Competing Against Private Label: New Insights from Packaging Research
The growth of private label (store brands) has been exponential during the past five years. Across retail channels and product categories, private label brands have grown at a rate double that of leading national brands, to the point that private label now accounts for more than 15 percent of all grocery sales.
Retailers are making aggressive efforts to push this figure higher, since store brand sales bring them an average of 10 percent higher margins than national brands. They are also increasingly transforming their “niche” private labels into mainstream brands like Wal-Mart’s Ol’ Roy, the nation’s top-selling pet food, or even boutique brands such as Whole Foods’ 365 Organic.
The growth in private label branding has certainly been enabled (and perhaps driven) by a change in packaging strategy. Not too long ago, the term “private label” conjured images of black print on a white background: packaging that screamed “generic”. More recently, private label packaging has been characterized by “copycat” style, which mimics the leading national brand in an effort to provide quality reassurance or perhaps to lead shoppers to mistakenly pick up the store brand.
Today, however, store brands are increasingly moving away from copycat design and are instead defining themselves through packaging that matches the quality of national brand packaging, with appealing visuals, an emphasis on branding, etc. This shift has raised the bar and stepped up the challenge for national brands: Rather than simply differentiate, national brand packaging must now work harder than ever to justify a price premium.
Our research design
To find out how well national brands are facing this challenge—and to gather insights for improving national brand packaging—we recently conducted a study across 10 product categories in which private label has a significant share, including peanut butter, glass cleaner, orange juice and cotton swabs. The study was conducted via the Internet, and it involved 1,000 interviews with primary grocery shoppers. Within each product category, shoppers encountered the packaging of six competitive products, including two leading national brands and three to four private label brands (including Wal-Mart, Target, CVS, Walgreens, Kroger, Stop n’ Shop and Albertson’s).
Initial questioning focused on the packaging alone (without pricing) in order to gauge shoppers’ initial reactions and preferences (Do some packaging systems differentiate and create preference? Do others completely “turn you off”?). Later, pricing was introduced and questioning focused on the perceived value of each national brand (Is it worth paying more for?) and purchase interest (Which product are you most likely to purchase, when considering the packaging and pricing?)
What works for national brands?
Findings from this study confirmed the importance of pricing across the 10 product categories and illustrated the power of effective packaging to overcome price premium concerns. Though there were major differences across categories in the ability of national brands to justify their premium pricing.
Nearly 60 percent of shoppers felt that nationally branded glass cleaners (Windex and Glass Plus) were worth paying more for, as opposed to only 20 percent who felt that way about national brands of aspirin (Bayer and Bufferin). In fact, only 14 percent of shoppers selected Bayer and Bufferin as their first choice for purchase when viewing the packaging and pricing of these products next to private label.
Clearly, the packaging of these aspirin brands is not justifying their pricing, relative to private label.
Predictably, the differences across categories correlated to the size of the “price gap” between national brands and private label. In categories such as aspirin and skin lotion, where national brands are attempting to justify $2-to-$3 premiums, store brands are the strongest.
Within the categories, packaging consistently impacted national brands’ ability to “fight off” private label. Specifically, we saw that packaging differentiation led directly to stronger product expectations (taste, efficacy, etc.)—and ultimately to greater purchase interest and ability to justify a price premium.
Peanut butter offers one case in point. Both Skippy and Peter Pan were priced at $2.19, as opposed to $1.47 for Great Value (from Wal-Mart). However, the similarities between the national brands end there: Skippy’s packaging was far more likely to:
Create aesthetic appeal (40 percent Skippy vs. 12 percent Peter Pan)
Be perceived as unique (36 percent vs. 14 percent)
Convey appetite appeal (43 percent vs. 29 percent)
These advantages translated into higher levels of perceived value and superiority (versus store brands) and ultimately to a much stronger ability for Skippy to justify the same price premium as Peter Pan. In fact, when pricing was introduced, 31 percent of shoppers selected Skippy for purchase, as opposed to only 11 percent for Peter Pan. Meanwhile, Wal-Mart’s aggressive pricing captured a 29 percent share.
What did Skippy do right? Most importantly, it was the only brand to convey personality and an emotional (rather than functional) benefit via the packaging. Through the packaging visual (of a child at play) and the primary claim (“spread the fun”), Skippy differentiated sharply from competition by taking “ownership” of a key underlying dimension—fun.
In other categories, this study revealed several alternative strategies for differentiating through packaging:
In the glass cleaner category, Glass Plus effectively differentiated and conveyed superiority through a unique clear spray top and the use of one simple message (“No ammonia”) that stood out due to its placement on the sprayer. This helped the brand justify its price premium and grab share (36 percent) far more effectively than Windex (only 18 percent).
In the orange juice category, the shape of Simply Orange’s carafe created high levels of initial preference (without pricing), as 33 percent selected it for purchase (as opposed to only 15 percent for Tropicana).
In the cotton swabs category, Johnson’s differentiated through a different size count. While all of the other packages included 500 swabs, Johnson’s offered a 525 count, highlighted through a prominent “value pack” claim. As a result, the packaging created initial preference, as 45 percent of shoppers selected it for purchase (as opposed to only 30 percent for Q-tips).
The implications for private label
For retailers, our findings strongly suggest that there is opportunity to further grow private label brands and that some current packaging may be limiting this potential. When shoppers were asked about their receptivity to store brands in different product categories, receptivity levels ranged from 62 percent for peanut butter up to 84 percent for aspirin. This finding suggests that most shoppers generally believe private label products are comparable (or at least acceptable) in quality—and that they would purchase store brands if the packaging gave them the proper reassurances.
Therefore, the challenge for private label packaging is much less significant than that facing the national brands. Store brand packaging needs only to avoid alienating or “turning off” shoppers and to move the product into the consideration set, where it will frequently win due to its pricing advantage.
Fortunately, though, for national brands, we found that many store brand packages are so unappealing that they fail to meet this standard. The saltines category is one example. Target’s Market Pantry packaging was so unappealing that 64 percent of shoppers said that they would not consider it, regardless of price. In contrast, only 23 percent felt that way about Albertson’s saltines packaging and 10 percent about the Great Value or Kroger packages.
Interestingly, across several categories, the packaging of the Market Pantry and Target brands consistently eliminated them from consideration among nearly half of the shoppers. Apparently this retailer, which is doing so much to build its brand through advertising, is denigrating its brand and walking away from opportunity that exists with its Market Pantry private label packaging.
Winning over store brands at retail
Taken collectively, our findings confirm both the difficulty of fighting private label and the power of packaging in driving preference and justifying a price premium.
First and foremost, the study suggests that if national brands want to maintain their price premiums, they absolutely need packaging that clearly and effectively differentiates them from private label. Ideally, this differentiation will come at a visceral level, with packaging that “owns a dimension” (more fun, more effective, better tasting, etc.) at first glance.
Alternatively, we’ve also seen that national brand packaging, such as Glass Plus and Johnson’s swabs, can differentiate by “owning a message” through very clear communication. If national brands can’t simply look better, they need to communicate better, by effectively highlighting a relevant and differentiating claim.
To summarize, national brand marketers must continue to ask themselves two key questions:
Does my brand’s packaging “own” a key dimension at first glance?
Does my brand’s packaging quickly and clearly convey a point-of-superiority?
Given the continued growth of private label—and continued improvement in private label packaging—national brand marketers are certain to find it increasingly difficult to justify their price premiums. As this study shows, differentiated packaging is critical to “winning” against private label and is an investment that will likely be well rewarded. BP
Scott Young is the President of Perception Research Services (PRS), which conducts more than 500 studies each year to help companies guide, assess and improve their performance at retail. Scott can be reached at 201.346.1600 or email@example.com.