Nurdan Civi

MGP 293-3 Product Management

Homework #3
Prof. Britta Foster

The H-E-B Case

8/22/2009
What is your recommendation for the Glacia product/brand?

From the consumer research results, HEB saw that there were two segments to target in the
bottled water market: First segment valued imported water, second segment didn’t care
about imported water, more specifically, this segment valued Texas spring water.

H-E-B Glacia, as an H-E-B brand, should be positioned as an upscale entry against imported
waters such as Evian. Imported water customers even preferred Canadian water to French
water. So, Rob Price should do the following:

1. Product - Packaging is very important. We understand from the case that valuable
features of the product don’t come forward in current packaging. Rob Price needs to
work on a new packaging to make these features, such as Canadian spring water,
more visible.
2. Promotion - When prompted without packaging, only 19% of Glacia consumers were
aware the product was bottled in Canada. 64% believed it was from Texas. Even
when prompted with packaging, only 74% of customers recognized Canada as the
source. HEB needs to advertise this product to emphasize the Canada message.
In-store promotion such as staff introducing and explaining the features would work.
3. Price – Increase the price to be higher than Ozarka but lower than Evian.
4. Placement - Move the Glacia product closer to Evian to give the impression that they
are in the same category.

What is the role of the H-E-B and Hill Country Fare private label brands? How
should they be positioned with respect to other brands in the category? How
should they be priced?

In order to answer the question, first we need to ask why retailers want to promote store
brands:

Retailers carry store brand products because of the fact that they can sell them with a
higher gross profit margin. Store- brand products are generally cheaper than national-brand
products because the retailer can optimize the production to suit consumer demand and
reduce advertising costs. National brands are on average priced 40% higher than store
brands.

In addition to increasing profits, store brands help to attract and retain customers. This is
extremely important in the competitive supermarket business. If a consumer becomes
addicted to a particular store brand canned fruit or spaghetti sauce, for instance, they will
return when they need to purchase these items again.

Also, store brands enable retailers to get better deals with national brand manufacturers.

If we go back to the case, we see that three major objectives of H-E-B (improved
profitability, sales growth, deeper customer relationships) are in line with the information
given above.
H-E-B needs to take into consideration the quality and price of the national brands in the
category when deciding on the store brands position, price and margin.

It has two store brands: First is H-E-B brand for premium products which equaled or
exceeded national brands in quality. The products under this brand should be priced
comparably with national brands. The price could be slightly lower than national brand’s, but
it should not be significantly lower.

The next tier of products is Hill Country Fare. This tier serves to compete against other store
brands and approach national brand quality. The products under this brand should target
price-conscious shoppers and be priced lower then national brands in order to get those
consumers.

What is the role of own brands or private label brands in H-E-B’s overall corporate
strategy? Why is it important? Should it be scaled up or down? If so, in which
product categories?

H-E-B’s overall corporate strategy points are EDLP (Every Day Low Prices), improved
profitability, high quality products, and deepened customer relationships. As I mentioned in
the previous question, private label brands would contribute significantly to each of these
points for H-E-B.

H-E-B store brands are key to company’s ongoing success: The products in these brands
account for 19% of sales and generate gross margins 50% higher than national brands. And
more importantly for Charles Butt was the strategy that the company could deepen its
relationships with customers through these brands.

Private label sales should be scaled up due to the following reason: H-E-B has high quality
products that could easily compete with national brands. Even though it prices them lower
than national brands, it still gets a high gross profit margin from these sales and increases
profitability of the firm. Ice cream, ready-made food, pasta sauce, canned and frozen
vegetables are all good quality and they all enjoy high gross profit margins.

Although private label sales average is 30% in the US, I think H-E-B can scale it up to the
European average, which is around 40%.

Consider yourself, are you a private label shopper? If so, in which categories do
you purchase private label brands and why do you purchase them? What have you
noticed recently about private label or store brands?

Consumers in general have the idea that store brands are lower quality than national
brands. This is changing. Store brands have increased the quality of their products; because
of the high gross profit margin advantage, they have a big incentive to make better quality
private labeled products. This has increased the sales of private labels.

Another factor that has affected private label sales is the economic recession. Store brands
are usually 30% lower priced than national brands and in tight times people are more
inclined to buy cheaper products.
Depending on the store, I prefer national brands in food. If I trust the store, like in the case
of Trader Joe’s Whole Foods, I can go with the private label. Other than that I stick with the
national brands that I’ve tried and liked before.