Two category management experts offer a blueprint for success in balancing your private label program with the national brands.
How can retailers decide on the best mix between private label and brands?
It all starts with the marketplace — who is their customer, who isn’t and why? What is their strategic position — what type of retailer are they and what position in the marketplace do they want to “own?” Once those decisions are made, then the assortment determination (brands and private label) becomes more relevant.
The role of private label should be very specific for a retailer — to drive customer loyalty through differentiation (Trader Joe’s, Target, Gap, Williams Sonoma), to create a customer value proposition and/or improve margin (Wal-Mart, Costco) and to leverage national brands. If these roles cannot be delivered, then building private label share is unnecessary and costly.
When the private label strategy is built with the consumer as the focal point, with a clear strategic positioning for the retailer and with clearly defined private label roles as the guideline, then the right mix evolves.
How are the private label opportunities different between frozen and dairy foods?
Frozen products, like canned goods, are more about a delivery system, not necessarily about a consumer demand opportunity for private label. For dairy, however, it can be a strategic leverage, especially if the retailer positions the dairy brand as being “local” or “fresher” because it “comes from our farms,” etc.
Many retailers underutilize the opportunity that a local/fresh dairy position affords them but it clearly is a consumer opportunity. Whole Foods does that well — emphasizing fresh and local. Consumers perceive that is better and are willing to pay more for it as a result.
Any thoughts on pricing PL versus national brands?
It depends on the retailer, brand tier, the category and department. Many retailers believe they need to compete directly with low priced retailers and they use their private label primarily to do that. In some categories that is effective, but in others, it is wasteful — pennies are left on the table.
If the retailer has an organic brand or premium brand tier which is well developed and marketed, it can charge a higher price for the products than national brands in the same category. In some departments, like drug store, often private label is priced far too low. The reason they are able to do so is that there are strong margins in many of those categories. However, the very low prices alarm consumers who believe the product cannot be as good as the national brands due to the price differential, so they do not buy the private label version even though it may be an NBE (national brand equivalent).
Category management methods have taught us that the key is to have a clear strategy for private label, not only at the total company level but also within each category. The appropriate pricing approach and price gap versus national brands will primarily be determined by the strategy assigned to the private label SKU’s in the category.
How can I intelligently grow PL without hurting myself?
Private label should be used as a strategic tool like any of the key strategies in driving retail success — merchandising, operations, supply chain and marketing. If the same planning and execution disciplines are implemented, the results should improve the retailer, not hurt them. A key requirement also is that the retailer must have a clear strategy for where private label fits in the category.
Traditionally, the strategy most commonly assigned to these SKUs is as “profit generators” within the category. However, other strategies can also be possible, such as a “quality enhancing” strategy for organic private label products; or a “value enhancing” strategy for premium-tier private label products.
Depending on the category strategy that is assigned to private label in the category, guidelines will logically follow for how these products are priced and merchandised. One additional note — building brands takes time, consistency and commitment. Like building a “banner” takes time and commitment, so does building an effective private label program; it cannot always be at risk if the national brands have a better program for the moment.
Dr. Brian Harris (
bharris@tpg-mail.com) is chairman of The Partnering Group, Playa Del Rey, Calif. Pam Boynton (
pboynton@tpg-mail.com) is a partner in the private label practice of The Partnering Group, and works out of her office in Bandera, Tex.
