Introduction to Marketing by 7Q3dg431


									     Private Label Brands

                           • Brand
                           • On Building A
  Professor Carl Mela        Brand
                              – Price
     Marketing 460            – Product
  Product Management             • P/L
                                 • Elements
Fuqua School of Business      – Place
                              – Promotion
                           • Managing
                             Across Brands
                                          Private Label–1
            But first …

• By popular request –
  – Another PharmaSim Review
  – Thurs, 3/25, 4:30-5:30 Classroom D

                                         Private Label–2

• Extent of private label
• Causes of private label
• Strategies to combat private label

                                       Private Label–3
Private Labels

                 Private Label–4
              Private Labels

• 1996 – 31 % will switch to Private Label
  – 2001 – 45% will switch
• Are 40% of Wal-mart’s $259 BB in sales
  – #1 grocery brand in US – Great Value brand
  – 1/3 of P&G’s US revenues through Wal-Mart
• If US market comes close to UK, firms will
  lose $20 BB in sales
                                   Source: 2003 BCG Report
                                                    Private Label–5
             Private Labels

• More common in categories where
  – risk is not a factor (as opposed to shampoo)
  – margins are high
  – inventory turns are high

                                               Private Label–6
             Private Labels

• Until 1950’s more common than national
  brands, now we are going back in time
• Problem exacerbated in weak economy
  – Until late 1990’s when share grew in spite of
    good economy.
• Why?

                                               Private Label–7
             Private Labels

• Fragmentation of media
  – 1995 took 3 TV commercials to reach 80% of
    women. Today, 97 (source: Willard Bishop
• Consolidation of retail
  – 10 largest accounts 30% share a decade ago
  – Now, it is 80% (source: Forbes)

                                             Private Label–8
                       Strategies for Combating
                             Private Labels
                                   Provide More for
                          Innovate    the Money

                               NATIONAL BRAND            Reduce Price Gap
                          Do Nothing

                                             Introduce Value Flanker
                                                  Make Premium Private Label

                                                         PRIVATE LABEL

Source: Stephen Hoch                                                        Private Label–9
  Strategies for Combating
        Private Labels

• Do nothing
  – Wait for economy to improve
  – Retailers are sufficiently diffuse, their
    power is low
  – In small categories with little potential
    return, retailers not likely to invest in
    private label
  – However, share loss may occur

                                                Private Label–10
  Strategies for Combating
        Private Labels

• Differentiate
  –   More for the money
  –   New and improved
  –   Advertise
  –   Eliminate weak brands and focus on
• Better retail support
  – Allocate support to weaker retailers

                                           Private Label–11
         Strategies for Combating
               Private Labels
• Reduce price gap
  – Lower costs
  – It is often not profitable for retailer to close price gap
    (mfr brand loses high margin, store brand loses
• Me too strategy
  – Fighting brands (Kodak Funtime Film)
  – Protects brand (+)
  – Cannabalization (-); Revenues do not cover product
    introduction costs (e.g., advertising and slotting fees)
                                                      Private Label–12
Strategies for Combating Private Labels

• Make a private label
  – Can test formulations as a P.L.
  – Can increase price on premium brand w/P.L. entry
  – Can formulate to target competitor, not self
  – Can obtain cooperation on shelf positions (P.L. to
    right hand side of competitor - as 90% right handed)
  – Key threat: retailer owns customer, threatens to drop
    you without price concessions

                                                  Private Label–13
Strategies for Combating Private Label

• IRI/BCG Study Results Validate This:
  – Improve quality
     • Invest in brand equity (increase quality via brand
       associations and awareness)
     • Innovate (increase quality through innovation)
     • Increase merchandising support
     • Direct delivery
  – Manage price gap

                                                       Private Label–14
Strategies for Combating Private Label

• Partner with Channel
  – P&G does $12BB in sales with Wal-Mart
     • Initial resistance to partnership
     • 5% of Wal-mart Sales
     • 20% of P&G’s Sales
  – Could not break into UK or Canada
     •   Unilever dominates
     •   Traditional brand building did not work
     •   Wal-mart eroded Unilever dominance
     •   Nestle could not access Wal-Mart
          – Was it buyers or research that said no at Wal-Mart?

                                                                  Private Label–15
Partner With Channel

                       Private Label–16

• Solutions to the private label problem
  –   Do nothing
  –   Better retail support
  –   Differentiate
  –   Reduce price gap
  –   Fighter brands
  –   Can’t beat ‘em, join ‘em
       • Source the private label
       • Partner
                                           Private Label–17

To top