Private brands A global guide to the rise of private label brands
Creating and managing brand value
TM
Introduction United States of America Dyfed “Fred” Richards Cincinnati
Creating and managing brand value
TM
My first private label experience I distinctly remember 1981-82, for a number of reasons: I was living in Britain, and it was the year of the Falklands War and the start of the bitter miners’ strike that came to full effect in 1984. It also was the year I first encountered “private label” packaging. Maybe, subconsciously, even then I knew bad design when I encountered it? I was sent by my mother to the local supermarket, Lipton’s, to purchase some sliced bread and my favorite tin of baked beans – beans on toast being somewhat of a delicacy in the UK! At the shelf I was amazed to see what can only be described as packaging that looked like army rations. It was a plain white can with stencil-style lettering that simply said “baked beans.” Knowing that money was tight and I was on marching orders from my mother to not overspend, I still could not bring myself to purchase the private label can of baked beans: Heinz baked beans was the winner then, and it remains so today. “Private label brands now have the power to become destination brands in their own right. Tesco, Harvey Nichols, and Waitrose are great examples of this principle.” Later that same month, I was horrified to discover Lipton’s private label packaging in my home. Was my family also being affected by the miners’ strike and the financial squeeze gripping the country? Was the terrible poverty and hardship we were watching on TV every night invading our home in the form of this shocking-looking packaging? In the early days, many consumers believed that private label goods were the same as branded goods in “less-fancy packaging.”
HAND SOAP
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This prompted brands to go on the offensive and publicly state that they did not engage in producing private label brands. The war for shelf space and consumer loyalty had begun! After an initial trend of looking “cheap,” private label brands tried to copy the designs of their branded competitors as closely as possible in an effort to gain some of the brands’ aesthetic cache. The strategy behind this approach is still unclear to me: was the idea to confuse the consumer or, even worse, trick them into buying private label instead of the brand they had trusted for so long? New and exciting times Little did I know or understand way back in 1981 that what appeared to be a terrible design crime would turn into a global phenomenon and an industry in which I would be actively involved. (In fact, when I worked as a package designer in London with Safeway and Sainsbury’s, their commitment to raising the design standards for their respective private brands was very clear.) Thankfully, package design for private label products has advanced by quantum leaps since those early days of emulating army rations and copying brands as closely as possible (while avoiding legal action). Today private label packaging frequently sets the standard and tone for high-end design and consumer expectations for product delivery. British and Swiss private label brands, for example, have capitalized on the opportunity to create white space on shelf and distance themselves
INDIAN CURRY SAUCE
from the perception that private label goods are inferior to the brands they once tried to emulate. Better yet, some private label brands have become destination brands in their own right. No longer need consumers feel shame in the checkout line when placing private label products on the conveyor. Private label brands are creating new and exciting design languages, consistently winning design awards, driving business and delighting consumers.
Private label is a growth industry, and one that we can learn from as designers and brand developers. It is becoming abundantly clear that consumers are far more open to new creative ideas than we ever dared imagine. While once branded products led the way, today private label market share is growing year on year. 1981 seems so long ago that I hardly dare wonder what my weekly grocery shopping experience will be like 26 years from now. Certainly, the future appears bright and oh-so-very private. Dyfed “Fred” Richards Executive Creative Director North America fred.richards@interbrand.com
COOKING OIL
BATHROOM CLEANER
Private brands: a global guide to the rise of private label brands
Contents Private brands
Creating and managing brand value
TM
Introduction Dyfed “Fred” Richards Executive Creative Director / North America fred.richards@interbrand.com
No complex Marina Papendieck Executive Director / Buenos Aires marina.papendieck@interbrand.com
A view from Japan Yuji Ohba Creative Director / Tokyo y.ohba@interbrand.co.jp
One of these things (is not like the others) Rick Mariani Senior Creative Director / Cincinnati rick.mariani@interbrand.com
Private label to retailer brands Borja Borrero Executive Creative Director / Madrid borja.borrero@interbrand.com
A very private New Zealand Debbie Hyde – Creative Director James Bickford – Director, Head of Strategy New Zealand debbie.hyde@interbrand.co.nz james.bickford@interbrand.co.nz
Swiss Magic: From copycats to natural born winner
“What is the strategy behind copying the master brand? Is it to confuse, cheat, or question the consumers ability to choose?”
Andreas Rotzler – Chief Creative Officer Dr. Thomas Deigendesch – Senior Consultant Zürich andreas.rotzler@interbrand.ch thomas.deigendesch@interbrand.ch
Distinction is next for Europe Ronald Bartikowski Creative Director / Hamburg ronald.bartikowski@interbrand.de
Opportunity and leverage Dyfed “Fred” Richards Executive Creative Director / North America fred.richards@interbrand.com
The importance of private label in creating value
CORN FLAKES
Daniela Nunzi-Mihranian Creative Director / London dnunzi-mihranian@interbrand.co.uk
The threat!
FAMILY SHAMPOO
Leigh Bachman Executive Director, Strategy & Research / Cincinnati leigh.bachman@interbrand.com
NET WT. 8OZ
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No complex Argentina Marina Papendieck Buenos Aires
Creating and managing brand value
TM
Consumers believe that they are choosing a cheap, low-quality product compared to leader brands, instead of confirming their good value for money.
Argentina witnessed the emergence of “outlet” brands some time before the notion of private brands invaded the market. For consumers, outlet brands meant choosing a lower-quality or defective product. Contrary to that view, the advantage of private brands is that they have the same quality as other renowned brands because, Consumers purchasing private label although supermarkets and retail chains products benefit from a reasonable distribute and promote them, products are option in terms of quality (which many manufactured by the top companies times is even higher than the credit these in each sector. products are given, if we take into account In Argentina, private brands emerged with the repeated economic crises that plagued the economy since the 1980s, when top food companies and supermarkets launched hundreds of good quality products at a lower price. However, with economic recovery, consumers have gone back to leader brands. On the verge of a new economic crisis in the Argentine economy, private brands have a new chance to consolidate themselves as a real option when consumers choose a product and increase their participation in the market.
that suppliers are the same as the leader brands) and a very good option in terms of price. Price is key: it is the fundamental reason why consumers buy and choose a private brand. Otherwise, they would probably go with their usual, favorite brand. Originally, private brands’ packaging designs were poor, which – rather than reflecting lower prices – actually made consumers suspicious about product quality. Thus, they associated them mostly with outlet brands.
It is quite understandable that in the midst of economic crisis, inflation A walk around the and a generalized increase shelves reveals that mass in prices, consumers consumers give close should restrict their consideration to product shopping options and design codes according to category, both (many times) quit buying their favorite in general brands and private brands. It is brands in favor of private brands. not just that the latter copy leader brands; But this should not make consumers it is quite rare to find really innovative, feel like they are buying a bad product. distinctive proposals in the segment. Actually, private brands succeed in offering Only a few dare to do so. a good quality/price ratio, which is the reason why their package designs should Thus, private brands seek to look like or confirm this perception and not contribute copy other brands to “succeed” in making to consumers’ suspicions of private brands it to the category and becoming a real being low-quality products. option for consumers.
Low investment in package design results in having consumers believe that they are choosing a cheap, low-quality product compared to leader brands, instead of confirming their good value for the money. A consistent message for a private brand’s packaging design should highlight that it is “a good staple,” basic, albeit good-quality product. Product design should strive to make consumers feel they made a smart choice rather than feel ashamed of the products they are buying. As stated above, the main reason why today’s Argentine consumers choose a private brand is price; otherwise, they go promptly back to their favorite brand. But if private brands also offered a good choice in terms of packaging, they would increase ten-fold their opportunities vis-à-vis competitors and ensure consumer loyalty, even in the event of economic crisis. Today the Jumbo chain is a leader in achieving this with its private brands. Package design has improved considerably, and Jumbo’s consumers see the chain’s products as a valid alternative and a smart buy. They would rather not pay more for more traditional or renowned brands, particularly for similar quality. A good design could be a key contributor to a more appealing, value-for-the-money proposal. It also could result in happier consumers who are proud of their smart buys and not just “resigned” buyers. Private brands should be a good choice for consumers due to their many benefits. They also should entice consumers to try them and demonstrate why choosing leader brands is not the only way of guaranteeing satisfaction. Marina Papendieck Executive Director Buenos Aires marina.papendieck@interbrand.com
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Private Brands: a global guide to the rise of private label brands
A view from Japan Japan Yuji Ohba Osaka
Creating and managing brand value
TM
The continuous increase in raw material costs has pushed up the prices of all kinds of consumer products. This has made consumers quick to switch to Private Brand products (PB products). PB products are defined as those that are planned by a distributor (seller), produced by a manufacturer, and sold solely by that same distributor. In contrast, National Brand products (NB products) are planned and produced by a manufacturer and are basically open to all markets (and distributors) to sell. For example, a leading Japanese PB brand, Top Value, is sold at only Aeon, Jusco, and Daiei, which are major Japanese distributors. The profit margin for PB products is roughly estimated to be about 40 to 50 percent, while the margin for NB products is about 20 percent. The direct deal between manufacturer and distributor enables PB products’ much larger margin. However, unless the scale of merit for the product is similar in consumers’ eyes, it is unrealistic to expect to maintain this large of a profit margin. Top Value originated in 1974, the year of “oil shock,” and the Top Value brand name was established in 1994. Company sales have increased dramatically over the years — they were up 120 percent in 2007 and 130 -140 percent in 2008. Similarly, the entire PB category has also expanded its market share, generating fierce competition among various PB products. Today, health and safety features are important value-adds, and package designs are more refined.
To address the issue of improving PB product safety — a source of controversy in recent years — former Wal-Mart CEO Lee Scott recently announced that the company will require all of its PB product manufacturers, including the largest manufacturer in China, to disclose their products’ histories. However, acquiring certificates for safety and environmental issues from third parties in order to comply with Wal-Mart’s new requirement will mean additional costs to the manufacturers, and thus some opposition to the plan is to be expected. Scott also mentioned that the current worldwide economic crisis has made PB products indispensable to consumers and that WalMart is planning to expand its business into Brazil, India, China, and Russia. The main difference between the Japanese PB product market and the European and US markets is that in Europe and the US, PB-only manufacturers co-exist with top brand manufacturers. In Japan, only top brand manufacturers produce PB products; there are no PB-only manufacturers. That situation will probably remain unchanged. Meanwhile, the sales of PB products are expected to increase, and their packaging will become even more refined and categorized. Yuji Ohba Creative Director Tokyo y.ohba@interbrand.co.jp
Resource: Nikkei News Oct. 23, 2008 / Spa Business Oct.08 Photo by Takahide Nakamura, Japan
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One of these things (is not like the others) United States of America Rick Mariani Cincinnati Creating and managing brand value
TM
Do you remember the game “One of These Things (Is Not Like the Others)”? Perhaps you’ve played this with your children or recall watching the singsong version from Sesame Street when you were younger. The game’s purpose was to teach you how to observe and analyze different objects. As a kid, I loved this game and was always making comparisons. I can remember trying to find the differences between national brand packaging and the grocery store knock-offs. My mother would insist that the only difference was in the price. “It’s the same thing; it just costs a little less,” she would tell me. Since the packaging looked almost the same, I believed the food would taste almost the same. And since I would eat anything when it came to snacks, it didn’t seem to really matter. Today, however, the shopping experience has become a little more challenging. There are more and more products screaming for your attention, and the copycat store brands complicate things further. Why copy? Consumers play “One of These Things (Is Not Like the Others)” every day in the grocery store. They see private label packaging that is similar to the name brand in color and architecture. Why does the private label brand copy? Does it really want to fool the consumer? Or is there a lack of confidence that the private label brand will not be able to compete with the national brand? Retailers such as Kroger, Safeway and CVS adopted the copycat strategy a long time ago. Why? Because
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it’s easy. By piggybacking on the success of national brands, retailers can elevate products that might have been viewed by consumers as generic. For a small investment, retailers can reverse-engineer the national brands and leverage what is already working. Little research is necessary, and manufacturers are often willing to create the product at a lower price. Following the look of the national brand opens the door to parity. The concern is that the retailer often instructs its agency to simply create a package very similar to the national brand, which limits any design exploration. Sure, it’s a safe way to get a product to shelf, but is it the best way to win the consumer’s trust? Missed opportunities Private label is the biggest missed opportunity in the US retail market today. However, transformation of private label brands into “store brands” is on the horizon. Retailers such as Target and Wal-Mart have begun to elevate their store brands into something bigger and better. (Target’s Archer Farms brand is an example of how copycat package design is no longer the norm.) These retailers have discovered new insights into what consumers will buy, and these insights have allowed them to build connections with those consumers. The retailers also have advance notice about the marketing plans of national brands, and they control the everyday shopping environment. By capitalizing on these advantages, the retailer can identify consumers’ product needs — and, importantly, which needs currently are not being met — to build better shopper experiences.
Private Brands: a global guide to the rise of private label brands
The retailer has an advantage over national brands. They own the canvas where consumers shop. If they listen, they can lead the shoppers to a better experience and lay the foundation to build a true store brand! Target recently introduced a new cereal box under its store brand, Archer Farms, that has brought a new innovation to the category. “Bag in box,” a resealable cereal box, was developed to help keep the product fresh. Target fulfilled an unmet need and delivered a better consumer experience. Innovation may be as simple as challenging the consumer to think differently about a packaging structure or product use. Little surprises can delight the consumer and build loyalty for the masterbrand, which puts the retailer in a leadership role. Look beyond our borders In the United Kingdom, retailers such as Tesco, Marks & Spencer, and Waitrose have elevated the shopper’s experience through their store brands. However, evolving private label brands into store brands does not happen overnight. The UK market was the first to invest in this strategy, which has matured over time. Tesco launched its first private label brand in 1924. According to the book Private Label: Turning the Retail Brand Threat Into Your Biggest Opportunity, ten years ago Tesco’s private label products accounted for only a quarter of its revenue. Today it accounts for more than half of its revenue. Tesco expanded its private label into a three-tier approach: Tesco’s value brand, Tesco’s premium brand and Tesco’s Finest. Tesco’s Finest is a great example of a retailer elevating a store brand to a higher standard. Consumers view it as the best product and do not mind paying
a little more for it because they trust its quality. Listening to consumers has helped Tesco identify ways to expand its product line, which, in turn, has created new shopper experiences and keeps consumers coming back for more. Facing the challenge The UK has shown the rest of the world how powerful store brands have become. In the US, consumers are savvier about private label than many companies believe. Target and Wal-Mart have recognized this and have put solid store brand strategies in place. Other retailers also need to invest in their own brands and begin to build a foundation of trust with consumers. Are Kroger, Safeway, and CVS ready and willing to adjust their strategies to build their store brands? The consumer is ready! If we are to copy anything, let’s copy the UK’s success and breathe new life into the shopper’s experience. Stop copying and start leading! Building store brands that mean something to the shopper will increase your share of total consumer purchases. Rick Mariani Senior Creative Director Cincinnati rick.mariani@interbrand.com
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Private label to retailer brands Spain Borja Borrero Madrid
Creating and managing brand value
TM
For many, retailer brands’ prices, which
Another important component of retailers’
typically are lower than the rest of the
brands is communication. Supporting the
category, are usually interpreted as signaling
packaging with consistent information,
an absence of quality. This fact can make
both in and outside the purchase space,
consumers feel guilty about not buying the
is important to gain client confidence
best products for their families. The look
and satisfaction. It is also a great
and feel of the store also influences the
opportunity to establish an ownable style of
way consumers perceive a retailer’s brands.
communication.
The objective is to make the purchaser see the retailer brand as an intelligent buy,
Increasing consumer concerns about
combining low price and high personal
healthy living, product safety, and quality
satisfaction. This way, the retailer’s brands
make it mandatory to provide
become valued, safe options that, through
organized and tidy product information on
the confidence they inspire, deliver
a package, such as the main and secondary
personal satisfaction.
propositions, simple and effective usage
When private label brands were born,
guidelines, convenience information,
they first positioned themselves as being
Going back to packaging, there is an
the cheapest product alternative in the
important cultural issue we discovered in
market. They weren’t very attractive and
our research for the supermarket chain
Another issue we should take into account
offered almost no guarantee of quality.
DIA. In Spain, the most effective packaging
is the brand’s verbal identity. It should
It was hard to imagine back then that
designs show the product in a natural way,
always reflect the brand DNA and can help
they would reach the level of brands
with a healthy, understated appearance.
make retailer products more attractive
delivered by manufacturers or evolve
In the US, however, wild colors,
to the target markets. The development
into premium products.
spectacular type styles and a lot of visual
of this identity can be conventional or
effects sell better.
“Retailer brands compete directly with manufacturer brands in creating value for their own brands and, as the retailers do, they also offer a wide array of products and varieties.”
nutritional facts, and other important facts.
more poetic. The second option is more creative and can better differentiate the
The fast growth of
brand, but sometimes it can be difficult to
retail chains and the
adapt a product name to other cultures
maximization of their
and languages. (The word “chocolate,” for
resources, combined with
example, is one word that works in different
a culturally connected
languages.)
world, enable us to think in universal graphic codes
The use of an ownable type style/font across
Private label brands have developed
that make it possible to communicate with
a large quantity of references can help
incredibly fast. In just a few decades they
many different targets. We should not forget
retailers to create a consistent identity and
have revolutionized the market and gained
that brands need to adapt to the specific
can facilitate the management and control
important market share against brand
characteristics of each market, but there
of the design. Use of a versatile and widely
name brands. Such incredible development
are some packaging elements and concepts
available font also can solve many of the
has forced private label brands to change
that we can consider globally. Relating to
problems of a multi-language strategy. The
their names accordingly. No longer are they
the signature system, the most common
counterpoint to the type simplicity would
“no one’s” brands. They are now endorsed
options are:
be the “logotipacion” of all the product
by retailers, contributing added value to a
references imitating the market trends.
retailer’s brand and boosting
• Product focus: The product uses a discreet
customer loyalty.
signature system with low brand visibility
Another area in which retailer brands
that works as a warranty for the product. It
should invest a big part of their efforts is in
A trend that reflects the evolution and
somewhat camouflages the brand, giving
choosing photography that not only helps
consolidation of private label brands
more importance to the product.
to identify the product but also suggests,
is retailers’ increasing investment in
evokes and enriches its content.
packaging, which they are recognizing as an
• Brand focus: The brand is very visible and
important customer touch point. Retailers’
leads the product. It communicates power
growing interest and pride in their store
and pride in belonging, betting on this
brands demonstrate their concern about
transparency. One caution: this option can
developing a personality that differentiates
have twice the negative impact
them and their offerings. For years this
if the product fails.
situation has affected the store; now it affects the product and its design.
“We are seeing a lot of creating and managing of new sub-brands and categories, from personal care articles to bio products, across a wide economic range.” Retailer brands have grown in Spain 30
• Product and brand focus: This very
percent in the last year. To maintain this
common graphic approach places the brand
rate of growth they will need to emphasize
The development of store brands has
in a lower position. Graphically it is very
authenticity, think always about the
reached the point where retailers today
dynamic; it has a high visibility and doesn’t
consumer and invest consistently in R&D.
not only offer basic products but also those
need to saturate the brand use. Its versatility
Issues such as universal design, Braille,
associated with emotional benefits. We also
becomes clear when it makes the most
products for diabetics, flavors adapted to
see that they provide additional services
of some other elements that accompany
different cultures and eco-sustainability
such as Braille, customer service, nutritional
it. This system usually works with many
will be more important each day in an
information, and even stories to enrich the
different product categories (perfume,
environment where the emotional aspects
packaging and the brand.
children, and pets).
of product selection eclipse material ones.
Yet, aside from these developments,
Traditionally, the design objectives for
Borja Borrero
important weaknesses continue to be
retailers’ brands followed the trends of
Executive Creative Director
detected in the retailers’ brands. The most
market leaders. Now, however, retailers’
Madrid
important one is the lack of transparency
brands are starting to innovate and even
borja.borrero@interbrand.com
about the products’ manufacturers. Most
move faster than some brand name
consumers are unaware of the origins of
manufacturers in bringing new products
these products, and it makes them
to life. Sometimes a retailer’s relationship-
feel distrustful.
building and customer-satisfaction efforts are so effective — even after imitating a market leader’s strategy — that when a branded manufacturer has to remove a product reference because of bad performance, the retailer is still rewarded for it and keeps it.
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Private Brands: a global guide to the rise of private label brands
A very private New Zealand New Zealand Debbie Hyde James Bickford New Zealand Creating and managing brand value
TM
Private label junkies New Zealand consumers are private label
private label products where practical. A
junkies when walking the aisles of the
reduction in the use of trans-fats has also
supermarket. For the supermarkets, the
been set as an objective.
hard yards creating private label loyalty is being further rewarded as consumers
Pams, owned by Foodstuffs, is the real
tighten their belts. In a recession “own
winner in New Zealand. As a brand, Pams is a
label” brands are placed to reap the
genuine competitor to branded products on
rewards as acceptance, quality of product
shelf. It is a private label that has grown up
and trust has been earned.
to become a brand in its own right.
The New Zealand private label market is
Pams has a warm, friendly and fun
an intensely managed and competitive
personality on shelf, and, as a brand, has
environment. Retailers recognize the
become a friend the consumer can trust. It
fact that the private label brand is a big
has evolved visually from stark beginnings
puller and, once hooked, the consumer is
to where it sits now — full color, food shots
extremely difficult to prize away.
and dynamic branding, while retaining the equity of its heritage. Pams has set the
Private label in New Zealand has become
benchmark for other private labels to follow.
more sophisticated and, in some quarters, has become a stand-alone brand on the
The future is bright for private label in New
shelf. Private label was once seen as a
Zealand. Consumers trust the private label
contributor; now it is a brand weapon.
offering and, in some cases, private label has
In fact the whole notion of private label
become a stand-alone brand. Consumers are
is something of a misnomer and risks
becoming wise to the fact that these private
trivializing the scale of the business.
label brands are often being produced by the
“The future is bright for private label in New Zealand. Consumers trust the private label offering and, in some cases, private label has become a stand-alone brand.” New Zealand supermarket operators
brand manufacturers they compete with
have tremendous influence in a very
and are asking the question: “Why should I
monopolistic market. Currently New
pay more for what is essentially the same
Zealand has two main players. Foodstuffs
product?” Historically, private label in New
is New Zealand owned and operates
Zealand was only focused on value, while
PAK’n’SAVE and New World supermarkets.
quality and brand value was the domain of
Australian-owned Progressive Enterprises
branded suppliers. This rule was broken by
operates Countdown, Foodtown and
Pams, who understands the value of brands
Woolworths. These two entities dominate
and is leading private label into the future.
the landscape. New Zealanders purchase
Although, in the main, private label in New
approximately 75 percent of their food from
Zealand is struggling for individuality, it is
supermarkets, so the private label space is
refreshing to see a private label such as Pams
extremely powerful to both operators.
breaking away.
Currently, both supermarket operators
Debbie Hyde – Creative Director
are engaging healthier eating as a brand
James Bickford – Director, Head of Strategy
value for their respective private label
New Zealand
offerings. Foodstuffs is undertaking work
debbie.hyde@interbrand.co.nz
on a “healthy options” range that will appear
james.bickford@interbrand.co.nz
The art of private label There is support for private label abovethe-line in New Zealand; however, these brands have to work extra hard on shelf compared to mainstream brands. Signature Range was launched as a revolutionary concept but has evolved as a hybrid visually. While it uses black as a key identifier, each category’s’ individual visual and verbal language is taken from the brand leaders. Signature Range was the first private label brand to gain consumer trust with a “me too” strategy. However, one questions why Signature Range has not now evolved away from a “me too.” The newly introduced Select range is endorsed by the Signature Range brand. It is unclear why Signature Range has developed this strategy. This could be for one of two reasons. One, the Signature Range endorsement acts as a brand extension or two, this could be the phasing out of Signature Range to make way for Select. The Select private label is safe and delivers to a very simple and predictable formula. It has positioned its products as premium, and within its SKU formats there is evidence of being more adventurous in approach.
on retail shelves under its private label brand Pams, and is working with suppliers to reduce the fat, sugar and salt in other
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Swarm Tactic
Me-too principle
Swiss magic From copycats to natural born winner Andreas Rotzler Dr. Thomas Deigendesch Zürich
The old Migros Copycat world The new Migros Natural Born Winner Universe
Creating and managing brand value
TM
Migros Budget advertisement: You won't find these products cheaper anywhere else.
Gottlieb Duttweiler, a pioneer of the Swiss retail business, had a clear vision when he introduced private labels in 1928 to benefit customers and revolutionize the retail business. Today, private labels are more successful than ever. A recent AC Nielsen study indicates that the worldwide market share of private labels in the FMCG business is 17 percent, 20 percent in Europe and considerably higher at 45 percent in Switzerland. The original success of store brands was rooted in their attractive price-value offer. To compete against the superiority of namebrand producers, retailers started to produce “no-name“ products by copying name brands and positioning them in the low-price segment. Key to this strategy were lower production costs and savings in development and communication costs, resulting in lower prices. Additionally, these no-name products provide an automatic differentiation in the competitive marketplace and allow retailers to close the gap in their assortment. The recent success of store brands is based on the fact that they have become strong stand-alone brands. As the Nielsen study reveals, the attractive alternatives are perceived to be as good as name brands. Nearly three-fourths (72 percent) of US households surveyed viewed private label brands as equivalent to name brands, while 62 percent said store brands were just as good as name brands.
they deliver the critical function of a real brand: prestige and emotional identification. The development from a no-name to a real brand is also a result of a sophisticated positioning strategy and a differentiated package design that all successful store brands have today. Globalization has spread the same patent for success around the world and Switzerland is no exception. Everyone uses the same recipe for success. This me-too principle has resulted in everything looking quite the same. Customers around the world reach for crunchy breakfast cereals which display a bowl in the lower right hand corner of the package. Cleaning products for a sparkling home feature high-color contrast packaging with diagonally placed, threedimensional typeface. Every square millimeter of the packaging and every neutron in the customer ‘s brain has been programmed so the customer will move his arm to grab the product behind the well-designed message. It does not matter if it’s an original or a private brand: the pattern used is featured the world over. And this well-known strategy has been copied by private brands for years.
Today, store brands are represented in low price as well as in premium segments and deliver the same benefits as name brands. They provide orientation about the product offer, they convey trust in the high quality of the product and, most importantly,
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Private Brands: a global guide to the rise of private label brands
Cherry Picking Tactic
Migros Selection advertisements for French cheese and the Spanish speciality Pata Negra ham
If we view things from this perspective, packaging that tries to fulfill consumers’ wishes ends up in nowhere land, a vast emptiness which at best could be considered background noise. No true leader emerges from this massive, undistinguishable block of forms and colors which make up mainstream packaging design. As a result, supermarket shelves the world over tend to look the same.
The inexpensive private brand, “Migros Budget”, has developed one design pattern for the complete array of products in the budget range, from coffee and pasta to cleaning products. The design pattern seems to say, “We didn’t even spend a penny on design.” The message emphasizes quantity, and a never-ending swarm of good, yet inexpensive products. Customers who choose these products will certainly benefit.
Recently, something has changed. Copycat brands have become unique at both ends of the product range — for both cheap and luxury products. And the design principles follow two simple rules borrowed from Mother Nature:
At the opposite end of the private brands is “Migros Selection,” where the product is the star. The packaging used for these highend products features a window so that the product is visible. Thus, the carefully selected products are beautifully presented. The customer is bound to be convinced from the first moment that what has been selected is exquisite quality. The packaging relays a message which seems to say, “This is perfection.” This is cherry picking.
As in cherry picking, the sweetest things in nature, the nectar of flowers and the sweetness of fruits, are translated into design elements such as compact forms and colorful shapes in contrast to a plain background. These stunning design elements can be spotted quickly. They help relay a message to the world, “I am the essence. I am good and sweet. See me, grab me, eat me.” Another example borrowed from nature illustrates the way weaker creatures seek protection. It is known that little fish swim in swarms so that they look bigger and seem to be more powerful as a group. Migros, the biggest Swiss retailer has followed this direction. Migros has launched both a cheap and an expensive product range. Notably, Migros has broken away from established design patterns to present something else, drawing on examples from nature.
These private brands in Switzerland adopt a simple but extreme visual strategy which focuses on a basic, down-to-earth, natural magic to change the world. In Swiss German, we say, “Weniger isch meh” the design world knows it as "less is more." Andreas Rotzler – Chief Creative Officer Dr. Thomas Deigendesch – Senior Consultant Zürich andreas.rotzler@interbrand.ch thomas.deigendesch@interbrand.ch
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Distinction is next for Europe Germany Ronald Bartikowski Hamburg
Creating and managing brand value
TM
Leading the pack Europe continues to lead the pack in private label development. Nine of the top ten countries in the world with the highest-value market share of private label are European. Because of their unique position to leverage consumer trends, retailers have been able to deliver value-added propositions that resonate with the consumer. This advantage has allowed for retailers‘ continued growth year after year. Retailers have moved beyond simply creating imitations of manufacturers’ brands and started developing targeted sub-brand tiers. By adding budget and premium offerings on either side of the existing private label range, most retailers have created a classic goodbetter-best strategy.
Continuing to use consumer insights to customize the shopping experience, retailers have identified social trends as a way to brand their offerings. Lifestyle, health, and ethnic ranges allow consumers to associate the retailer brand with these important issues in their lives.
This combined with the same selection of manufacturer brands has created a very ”me too” approach to the market, no matter which retailer a consumer chooses.
Coke is available everywhere It’s a small world, and retailers in Europe are quick to learn from the developments around them.
How does a retailer create a point of difference?
When new ideas and trends are identified in one market, this thinking is adapted and transformed into another, leading to a lack of distinction among major retailers. Almost every retailer has a range of products addressing the popular topics of our time: obesity, health, organic, and the environment.
“Selection is distinction. Retailer-exclusive regional concepts is the next level of consumer retention.”
Reflets de France, exclusively at Carrefour (France)
Selection is distinction Consumers want to GOOD know where products REWE, Austria come from. Based on this important insight and by looking for a distinctive offer to drive consumer retention, BETTER retailers have coop, Sweden started to develop their own unique selection of regional product ranges, including one-of-a-kind regional product labels and partnerships with other brands. BEST Culinary traditions of Albert Hein, certain regions and Netherlands assumed qualities resonate with consumers, as Reflets de France and Kirks fresh cheese have shown. Coop has started a region-for-region concept quite recently. “Unser Norden” (“Our North” in English), a Coop offer, is produced and available exclusively in the north of Germany. All of these concepts are ways to create that point of difference that allows a retailer to stand out from the crowd. Ronald Bartikowski Creative Director Hamburg ronald.bartikowski@interbrand.de
Kirks cheese specialities from a small Danish dairy manufacturer available at EDEKA (Germany)
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Private Brands: a global guide to the rise of private label brands
Opportunity and leverage United States of America Dyfed “Fred” Richards Cincinnati
Creating and managing brand value
TM
It’s all gloom and doom. Run for the hills! Hide your cash under the mattress and start buying private label brands. If you believed “everything” you read, then all of the current advice would lead you to think that private brands are about to clean house at the grocery aisle — the theory being that in an effort to save cash at home, consumers will automatically turn to private label brands, and in droves. In fact, these brands are there specifically to reassure consumers and understand their needs — especially the reduced size of their wallets. Is it really that simple? Even in uncertain economic times such as these, should private brands really be offering up the value proposition so soon in an effort to gain new and loyal consumers, especially after so many companies have spent so many marketing dollars to elevate private brands’ perception beyond the entry-level mandate of value? Most economic trends, including the current financial downturn, are cyclical. What happens when the good times roll again? Where will private brands’ value propositions be then? In the coming months, private brands need to make a concerted effort to not just play the value card. Consumers expect private brands to be cheaper. But in recent years, consumers have also raised expectations about what a private brand needs to do. While private brands across Europe have managed to successfully breach the value proposition while elevating product delivery, they have also managed to accomplish something that US private
label brands have yet to do: establish themselves in the hearts and minds of the consumer as equals to other brands that happen to save them money. “The best time to fix the roof is when the sun is shining” Are consumers really that fickle? Will they turn away from branded products simply to save a few pennies? I think not. Granted, many grocery carts around the country — mine included — will, for a period of time, be filled with more than an average amount of private brands in an effort to conserve cash. However, brands will continue to make their mark. Consumers are creatures of habit and are always in need of comfort and familiarity. Tough times require comfort foods and comfort brands. No matter what a private brand offers, it will never be able to match the experience of sitting down with your favorite branded product. During an economic downturn like this one, private brands in the US should balance their short-term messages about value with longer-term messages about trust, dependability, quality and price. In this way they can secure an indelible place in the hearts and minds of consumers and retain their “share of cart” even as the economy improves. Dyfed “Fred” Richards Executive Creative Director North America fred.richards@interbrand.com
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The importance of private label in creating value Britain Daniela Nunzi-Mihranian London Creating and managing brand value
TM
In Interbrand’s recent Top 25 Performing European Retail Brands report, 60 percent of the companies featured offer private label products that contribute between 30 and 100 percent of their revenues. Three of the top five brands sell only private label products.
In addition, as luxury and premium goods become more accessible and value brands become increasingly high-quality, the ”mass A” brands are feeling the pinch as they are squeezed in the middle ground. This poses a huge threat to traditional mass market, household-name brands.
Spending on retailers’ own-label goods is rising: growth has been running at an annual 5.3 percent in the US and 7.4 percent in Europe between 2000 and 2005, and sales have reached more than US$ 350 billion across the two. Private label’s share has grown across almost all categories.
To combat this threat, retailers are moving away from mere price competition to more value-added and segmented offers. They are also beginning to explore new markets and sales channels. Consider Boots entering the US market and Marks & Spencer’s presence through BP petrol forecourts, for example.
Consumers no longer view brand solely as a mark of quality; instead they search for brands that match and enhance their individual lifestyles. They are also more likely than before to deliberately “trade-down” in certain low-interest categories in order to enjoy a higher standard of consumption in others. Enter the role of private label.
There still remain, however, certain advantages that strong manufacturer brands enjoy. They continue to have the innovative edge on private label goods. Also, some consumers continue to perceive private label as inferior to its branded competitors, especially within certain sectors. Manufacturers must capitalize on these advantages if they are to compete against retailers’ private label offerings.
The UK is widely acknowledged as a pioneer in private label, and the penetration of own-label products is one of the highest in the world.
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Private Brands: a global guide to the rise of private label brands
Within the private label sector in the UK, there are four key categories: Category 1 — Budget alternative: Private label is the store’s value brand, e.g., Tesco’s value range Category 2 — Cheap me-too: Private label imitates the brand leaders in an attempt to generate a “rub-off” effect by association, e.g., many supermarkets’ gin products imitate the market leader, Gordon’s Gin Category 3 — Genuine competitor: Private label becomes a valid branded offer in its own right, often inhabiting a position of strength where manufacturer brands have been weak or the market fragmented. Manufacturers are essentially pitted against private label ”brands” at this point, e.g., Sainsbury’s Organic range Category 4 — Category partner: Together, the manufacturer and retailer take a holistic category management approach based on deep shopper insights, with total category growth in mind. Increasingly, manufacturers are taking this “better the devil you know” approach, going as far as manufacturing for these private label offers to ensure product differences are maintained. Daniela Nunzi-Mihranian Creative Director London dnunzi-mihranian@interbrand.co.uk
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The threat! United States of America Leigh Bachman Cincinnati
Creating and managing brand value
TM
The CPG industry Doesn’t it seem like we’ve been talking about the “emerging threat of private labels” for years? Originally, this threat was due simply to private labels offering a lower price that appealed to price-conscious consumers. Then the threat shifted to private labels encroaching on a brand’s visual equities so that the national brand no longer “owned” its own color, logo or shape. And, more recently, the private label threat has emanated from consumers no longer being ashamed to buy the private label due to improved perceptions of quality as well as the “discount chic” image that retailers like Target have made fashionable. In fact, private label products account for more than US$ 81 billion (16.2 dollar share) in the US, up 10.2 percent over the past year. And with the country experiencing a major economic downturn, private labels seemed to be poised better than their branded counterparts to weather the storm. In September, Walgreen’s, for example, announced its previous quarter private sales were up 15 percent versus the previous year.
“Let’s face it, private labels are no longer an ‘emerging’ threat, they are a daily threat to CPG companies.” In addition to what can already be seen at the checkout counters, new data revealing Americans’ perceptions of private labels seem even more threatening to CPG brands. According to a new survey by The Nielsen Company, 72 percent of consumers believe that private labels are good alternatives to branded products. The same survey said that nearly two-thirds (63 percent) of consumers believe that the quality of the private label brand is as good as name brands and one-third (33 percent) of consumers believe some store private labels are higher in quality than the name brands. Let’s face it, private labels are no longer an “emerging” threat; they are a daily threat to CPG companies. And as the economy teeters on the brink of Depression with a capital “D,” that threat is no longer something CPGers can afford to look at over their shoulder, or even down their nose — it is front and center.
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Private Brands: a global guide to the rise of private label brands
Yet despite all this, I think CPGers can count themselves lucky that the damage being done to them at the hands of private labels isn’t far worse. For all that private labels have evolved over the years, the private label retailers in the US are still a long way off from having “figured it out” like their Western European cousins have. US retailers seem to puzzle endlessly over what their strategy should be every day, with little progress being made. Should we use a masterbrand strategy across the store, or offer a house of brands? Or a hybrid of the two? Should we look like the national brand equivalent in each category, or have a holistic design strategy across all categories? What about when we offer different tiers – premium, base and value? Sure, a new and effective private label strategy pops up here and there among the retailers, but for every Publix or Target, there are a dozen retailers that waffle in indecision…thinking they have next year or next quarter to figure it out. But if the train hadn’t already left the station before, it’s clearly long gone now that we are in a full-blown economic recession. Case in point: everyone has known Tesco was coming to the States for some time, and yet, how many private label retailers have changed their strategy and launched or relaunched their store brands in a revolutionary, game-changing way? Instead, retailers’ waffling and indecisiveness has led to inertia. As sales for private labels increase, retailers are patting themselves on the back for a job well done – but this has not been because of a well-thought-out private label strategy; rather, in spite of one. Private labels have ridden the wave of natural industry forces and most recently a tanking economy, but imagine the tsunami they could be riding if more retailers get off the fence, pick a strategy and implement it with excellence. I think whether a retailer chooses to pick the masterbrand strategy or the house-of-brands strategy or some other strategy is immaterial, in some ways. Sure, one may work better than another in different circumstances, depending on the overall retailer’s strategy, and we each have our own professional opinion on what that should be. But the more important choice to make, regardless of the strategic approach, is one that leads to compelling and consumer-relevant package design.
No one debates the statistics that at least 80 percent of purchase decisions are made at shelf in the CPG industry. And estimates have put the time spent making that purchase decision from as much as three seconds to as little as one-fifth of a second (the latter being much more likely). So let’s use a little common sense: when you are reacting to something that quickly, are you thinking about all the functional claims the national brand makes, how that brand can really help your life, and how much this lowerpriced alternative looks like the national brand and might do just as good a job?
“80 percent of purchase decisions are made at shelf in the CPG industry.” Or, in that fraction of a second, is your brain thinking only, “ooh, pretty … I want that,” much like my five-month-old daughter does when she sees a shiny object just out of reach? I don’t mean to oversimplify what makes for a good, consumerrelevant package design, but I think you get my point. Because of the way the brain reacts on instinct, truly compelling design is what can build a brand and motivate shoppers to actually purchase. This phenomenon of human physiology is going to be true for a national brand or an attractively-priced private label. So why shouldn’t the private label brands take a cue from nature and take advantage of design? Private label retailers need to play by the same rules as the CPGers: Get in the game with package design. Design to delight the consumer, not to try to fake the consumer into believing that because it walks like a duck and talks like a duck, it’s a duck. The consumer is smarter than that. Use design to allow the product to win on its own merits, as a real brand that supports the retailer’s consumer proposition, that actually is good quality and that — whoopee! — has a fantastic price. In these tough economic times, the bases are loaded for private label brands. Retailers can choose to rely on price and continue to walk in the run or they can swing for the fences with package design. Leigh Bachman Executive Director, Strategy and Research Cincinnati leigh.bachman@interbrand.com
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Are you on “the” list? 2008 retrospective of the collection of “Monthly Perspectives” produced by Dyfed “Fred” Richards
Creating and managing brand value
TM
Every month Dyfed “Fred” Richards (Executive Creative Director, North America) shares his observations on the graphic world around us. These glimpses into the good, the bad and the ugly offer insights and observations about categories that inspire and educate, and are sent via email around the globe.
Interbrand started in 1974 when the world still thought of brands as just another word for logo. We have changed the world’s view of branding and brand management by creating and managing brands as valuable business assets. We now have nearly 40 offices and are the world’s largest brand consultancy. We bring together a diverse range of insightful thinkers, making our
Packaging is often the first and most regular contact people have with your brand. More than just a face to the brand, packaging is a powerful selling tool. It influences market position and consumer behavior by triggering purchase and creating loyalty. We ensure packaging solutions work seamlessly with brand strategy. Our packaging work brings
business both rigorously analytical and highly creative. Interbrand has the broadest geographical presence – offering more people, more disciplines and more knowledge tailored to our clients. Our work goes deeper and further. We create and manage brand value by making the brand central to the business’s strategic aims. We’re not interested in simply being the world’s biggest brand consultancy. We want to be the most valued.
brands to life in accessible and engaging ways, from the way they look, feel and function to how the packaging works competitively and complements a wider portfolio.
Best Global Brands has taught us time and time again that brand remains a far less volatile asset than other business assets – tangible or intangible.
In troubled economies, we know that business doesn’t cease. Companies may struggle, but the practice of buying and selling continues no matter what. Leading brands know this and come through difficult times stronger and ready to compete rather than hibernating in the comforts of business as usual.
The past year has been one of the more dramatic and turbulent that global economies have endured. In some regions of the world, the anticipation of a troubled economy ahead will undoubtedly make it more challenging for marketers to make effective plans. Patience wanes in a resultsoriented, nervous economy. Brand management needs to constantly demonstrate value. And in regions with markets opening to the global stage for the very first time, a new and unknown set of challenges awaits. As the world becomes one global economy, it becomes an increasingly complex place. Will the economic woes of developed markets pollute emerging markets, or will developing markets provide the medicine that the established world needs? Charting the course for successful brand management requires a multifaceted perspective, even if it’s delivered through one brand. A connected and holistic approach to brand management is a prerequisite.
Our design teams have a deep understanding of shoppers. We work across all sectors to develop packaging design systems that deliver consistent, powerful and enticing messages from the first moment they’re seen on the shelf.
In developing markets, we know there is a world of possibilities opening to consumers. The idea of buying and selling is not new to them — greater choice is the novel concept. Wealth is no longer an exciting idea, but a reality. The marketer’s challenge is showing people where and how to spend. Many of the Best Global Brands have seen the opportunities emerging and are bullish in establishing themselves. Regardless of your view of the world, in good times and bad, your brand is your company’s most valuable asset. Understanding how your brand creates value for you is key to maintaining market leadership or establishing it in the first place. We continue to see an increasingly sophisticated outlook on managing brands and a growing importance on understanding the drivers of brand value.
www.brandchannel.com Brandchannel (brandchannel.com) is a website about branding launched in 2001. Its goal is to provide a global perspective on brands. The website is produced by global branding agency Interbrand but maintains editorial independence. It is published weekly and features web reviews, brand profiles, reader polls, and an international directory of industry conferences and practitioners, as well as archives of brand papers written by industry experts.
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Scott Lucas Executive Director 4000 Smith Road Cincinnati Ohio 45209 United States of America scott.lucas@interbrand.com
Bertrand Chovet Managing Director – Branding and Packaging 28 rue Broca 75005 Paris France bertrand.chovet@interbrand.fr
Jonathan Chajet Asia-Pacific Strategy Director Managing Director, China 101-102, C7, Red Town No. 570 West Huaihai Rd. Shanghai 200052 PR China jonathan@interbrandcn.com
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