You’re probably familiar with the maxim, “Just because you’re paranoid doesn’t mean they aren’t after you.” This is the reaction of brand name products to competition from private labels. And they should really be concerned because private label market share is higher than popular brands than ever before.

 

Private labels are playing havoc on popular brands. They are facing new challenges as more and more consumers are going generic.

 

The big brands have been disintermediated from the retail store brands and replaced by the retailers’ own private label. Consequently, becoming a stand-in in the shoppers’ mind for what the retailer means to them.

 

In Australia, the private label market share is 18.1% of all retail dollar sales. The percentage is almost the same as North America which is at 17.7% that is significantly less compared to other countries. In the UK, private label market share accounts for 41% of supermarket sales, 42% in Spain, 36% in Germany and between 27-32% mostly in other European countries.

 

In this article, we will discuss private label market share and why the store brand is a threat to many popular brands. We will also reveal why some consumers prefer to use private label brands. Furthermore, we will share with you winning strategies that national brands should use to compete with private label brands.

 

We contend that the private label market share challenge must be kept in perspective. What businesses need is an unbiased approach and the same careful consideration a business would give to any popular brand competitor.

 

By the end of this article, you will gain knowledge on how national brands can compete with private label brands and some tips to drive value so popular brands stay on the shelf.

private label market share

The threat of private label market share to popular brands

 

With the increased sales growth of private label consumer products from 2.2% in 2015 to 5.8% in 2018, and annual sales growing faster than national brand sales by a factor of four last year, those brands have successfully disrupted the category, based on a report from Coresight Research.

 

Most customers can’t almost tell the difference between the quality of national brands versus their private label counterparts because store owners focus on store brands and suppliers give up the connections to retailers and customers. In addition, store brand products are 31% cheaper in all product categories compared to national brands. It was reported that the growing demand for store brands are not just a recession-related occurrence. In fact, U.S. private label sales continue to increase over the long run regardless of improving economic conditions.

 

Consequently, the popularity of national brands is increasingly threatened by private brands. Private label brands starting from the 19th century, up until now, have conquered lots of consumers. Initially, store brands were among food products without name, design, style, of low quality and lower prices compared to national brands.

 

In the middle of the 19th century, economic crises, poverty and low living standard in many countries were some factors that encouraged consumers to become more sensitive to prices. That’s when they began to show interest in private label brands. Because of this growing awareness of price, retailers had a great advantage over their suppliers. They also discovered and unlocked their pricing power by focusing on the needs and wants of the customers. As time passed, retailers have invested more in quality, colours, taste, style, design, and packaging of their store brands, which have in turn enticed even more customers – and not just price sensitive customers.

 

Now, private brands are a competitive threat to national brands. Recent research finds that some private brands are more well-known and more required than branded products.

 

Consumers are the ones currently benefiting from the continued growth of the competition between store brands and popular brands. Higher-quality private label items are available at much lower prices than branded ones. However, research indicates that when faced with a “good, better and best” option, a customer would select the one in the middle. That’s the reason why we see supermarkets providing generic private label items like “select” and “finest” options.

 

Why most consumers choose private label brands?

 

Many consumers prefer private label brands over popular brands because they are a lot cheaper. Private brands are a huge segment when it comes to the food and beverage sector. For sure, you will notice that when you’re shopping for food, you’ll see for yourself that store brands are increasing in number across different channels. Lots of consumers feel that there are no differences at all when it comes to the quality of big brands and private label brands. Nevertheless, the growth of both brands depends on customer experience.

 

If these brands give a good customer experience, then customers keep coming back to their stores. Even though popular brands are the major players in most of the categories, there are many store brands that do better in sales than the popular brands.

 

Let’s find out though how private label brands have captured the hearts and minds of Australian shoppers?

 

One survey showed a huge percentage of 51% saying that they liked private label brands and fill their cart with 50% store brand products. The study was based on 500 respondents and was asked how their attitudes towards private brands have changed for the past 5-10 years. In addition, a fascinating 86% (which was like, 4 in 5 shoppers) stated that they would continue to buy the same amount of private label items even if their household income increased.

 

It shows that the driving factor why customers purchase private label brands is that they want their hard-earned money to go as far as possible with the savings they get with private label brands. Of course, without compromising on quality, which is the most important.

 

 

aggressive pricing strategy

Private Label Pricing Strategy

 

It can be hard to find the right guideline when it comes to private label pricing. The product name, quality, and other factors can differ to a large extent between popular brands and private label brands. For private label brands, retailers have full pricing power. Thus, they are responsible for choosing the right price for their products. They have a better view on costs (production, distribution, variable) before pricing the products. Also, they can determine the specific product price range based on consumer research and loyalty card data.

 

Major retailers are now using price optimisation software to help them set and manage prices. Price optimisation software has a complex algorithm that helps retailers to determine how consumers behave based on different product pricing strategies, which in turn helps them to maximize their profits and sales.

 

There are a lot of customers who know about the best prices of items that they want to buy. Online retailers use optimisation software to lure these kinds of price sensitive customers. Price optimisation software, for example, can also help businesses to adjust discount levels and optimisation promotional prices in order to optimise revenues without losing volume or share to their rivals’ offers.

 

Winning strategies that popular brands can use to compete with private label market share

 

How can a brand name product stay on the shelf? Below listed are 5 ways that big brands can compete with private label brands:

 

1. Create quality products

This is the fundamental reason for a product to have a space on the shelf. A great product starts with a clear understanding of your customers and their needs. Customer insights are very important. Therefore, gather as much data as you can to have a better understanding of your customer’s needs, competitive choices and shopping behaviours.

 

2. Have an innovation plan

Being customer-centric will lead to meaningful innovation. Retailers want business partners that have plans in updating and innovating their products. If a brand doesn’t do anything in meeting future consumer needs, for sure the retailer will, it’s either with a private label brand or with another brand.

 

3. Create value to your brand

Customer’s buying decision between private label and popular brands is often based on the perceived brand value. Customers will be loyal to a brand if they connect on levels beyond just the product.

 

4. Drive demand for your brand, not just your store

Most businesses forget to drive demand for specific brands or products because they are more focused on driving demand to their store or site, thus, leaving less room to help national name brands to grow. Brands need to drive demand for their product to stay significant to retailers. Marketing should be intentional, targeted communication with the customer by using a media appropriate to the category. If customers demand your product so will retailers. Popular brands can control customers to choose their product versus a private label brand through proper marketing, clear brand positioning, packaging, etc.

 

5. Offer additional value

The number of brands competing for shelf space is enormous. Aside from creating quality products, stand out from the rest of them by providing additional value. For instance, offering value to retailers with analytics, business insights, and consumer behaviour information.

 

Increasing product value takes some critical thinking. Here are some tips to drive value to your brands and not be threatened by the growing private label market share:

 

  • Determine your category and consumer and use that knowledge and other supporting data to enlighten them on how to formulate a successful strategy. Then choose an optimised assortment and compete.

 

  • Make sure your insights and suggestions are based on an extensive outlook versus solely on your product. Thus, driving genuine alliance in the business.

 

  • Have a category-growth mindset. If maintaining shelf space is significant to you, set it but don’t forget it. Examine business results conscientiously and generate workable recommendations based on insights.

 

Fact is, however, it’s the customer that decides what sells and how money should be spent. Valuable product plus a strong brand that has a sturdy connection to your consumers, your products will get their approval. If your products obtain the customer vote, then you add value as a partner, businesses will need you and your products on the shelf. Therefore, if they need your brand, there’s not much room on the shelf for private label brands.

 

 

IMPLICATIONS

 

  • To be competitive in a world of private label products, creating differentiated branded products, developing unique products, and doing away with careless promotions are table stakes.

 

  • National brands should create a product portfolio that shows each retailer’s consumer base. Including localized products and displays improvements to packaging and product performance.

 

  • One of the reasons why customers choose private label brands; is that they get more savings from their hard-earned money with store brands. Without compromising on quality, of course, which is most significant.

 

CONCLUSION

 

Having strong brand allies that can give consumer insights and push the category towards progress is highly valuable..

 

Customers decide what sells and how money is spent. Therefore, if they need your brand, however expensive that is, there’s less room on the shelf for private label brands.

 

Consumers are the ones having an advantage from the competition between store brands and popular brands. The reason is that private label brands have a lower price than established brands. So, price-sensitive consumers prefer to go for private label brands.

 

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