instance, food generally has high private label penetration and is one of the most frequently purchased categories. Together with the trend toward home-based eating, this reality makes it a good candidate for store brand development — providing the opportunity to build loyalty, increase penetration and grow margin for private label.
And third, Lucas offers, retailers need to consider their channel, as category opportunities vary from channel to channel. For instance, frozen foods and health and beauty care have higher store brand share in the drugstore channel, while general merchandise, health care products and household care items have above-average private label share in the dollar channel.
Of course, understanding shoppers’ desires and needs is critical for more than just product development — retailers need to also understand their shoppers better for promotional purposes. Pointing to his association’s 2014 “U.S. Grocery Shopper Trends” report, Doug Baker, vice president, private brands at the Food Marketing Institute (FMI), Arlington, Va., states that promotions such as coupons, nutrition labels and print ads in newspapers and mailed circulars account for the most widely felt influences on store brand purchases.
Also worth noting is that 57 percent of consumers will make their purchase decisions before entering the retail environment over the next year, Viamari notes. Therefore, marketers must work to develop and implement comprehensive communication programs that seamlessly span old and new media platforms.
Areas of opportunity
Looking at specific categories and consumers’ attitudes in them, a lack of consumer loyalty coupled with a lack of product differentiation understandably can make some easier to own than others, Siefken says.
“It’s critical for a retailer’s brand to succeed in these categories because they often serve as a gateway to trial for other categories,” he points out.
Milk is an excellent example of a category that’s relatively easy to own with private brands. According to “The State of Private Label Around the World,” a November 2014 report from New York-based Nielsen, consumers perceive few differences among milk products, and the category’s innovation rate — much like that of any commodity category — is low, with new milk products representing less than 0.5 percent of same-year sales. In addition, milk has a fast purchase cycle, making its price more noticeable to most consumers.
Turning to the other end of the spectrum, Siefken explains that some categories offer tremendous opportunity for grabbing consumers’ attention with innovation on the retailer’s part. Categories he points to include fresh meals, convenient produce, health and wellness programs, bakery products and deli items.
The trickier spots
However, some categories — including beauty, household care and beverages — are more difficult to enter with private brands, Lucas explains.
Another is hair care. Nielsen states that as of September 2014, only 2 percent of hair care sales come from own brands. Reasons are a high innovation rate and product differentiation, strong marketing support and strong brand equity on the part of the national brands, as well as a longer purchase cycle and heavy promotional activity.
That’s not to say retailers’ own brands cannot become shoppers’ favorite in these categories, however. Lucas notes that understanding the motivations of driving shoppers into a category is a way to “make headway.” When they understand consumers’ unmet needs or unsolved problems, they can respond through development to get an edge over the national brands.
But in categories with incredibly powerful legacy brands that shoppers always will undoubtedly seek, retailers should consider the “50 percent solution, Siefken states. For instance, the ketchup category could have several strong brands that grab sales and attention from the store brands, but the most powerful brand in shoppers’ eyes here is Heinz. Retailers looking to gain a foothold in this category should streamline offerings by offering only the key legacy brand and the private brand.
“Another opportunity might be to develop a local product that emphasizes its origin as being ‘locally grown” or by providing a locally popular flavor or recipe that doesn’t make sense for Heinz,” he explains. “Such products are not likely to change who owns the category, but they will definitely appeal to shoppers, creating differentiation and growth, and adding incrementally to the storewide strength of private brands.”