By students, for students.

Value customers: The limitations of the store brand

In Marketing on October 11, 2012 at 10:53 am

Store brands are more powerful than ever, conquering the chilled food market and making excursions into home furnishings and luxury lines. In the midst of this success, HBR looks at where they are still falling short.

The 2008 financial crisis left retailers feeling unloved. 74% of grocery retailers expected consumers to be less loyal than previous years (source: Food Marketing Institute). Store brands proved invaluable in restoring loyalty. Own-branded products differentiated outlets, provided retailer’s with control over shopper satisfaction and built profit,  (retail gross margins are higher on store-branded products – 35% – versus comparable nationally advertised brands – 25.9%).

Customers drove the resurgence in own-label brands, enthused by their low prices. Supermarkets encouraged price comparison between their label and competing brands products by mimicking existing products. For example, Sam’s Choice produced Dr Pepper and Mountain Dew imitators named, respectively, “Dr. Thunder” and “Mountain Lightning”.

Since 2008, retailers have positioned their own-label products to become an everyday part of consumers’ lives. Store brands have a record of success in the FMCG sectors where value is a greater priority than emotional appeal.  Own-brand food and drink has enjoyed particular success. Even in 2001, own-label accounted for 98 per cent of the UK chilled foods market (source: Mintel).

Effectively competing with national brands has taken significant promotional effort. In 2008, Marks & Spencer spent a 1/3 of its budget on M&S brands. Store brands are founded on the relationship between the store and its customer base. In this, retailers have an advantage in choosing how their own-label products are displayed within their stores.

Store brands now account for an average of 14.5% of sales with some stores projecting they will soon reach as high as 20% of all sales (source: Food Marketing Institute). But this success has come at a cost. With the food and drink market now saturated, store brands are having to enter new territory in order to expand.

The diversification of supermarket store brands began with the segmentation of the food and drink market, as retailers drew on their knowledge of their customer base to produce targeted sub-brands. UK retailers have produced low-price, value-for-money items to the premium and lifestyle areas so as to cater to comsumers’ healthy eating concern. Sainsbury’s and Tesco have dedicated considerable attention to aroma and flavour, taking advantage of global manufactures to source exotic products. While the emphasis remains on value, Sainsbury’s Taste The Difference premium range was estimated to contribute between £200m and £300m to the business.

As the food market faces saturation, retailers have sought opportunities in different sectors. Tesco’s own-label has extended to include a range of homeware including crockery, cutlery, towels and glassware. Sainsbury’s has launched cleaning and hygiene sub-brands brands Perform+Protect and active:naturals. The “George” clothing range has met astronomical success. It is estimated to be worth around £1bn in sales – making Asda one of the leading clothing retailers in the UK.

However, some markets remain elusive. It is not easy for private label brands to enter luxury segments, including up-market clothing and cosmetics. Own-brands cannot compete with well-established, premium brands when they have represented the budget option for so long. Although store brands can help retailers differentiate themselves from competitors, they are too readily available to hold much prestige among consumers in clothing or accessory lines or create emotional resonance in the gift market.

Harris (2007) has demonstrated crucial differences in the brand image evaluation for national brands and store brands. He established that own-label brands have the advantage of “cheap” and “good value” to compare with national brands, while national brands were used more with higher quality/superiority based on attributes than store brands. However, after breaking down store brands into three relative positions (premium, standard and value), he discovered that premium private labels were overpriced more without better value for money than national labels; customers buy more value private labels than national labels due to their cheapness. This implicates that consumers prefer the high quality of national brands and the good value of value own-label at the same time.

The key to own-label’s previous successes is restraining future expansion.


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