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Brands vs Private Label
The growth of Private Label products, which often provide the same quality at lower prices, is posing a real challenge for fmcg brands. Particularly at a time when brand loyalty is declining in many categories and customers are limiting their spending. Some estimates place Private Label at 50% of total category in the UK.
Private Label is currently estimated to account for 16.5% of global product sales and may reach as high as 50% by 2025.
To understand how brands might compete, we should first recognise the incentives driving retailers to grow their private label inventories. Producing their own product ranges gives retailers more control with greater flexibility to adapt to regulatory changes, manage ethical concerns and increase transparency as well as realising financial savings from simpler supply chains and unified marketing strategies. Opportunities to develop exclusive products and differentiate themselves from the competition are also key motivations while reducing their dependence on brands affords them greater bargaining power against the major manufacturers.
Many Private Label products unashamedly mimic the colours and designs of competing brands, eliminating the need for further market research into consumer preferences while brands have not been very successful at challenging copycat products legally. The reason for this is perhaps that trademark law protects words over colours and designs when, in fact, consumers’ cognitive function is to see colours first, then shapes, then symbols and finally, words. Today there is even an extensive home industry of “get rich quick” schemes focused on exploiting Private Label opportunities by encouraging people to create their own product lines.
It’s not all doom and gloom for brands however, consensus is that retailers will always need to stock brands alongside their own products to provide a competitive scale for product value and price differentiation with other retailers. Some stores have actually seen sales decline as the ratio of Private Label goods to brands in-store became too heavily weighted in favour of the former. Customers still want the availability of choice and do not want to be told what to buy.
Brands can and do compete through product innovation but this is costly, takes time and retailers are never far behind. Aggressive pricing strategies present another way for brands to fight back and, although these tactics have slowed Private Label competition in some cases, this method ultimately ends up hurting the brands as well. Omnichannel touchpoints now offer brands more direct ways to reach the consumer and engage them in more meaningful interactions but whether they will choose to bypass the retailer altogether is still to be seen. In the end, they are competing with retailers in this arena too.
In some categories, such as perfume, alcohol and confectionery, Private Label has failed to gain a substantial foothold. Products in these categories have managed to dispel the notion that they are commodities and, instead, have formed strong emotional ties to the consumer through clever positioning. It is more difficult for a Private Label product to be cool or unattainable or playful, they are by their very nature part of a group of products and therefore lacking in individual personality.
So, can we infer from this that the value of brands to consumers is inherent in their uniqueness? Certainly not a new concept! Uniqueness is not enough, successful products need to make us feel something, they need to appeal to our aspirations and fulfil our human needs. Brands are in a far better position to meet these demands.
From a business perspective, rather than fighting the trend, perhaps brands should adopt a more collaborative approach to retailer advances. By allowing retailers access to their infrastructure and capabilities in return for better shopper insights and a fairer deal in-store, brands might open the door to a different way of doing things with more flexible business models that encourage ideas and new ways of working. Brands are being challenged to stay viable and only the ones that embrace change will succeed in the end!
DISCLAIMER: The views and opinions expressed in this article are those of the author and do not reflect the official policy or position of our clients or any parties who may be referenced in the content.