Module 3 - MPLB

Creating & Managing Successful Private

Labels

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 Retailer Brand Portfolios
 WHILE THE INDIVIDUAL private label follows one of
the four propositions of generic, copycat, premium,
and value innovator, most retailers manage a brand
portfolio, which incorporates multiple types of store
brands.

 By having a portfolio of own labels, a retailer can

penetrate several different segments simultaneously

 Retailers implement a sophisticated mix of

segmentation strategies to construct their own-brand
portfolios.
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 Portfolio Segmentation
Strategies
 Broadly distinguish three portfolio
segmentation strategies,
 based on
 price,
 category,
 or benefit.

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 Price-Based Segmentation
 A price-based segmentation approach to a brand portfolio
requires having at least two, and often three, store brands
that help appeal to different price segments
 European retailers specially supermarkets, now implement a
three-tiered private label strategy, with a low-end offering, a
medium or standard range, and a premium store brand
 For example, Sainsbury, in the U.K has a low priced line called
Basics, the standard Sainsbury line, and the premium Taste
the Difference product range

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 The three-tier price segmentation allows
mainline supermarkets to fight their two
perceived enemies: hard discounters and
manufacturer brands
 Carrefour in Spain communicates that in a
particularly powerful way. At the front of each
store, three baskets of products with
accompanying cash register receipt and total are
displayed, one filled with manufacturer brands
(total price of the basket: 72.67), one with its
own "Carrefour" copycat brand (45.47), and one
with its value brand "1" (29.06).
 The display screams to shoppers, we can
compete with Aldi if you are price sensitive, and
with manufacturer brands if you are quality
sensitive.

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Category-Based Segmentation
 Category-based private labels span a number of different products but
within a specific merchandise category.

 This is often, though not always, a house-of-store-brands strategy-that

is, where independent brands, which are not affiliated with one another
or with the retailer, are sold next to one another.

 Since they are in separate categories, they are not competing with
another. The brand spanning a category can help communicate the
unique brand associations and benefits that are important to the
category in question

 This can also be advantageous when there is no obvious connection

between the retailer and the category or there are conflicting
associations between categories (e.g, all-purpose cleaners are sold on
functional performance but beauty products on image)

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 Intersport, the largest sports equipment retailer world, with 4,700 stores in
twenty-five countries, does not in the really have any identity except positioning
itself on choice

 It therefore develops category brands, such as Etirel for clothes, Techno Pro for
tennis, Nakamura for bicycles, and McKinley for winter sports, to communicate
the necessary brand image for each category.
 An additional benefit of the category approach to private labels accrues to
retailers that rely largely on private labels, like Aldi, IKEA, and Gap
 They can use a house-of-store-brands approach to create the feeling of choice
for the consumer despite not carrying any brands
 Consumers often perceive these as secondary national brands selected by
Intermarché for their quality and more affordable price

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 Whole Foods, in the U.S., has a range of
private labels. Its 365 Organic Everyday Value
brand targets price-sensitive customers while
its Authentic Food Artisans label is aimed at the
more high-end food connoisseur. But its other
brands are category based, including Whole
Kitchen (frozen), Whole Treat (desserts),
Whole Catch (fish), Whole Ranch (meat),
Whole Kids Organic (children's food), and
Allegro (coffee).

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 Benefit-Based Segmentation
 A benefit-based segmentation strategy builds the individual store brands around the specific
needs of a customer, as distinct from the customer's price sensitivity or category type.

 Retailers are aware of the changes in consumer lifestyles and needs. For example, the
increase in the public's awareness of food safety and health means that organic ranges and
foods purported to be healthy are increasing in popularity.

 In response, Kroger recently launched Naturally Preferred, its own brand of high-quality
natural and organic products.

 Additional trends, such as the popularity of low carbohydrate diets, the rise of food
allergies, and the increasing popularity of vegetarianism, have led to changing consumption
patterns among consumers.

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 Longer working hours and the increase in the proportion of
working women have contributed to increasing demand for
convenience foods, ranging in levels of preparation from
prewashed salads to ready meals.

 Building private label ranges around customer needs, such as

organic, healthy living, free-from, fair-trade, and low-fat,
allows a retailer to address differing consumer lifestyles

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 Managing Store Brand
Portfolios
 Store Brand Proliferation
 Cannibalızation
 Failure Risks
 Variety Reduction

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 Store Brand Proliferation
 Enamored by complex private label portfolios, some retailers
have gone too far with store brand proliferation.

 This has led to brand rationalization programs. For example,

Winn-Dixie replaced sixty private labels with its store brand.

 Carrefour also found that its three-basket display described

earlier led some consumers to compare the "1" value line with
the standard Carrefour line instead of comparing it against hard
discounters like Aldi.

 As a result, some consumers started observing that the

Carrefour standard line is overpriced compared with “1” line
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 Cannibalızation
 Store brands can lead to cannibalization.

 To avoid cannibalization, America's Target has given considerable

thought to positioning its two private labels in grocery.

 Archer Farms is premium quality. All Archer Farms products are created
with the very best ingredients so consumers "can expect the greatest
flavor in each and every bite”

 While Market Pantry positions itself on price. On shelves, Target positions

Archer Farms products next to premium brands, while Market Pantry-
branded items sit next to lower-priced brands.

 Shelf location is important, because Target consciously seeks to prevent

the consumer from making direct price comparisons between its two
private label brands
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 Failure Risks
 In pushing their private labels, retailers must beware of the
significant negative consequences of poorly managed private
labels

 A single product failure in the private label range can have a

back-lash on the retailer's overall image.

 The customer may start believing that if the retailer's

doughnuts are not good, perhaps its bread will be the same.

 Does the customer spend enough effort in processing the

differences between the value line and the premium line to
keep the failure in the value line apart from the quality in the
premium line?
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 Variety Reduction
 A proliferating store brand portfolio requires all the brands to find
adequate shelf space.

 The temptation for the retailer can be to assign the scarce shelf space to
its brands at the expense of manufacturer brands.

 Some manufacturer brands may even have to be dropped to make space

for the new private labels.

 For example, the orange juice category at Tesco, has several Tesco
brands.

 As a result, it has become hard for some shoppers to find the

manufacturer-branded orange juice products at Tesco stores

 This may turn off a large segment of the customers who feel that their
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is being constrained by the retailer 16
 The challenge to retailers as they build their private
label brands is to somehow develop a relationship
with their customers above and beyond simply price
considerations.

 Essentially, the question is, if the price were the

same, would any customers purchase the store
brand in preference to the manufacturer brand?

 To date, very few retailers can answer yes to this

question, and even there, only in a limited number of
categories

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 Successful Retailer Brand
Portfolios
 Adopt a sophisticated mix of price-based segmentation,
category-based segmentation, and benefit-based
segmentation strategies to deepen the retailer's penetration
into all consumer segments

 Use price-based segmentation to create at least two private

labels ("value" and "standard"), but increasingly a third price
tier ("premium") to attack the mainstream retailer’s twin
enemies of value innovators and manufacturer brands

 Employ category-based segmentation to give shoppers a

sense of choice and make it easier to imbue the category-
specific private labels with unique and relevant brand
associations
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 Exploit benefit-based segmentation to give the
retailer the flexibility to cater to changes in consumer
lifestyles and needs by building individual store
brands around specific needs.

 Limit store brand proliferation, cannibalization,

spillover effects of product failures, and perceived
variety reduction for consumers in order to avoid the
shortcomings of complex store brand portfolios.

 Manage the costs of a complex retailer brand

portfolio that may mitigate the ultimate advantage
on which much of the appeal of store brands is
based-better
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value for money in each price tier. 19