Retailer Own Brands

Contents Definitions The Own Brand Journey Own Brands in 2012 Types of Own Brands Advantages of Own Brands to retailers Consumer factors influencing Own Brand purchasing Current issues Challenges going forward

Defining Own Brands Many different definitions provided Early definitions reflected the limited use and

development of own brands. They focused on products, labelling and

availability but not on their ability to offer differentiation

Originally cheap low priced alternatives to manufacturers’ brands

Own Brands are on a Journey

Charting the Journey

Historically, balance of power - wholesaler

1881 - Ivory soap commercial - P&G 1885 - Sunlight soap launched

(Unilever) Strong brand name & USP eroded

wholesalers power & established manufacturers as dominant force

Mid 60’s and early 70’s - new shift in balance of power in retailers favour

Some Key Milestones The First Crisis

Early 1970s LTA, hello money and other forms of discount led to

a weakening in manufacturers brand franchise. 1988 - The Year of the Brand

1988 Nestle takeover of Rowntree Mackintosh The Second Crisis

1993 - The Death of the Brand – 2nd April 1993 - Marlboro Friday Proctor and Gamble introduced ‘everyday lower

prices `Sainsbury introduced Novum Washing Powder

What were the reasons behind the change in fortunes?

1. Growing power of retailers and growing sophistication of retailer brands

2. Increased marketing literacy among consumers

3. Weaknesses in marketing depts..

1 Growing power of retailers and retailer brands Price gap between manufacturer

and own label brands became too wide (20-25%)

Retailers began to match the quality of manufacturers brands

Retailers expanded their range of own brands

Increasing manufacturer collaboration with retailers

2 Increased marketing literacy among consumers Materialistic 80s to the sharing

caring 90s Increasing consumer scepticism

about brands Increasingly literate consumer

3 Weaknesses in marketing departments Brand managers becoming

divorced from their consumers Increasing bureaucraticism 80:20 Marginalised

Own Brands are on a Journey Positioning of own brands has changed significantly Currently witnessing premium brands that reflect a

store’s personality Increasing quality levels Increasing market penetration across categories Retailers own brands now ranked as top brands in many

categories

Own Brands in 2013

Retailer own brands now account for 35 to 41% of grocery sales in Ireland? 47% of grocery sales in UK 42% in Spain 53% in Switzerland 41% in Germany 44% in Slovakia 17% in Italy

Market Value Own label sales in Ireland accounted for an

estimated 4.16 billion euros in 2012 Own labels sales increased by 60% in Ireland

between 2004 and 09. Growth within the own label market slowed

between 2009 and 2011 as a result of the impact of the recession on consumer spending.

But they have continued to increase in a declining grocery market.

Sales by Outlet Type

Own labels account for Majority of sales in Discounters 20% in convenience stores 40% in Supermarkets

Sales by Category Fresh fruit and vegetables are the most

popular own-label product – over 63% of Irish consumers have purchased in last 12 months

Less than 50% have purchased own label meat/fish and poultry highlighting importance of traceability and food safety.

Foods that are seen as price driven rather than quality driven are more popular own brand categories

Types of Own Brands An evolutionary sequence (Burt, 2000) Laaksonen and Reynolds (1994) 4 tiers of own brands

Low-quality no-name generics Medium quality quasi brands Comparable quality me-too products Premium quality, high value-added own-brands

Wileman and Jary (1997) 5 stages ranging from generics to high quality leadership brands

…

Huang and Huddleston refer to 3 types Generics Mimic Brands Premium Own-brands

Generics

“Retailer controlled items which are packed in such a way that the prime concern with the packaging is product protection, with minimal concern for aesthetic appeal and displaying only the legal minimum of information” DeChernatony 1988

Quinnsworth Yellow Packs

Generics Introduced by UK grocery retailers in 1977 Market positioning is to provide lowest possible price by

cutting expenses on advertising, packaging and marketing. Basic functional products No real investment in product design or product

development Commodity type packaging with stencil lettering Brand free or no-brand (deChernatony, 1988) Do not compete with national brands Provide product alternatives Typically have lower quality and inferior image than

national brands

Mimic Brands Largest group Compete directly with manufacturers by mimicking

leading national brands. Market positioning usually a value for money

approach. Low-priced products Reasonably acceptable quality An alternative to higher priced national brands Similar packaging to national brands Limited investment in product design or product

development

Surge of mimic brands appeared in 1990s Look-alike or copy cat brands Retailers accused of confusing the consumer and

stealing brand equity from manufacturers Have provoked legal action over infringement issues

e.g. Coca cola v J. Sainsbury (Classic Cola), Kellogs v. Tesco, and Dunnes and Karen Millen

Imitation then gave way to innovation

Premium Own-Brands Market Positioning to provide consumers with

a high value added product with often higher quality than national brands

Priced on par with National brands Compete directly with national brands Offer the opportunity to differentiate the

retailer from competitors Provide retailers with a strategic tool for

developing retail store image

Innovation and quality a key driving force in premium own brand development

Originally retailers were passive distributors of national brands Retailers now actively involved in developing and marketing own

brands Some retailers have their own in-house NPD and packaging design

departments e.g. Zara Build store loyalty and help to reduce store switching Access to both consumers and scanner data facilitates

tracking consumer trends and informs product development

What are the Advantages of Own Brands for Retailers?

Advantages of Own Brands for Retailers

Higher profits/better margin advantages This is the single most cited reason for

focusing on own brands by retailers Competitive edge/turnover

advantages Store image / customer loyalty

advantages

Higher profits / better margins

1 Margins tends to be 5-20% better - Keller (1993) suggests that gross margins for Own-brands can be 20-50% higher than national brands!

2 Manufacturers’ promotional expenses are avoided

3 Display space can be manipulated for better returns

4 Sales can be promoted by placing own brands next to major brands

5 Tighter stock control is usually possible

6 There is more control over pricing

7 Favourable buying terms occur where excess supply capacity exists

8 They can help to breakdown manufacturers, hold of certain markets

Competitive Edge / Extra Turnover

1 Advantage over competitors with no own brands

2 Offer benefits distinct from competitors

3 More control of product specification and quality

4 Allows more retailer-led product innovation

5 More control over composition of product range

6 Can exploit gaps in the category

7 Imitation styles can be introduced quickly

8 Own-brand products cannot be obtained elsewhere

9 Can be sold at lower prices

10 More scope for differential pricing

11 Offer more price variety for the consumer

12 Inducement to use the store, leading to other purchases

Store Image / Customer Loyalty

1 Good value enhances store image

2 Build relationship of trust and credibility

3 Control over relationship with customer

4 Good value builds loyalty to the store and own brand

5 Increase loyalty even if temporary stock out

6 Own brand may be perceived as equal to or better than manufacturers brand

7 Widely assumed that own brands are made by leading manufacturers

8 Own brands can give a distinctive corporate image

9 Own brands carry the retailers name into the consumers home

10 Retailer advertising can benefit the stores and the own brand

11 Better design co-ordination can be achieved between the stores and the products

What are the factors influencing own brand purchasing by consumers?

Factors influencing own brand purchasing

Range of Issues explored Price Quality Packaging Demographics Risk

Price Own brands typically 10 to 30%

cheaper General consensus that price followed by

quality are the 2 main influencing factors for own brand purchasing (Hoch, 1996; Miranda and Joshi, 2003; Mintel, 2012)

Own brand proneness positively related to consumer price consciousness

Own brand shoppers perceive them as providing greater value for money

The Irish Perspective Shopping and spending has been

altered by the recession Value for money matters most – It is a

key driver in the Irish market at present Special offers and low prices are top of

consumers minds Own labels are most strongly identified

in terms of costs but they are suffering from a personality deficit (Mintel, 2011)

Significant cost savings have been highlighted for those switching from branded to own brand products

E.g. Milk, Tea and Bread can yield annual saving of 338 Euros pre year (Irish Times, 26th Sept., 2011)

Quality Quality has improved immensely while

maintaining price competitiveness Divided opinion as to whether they are

perceived as inferior in quality Similar objective quality ratings versus

different subjective quality readings (Sethuraman and Cole 1999)

Range of studies concluded that national brands had higher quality ratings than own brands due to advertising, equity. (Cheng et al 2007; Richardson et al 1994; Baltas 1997 and Sanjoy and Oded 2001)

But some evidence that own brands are equal or possibly superior in quality and that perceptions are also changing!

DeWulf et al (2005) Blind taste test of orange juice resulted on private label being ranked first.

Consumers found to value quality of own brands as more important than low price (Richardson et al., 1994)

The extent to which shoppers are uncertain or not of the quality of own brands versus national brand contributes to the success or failure (Batra and Sinha, 2000)

The Irish Perspective

The value own-label ranges have seen the largest percentage increase of any own-label range between 2010 and 2012.

Demand for premium own-label ranges has declined by 2% since 2010 (Mintel 2012)

Demographic factors?

There is no conclusive demographic profile of the

Own Brand shopper

Demographics The research yields mixed results. Demographic variables only account for

a small percentage (4 to 5%) of the variation in own brand purchasing (Sethuraman and Cole, 1999)

There is no significant demographic differences in own brand and national brand consumers (Sudhir and Talukdat, 2004)

Demographics The research is inconclusive vis a vis

Age Income Education

However Household size appears to be a predictor. Larger household buy own brands more frequently and

are more likely to purchase own brands. Women (52%) more likely to purchase than men (38%).

In general is no such thing as a retailer brand shopper – it all depends on the level of involvement and interest in each particular market

The Irish Perspective Consumers aged between 45-64 and 65 plus

showing the strongest attachment to branded products (Mintel 2012)

They have lower acceptance of own-label goods as a substitute product if their preferred branded option is unavailable.

Men are less likely than women to buy brands on an emotional level thus increasing their propensity to buy own-labels. (Mintel, 2012)

Risk

Risk is a key driver of consumer own brand

acceptance.What are the risks?

Risk Key types of risk affecting own brand purchasing are

Performance risk, Financial risk and social risk Performance Risk

Consequences of product failure Varies according to product category

Financial Risk Potential financial loss from a bad purchase Depends on price level of the product group e.g. higher for

detergent and wine than butter Social Risk

Possible loss of image or prestige Products that are consumed in public or offered to guests Alcohol sector has really struggled but some evidence to

suggest there are opportunities to address this

Current Issues Own labels pushing brands from

supermarket shelves e.g. Tesco Money for shelf space still a feature of the

industry Irish consumers obsession with value for

money Retailers are increasing their ad spend while

brands are butting back E.g. Coke reduced its spend in 2010 by 37%

while Supervlau increased its spend by 19%

Irish consumer becoming increasingly less brand oriented and are re-evaluating their spending habits

Irish consumers are increasingly engaging with value range own label products

Discounters have become well accepted across all social groups

Recession Fatigue?

Own Brand Packaging Shift from functional to marketing emphasis –

The silent salesman, Dichter (1957) Using packaging to compete directly with

national brands Directly resulted in increased market share in

1990s Key for differentiation Important extrinsic cues for consumers

Wells (2007) Study of Tesco Finest packaging concluded consumer used extrinsic attributes of packaging to aid the purchasing decision of Tesco Finest Deserts.

Brands replaced by Tesco Own brands in 2010 De Cecco pasta Barilla pasta Discovery Mexican

sauces Linda McCartney

vegetarian products

Sno yogurts Ace bleach

Inversoft toilet paper

Royal baking powder

Rose’s lime cordial Robinson’s Hi-Juice Buitoni pasta

sauces.

Superquinn’s Response

“We can’t really win the price war against a company like Tesco but we can win on the range and offer products that they have delisted... De Cecco [a brand of pasta that Tesco no longer stocks] is the biggest selling pasta in Italy so we want it on our shelves”. – James Wilson, SuperQuinn’s trading director, quoted in The Irish Times, July 12, 2010)

What are the challenges going forward?

Challenges for the future involve using own brands to build customer loyalty and store image

Gain a deeper understanding of the role of brands (manufacturer and retailer) in the lives of the consumer

Understand the way in which people use products e.g. price may be the important factor in staple items; public private concept and ref group influence on brands;

Constant attention to the functional and emotional elements of each brand

continuous product improvement and innovation

continuous high quality communication to develop the personality of the brand while taking account of changing social circumstances.

Going forward National brands – need to find ways to remain relevant –

innovation a key defence Need to find ways to connect with males. Battle for brand space between own labels and

manufacturers brands Trapped brands suffering the most

Opportunities for the future of own brands

…opportunities for the future

Tapping into the cash strapped consumer

Targeting increasing number of smaller households

Targeting the grey segment Using packaging and branding to

make emotional connections vis a vis taste and provenance

Ego is All Crushing of our ego and the emergence

of the new ego More substance and less show Taking control of our food shopping Fashionable to be seen saving Implications for post recession

Premium own labels Ethical / fair trade own labels Organic and health ranges

Extreme Living

Opportunity for new own labels outside of our comfort zone

Different and edgier type products Opportunities for more aspirational

type own brands for male shopper

de Chernatony and Dall’Olmo Riley’s 12 themes Brand as

a legal instrument a logo a company a shorthand a risk reducer an identity system an image in consumers’ minds a value system a personality Brand as a relationship Brand as adding value Brand as an evolving entity

Group activity for next weekIn-class Presentation

Review the article deChernatony and Dall’Olmo Riley, (1998), “Defining a ‘Brand’: Beyond the Literature with Experts’ Interpretations”, Journal of Marketing Management, vol. 14, pp 417-443 and identify ways in which it may inform future own-brand strategy decisions for an own brand grocery retailer of your choice

Reading Chapter 9, McGoldrick, P. Retail Marketing,

Second edition, McGraw Hill, 2002. deChernatony and Dall’Olmo Riley, (1998),

“Defining a ‘Brand’: Beyond the Literature with Experts’ Interpretations”, Journal of Marketing Management, vol. 14, pp 417-443

Huang, Ying and Huddleston, P., (2009) “Retailer premium own-brands: creating customer loyalty through own-brand products advantage”, International Journal of Retail and distribution Management, vol. 37, no.11, pp 975-992.

Mintel Report on Own Labels in Ireland (2012)