Building Private Label Brands
Private-label products can provide value and a meaningful brand experience.
By Dirk Kammerzell, TippingSprung LLC
A combination of forces has conspired to shape the increasingly cluttered marketplace we shop in. These forces include the Internet, e-commerce, and a brisk online auction trade; widespread consolidation of independent retailers into larger regional chains; and the rise of the fiercely competitive discount and club retail models like Wal-Mart and Costco. With a few keystrokes, a shopper in search of a product can gather product information, compare brands, and make decisions based on objective data to satisfy their needs. Amidst this clutter, national brands must strive to communicate product benefits, justify price, and influence decision-making at the register.
But one significant, and potentially profitable, strategy has emerged from the chaos: private-label products.
According to recent research by Dechert-Hampe, private-label products will account for 30% of unit volumes in food, drug, and personal care retail in 2005. These goods constitute one-fifth of total retail sales—or $50 billion—according to Information Resources Inc.
A recent survey by Meyers Research says that Americans actually prefer private-label products in many popular categories. The Private Label Manufacturers Association estimates that private-label products are growing at double the rate of manufacturer-branded counterparts.
The explosive popularity of these products is believed to be the result of a combination of factors. These are growth of the mass merchandise and supercenter formats; success of premium private-label entries; and the entry of chains with strong private-label franchises into regions with historically low private-label sales. Whatever the cause, private-label products deliver inherent benefits to consumers and retailers alike. Consumers save approximately $15.8 billion annually by purchasing private-label brands.
In some product categories, the purchase decision is driven by whether the consumer wants to be part of a brand experience, or whether he or she merely wants to feel good about getting the best value for the money. But the key to consistently achieving consumer buy-in seems to require both of those decision drivers being part of the product positioning, i.e. providing a value-driven product with a meaningful brand experience.
Target has mastered this approach. Its message of value-plus is even anchored in the tagline: Expect more, pay less. Target has applied a very sophisticated approach to its private-label program through innovative and appealing product and package design. But the retailer has also managed to take the critical step from creating Target-branded products to creating Target-owned brands that deliver a meaningful experience transcending product-oriented features and benefits.
Target has created a number of house-exclusive product lines that either have proprietary brand names (e.g., at Home, Global Bazaar, etc.) or are endorsed by well-known designers (Sonia Kashuk, Michael Graves, Isaac Mizrahi). These offerings all maintain the exclusivity of a house brand (just like any “ordinary” private-label brand), while enjoying the appeal of national power-brands.
This branded approach to private-label programs allows the retailer to create brands that are crafted to dovetail with their strategic goals; they “own” and control them.
Building a brand experience (product name, appealing packaging, etc.) around private-label programs that go beyond merely endorsing the retailer (such as Rite-Aid Gas Relief Drops) can help create an exclusive, emotional bond with the consumer that encourgaes customer loyalty and retention. Target applied that same approach when it introduced the revolutionary redesign of the standard pharmacy pill bottle earlier this year. The consumer, even when his decision is driven by rational arguments, appreciates an emotional experience. To extract the biggest payoff from your private-label strategy, here are some strategies to keep in mind:
• Develop private-label products that deliver an emotional experience that rivals that of national brands.
• Cultivate customer loyalty and retention for these brands.
• Facilitate control of product and pricing strategy for the retailer by creating exclusive house brands that are “ownable.”
Dirk Kammerzell is creative director of TippingSprung, a New York-based brand consultancy offering a full range of naming, positioning, design, and brand-extension services. He can be reached at email@example.com.