Marketing Matters: Private Label Grows Up

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It used to be that, for the consumer, buying a private label brand meant a deal with the economic devil. Private label purchases cost less and saved the consumer money, but a distinct drop-off in quality was often the trade-off from a national label alternative.

But, as Bob Dylan sang, the times they are a-changin’. Today, in every category, retail outlets are aggressively stocking private label products next to national brands, and often using private labels to attract customers into their store. From packaging down to performance, private labels are giving the national brands a run for their money.

What does that mean to the savvy marketer? Simply this: private labels have emerged as a definite threat to sales, shelf positioning and even the decision of what products are carried. Foolish personal care marketers ignore these warning signals at their own peril—and the likely detriment to their products.

Private label development has been the most significant at grocery stores, with a nearly 20% incursion rate. Supercenters are next, with 16%. Both are formidable personal care retail outlets. Even non-traditional personal care markets such as apparel chains—including New York & Co. and Ann Taylor—and accessory chains such as Coach offered personal care products in 2007.

If you need somebody to blame for this private label change from frumpy to fabulous, look no further than Martha Stewart. Stewart’s partnership with K-Mart some years ago suddenly gave private labels polish and pizzazz, and now Macy’s also carries her products. No longer was the private label some anonymous product made by some anonymous manufacturer, but now it carried the distinctive and well-known name of Stewart.

Soon Michael Graves was in Target, drugstores were seeking out their own exclusive brands, and private labels were on a rising sales escalator that hasn’t reached the top yet.

Macy’s, in fact, is becoming a retailer composed of mostly exclusive/private label brands, nudging out national brands that have been with the chain for decades.

In personal care, CVS has exclusively introduced Lumene personal care lines from Finland, and this, along with Essence of Beauty, Dr. Jeffrey Dover and other exclusive private brands, including new free standing skin care centers with private label and exclusive brands, have turned CVS into a beauty destination.

Personal care lines from Boots the Chemist, found only at Target and CVS, are bringing in customers and making these stores destinations. Walgreens is now the exclusive U.S. retailer of several European beauty brands.

It’s not only CVS and Walgreens that see merit in private and exclusive labels. Drugstore rival Rite Aid has stated that it intends to emphasize personal care for two reasons: value provided to the customer and higher margins for Rite Aid.

How have private labels become such a player in the retail marketplace? Obviously, a rise in quality has been a major consideration. Additionally, innovative packaging, advertising and various promotions help to attract consumers.

And whereas much private label packaging used to resemble a paper towel drawn on by a kid’s crayon, private label packaging today is eye-catching and appealing. Private label marketers understand that packaging is the first place consumers interact with the product, and they’re not shy about putting their best foot forward at the point of purchase.

Who does this private label challenge impact the most? Major personal care products, despite some hiccups along the way, are not going anywhere. However, what is going to occur is that the “in-betweens”—those products that don’t have major brand clout—are going to find themselves squeezed, perhaps right out of existence. There are so many new personal care items on store shelves every year, and the math shows that something’s got to give. Some estimate that private label brand growth for personal care will increase 25% in the next decade. There’s only one place for all those new private label products to go—brand marketers’ shelf space.

So what’s a marketer to do? A few things come to mind:
1. Continually analyze and get intimate with your customer base. Anticipate rather than react. By offering customers something that they want and private labels do not offer, marketers increase the likelihood of premium shelf space.
2. Start or improve upon a loyalty program that rewards your customers for product use.
3. Market, market, market. Make certain that your customers know why they should buy your product/brand over a private label. Make customers seek out your product.
4. Establish toll-free numbers, hot lines, Web sites and anything else needed to give your customers instant access to you. Make them feel you’re right next door.

Back to the February issue.

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