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Private brands--a new balance of power?

Retailers’ brands are creating distinctive identities via design. But at least one expert says the job isn’t finished, thereby providing opportunities across the board.

LIFESTYLE ENHANCEMENT. The BORBA line of beauty products sold at Sephora shops fit the movement toward improved health and welln
LIFESTYLE ENHANCEMENT. The BORBA line of beauty products sold at Sephora shops fit the movement toward improved health and welln

Shoppers spend about $17 of every $100 on private brands. Tom Custer expects that ratio could double in some categories by the end of 2010. Some trackers of store-shelf activity might dismiss his projection as excessively optimistic, but Custer, director of client development at Interbrand, spends a lot of time working with private-brand products.

Those who believe that retailers’ brands have been growing primarily because of the recession are in for a rude awakening when consumer prosperity returns, he says. Consumer demand for private brands will continue to grow, and Custer advises national brand owners to prepare their counter strategies now.

To what does Custer attribute the staying power of private brands? He identifies three design principles that retailers are applying to not only help consumers save money, but also find value and build attachment to these products.

• The brand is linked holistically by a set of design principles. However, a clear organization and design system is not overtly apparent.

• The design strategy is flexible. The brand differentiates across an architecture system to be visually appropriate for each product grouping or tier. This approach helps create a clear organization among the brand’s individual product offerings while also still appearing to be visually holistic.

• The design strategy is consistent. It enables the brand to carry the same look across all products and categories for a more consistent appearance and feel.

These three principles define the emergence of what Custer describes as private brands—more sophisticated evolutions of traditional private-label products. Private brands—one example is Target’s Archer Farms ready-to-eat cereal—appear to be national brands because they don’t carry a retailer’s logo or other information that readily ties them to the store, as private-label products do. Private brands may equal or exceed the retail price of national brands. As such, they carry a higher perceived value to the consumer than private-label offerings, which are the lower-price alternative to national brands—but which also are displaying better package design in their own right.

And because retailers understand their specific shoppers better than national brands, their own brands are becoming innovative leaders in areas that have an impact on consumers’ lives.

It’s all about driving value. In outlining what’s driving private brands’ success during an October presentation at Pack Expo Las Vegas, Custer emphasized to an audience that “price is your way in, but value has endless definitions.”

A future in ‘Simplistic Slowdown?’

Valerie Jacobs has a different slant on value and how it could affect retailers’ brands. Jacobs, a forecaster at LPK Trends, notes a shift in consumers’ values and how they think of those values. Though she acknowledges that the steady strengthening of store brands predates the recession, she also believes that retailers have reached a critical crossroads, saying, “If they don’t stand out by standing for something, some consumers will switch back to national brands, and retailers will have lost this golden window of opportunity.”

She has identified a social-cultural movement she defines as “Simplistic Slowdown,” in which consumers are beginning to slow down their lifestyles, find fulfillment in each other, and redefine what is truly worthwhile. Jacobs believes this trend could propel store brands as retailers define what the simplicity movement means for their shoppers and introduce packaged products that reflect their own unique positioning. Brands such as the BORBA line of beauty products sold at Sephora shops fit this movement toward improved health and wellness.

“We don’t see a return to old spending values,” Jacobs says. “This is a long-term impact. People are going to be more focused on taking care of things they already own, and extending the life of what they already have. This might allow retailers to drive traffic to their own brands in multiple categories by inducing trial.”

Market-segmenting strategies

So how should national brands study what’s happening with store brands? They should be able to identify and understand three basic segmenting strategies that retailers have embraced as the foundation for their marketing strategies encompassing both traditional private-label products and increasingly, at a higher level, private brands.

One strategy is the traditional private-label approach. An example is Walgreens’ brand of cough syrup. The packaging closely resembles that of a leading national brand. But those interviewed for this article warn it would be an egregious error for national brands to think this approach continues as a main driver of private-label thinking. Many retailers are introducing multitiered approaches in which a product in “me-too” packaging targets one segment of a category. At the other end of the category, in separate packaging, a “better” or “best” quality product engages a different segment of the category.

A second strategy is what Custer defines as “value innovator” brands. These are a store’s proprietary brands, and Custer explains that they play a specific role by offering the best price-performance ratio. This strategy has the objectives of providing the best value, building customer loyalty, and generating word-of-mouth interest. Value innovator brands, he adds, offer either lower price and equal quality or equal price and higher quality to national brands.

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