During the past year, store brand sales have increased by 10% versus 2% for national brands. According to Nielsen, while store brands comprise just over 10% of most retailers’ total product mix, they also account for over 20% of sales, while achieving a turn rate that is better than two-to-one.
Many retailers have adjusted their pricing in response to the economy. As a result, their brands are delivering slimmer profit margins, but they’re making up for the loss in profits with additional volume and greater market share.
Interestingly, IRI’s research shows that even as the economy improves, many who have adopted more frugal, modest spending habits are likely to continue. So consumers who are pleased with store brands are likely to continue purchasing them even as the economy brightens.
The upshot is that well-managed retailer brands have the power to become as important as national brands. Just look at what Kroger and Safeway are doing to confirm this. So what’s a national brand to do? Strike back, of course.
Counter Attack Strategies
National brands must employ several strategies to offset lost sales and retail shelf space.
Pricing. Many national brands have engaged in price cutting. Competing on price with store brands might be a good idea in the short term, but it isn’t effective as a long-term strategy. Making items price competitive is one thing, but constant cost-cutting cheapens the brand. It can also damage the long-term sustainability of the brand.
Innovative product /packaging features & structures. For manufacturers, additional quality, innovation and benefits are critical components of new product offerings. These kinds of attributes make products less subject to price considerations. But remember, innovation claims have to be real and honest. In order to build and retain customer trust, absolute honesty is a “must” within the company and in every customer-facing touch point.
Procter & Gamble’s decision to add aromatherapy fragrances to its line of concentrated Downy fabric softeners delivered additional relevance to modern consumers. By putting its broths in cartons with recloseable lids instead of cans, Swanson’s cleverly enabled home cooks the perfect package to pour and store, sans waste. By adding a grinding mechanism into its bottles of whole peppercorns, sea salt and selected spices, McCormick helped home cooks to get gourmet results without having to invest in a separate grinder.
Adding features like these might add too much cost or they might be more difficult for retailers to copy. Hence, national brands can truly differentiate themselves from retailer competition.
Brands that truly want to differentiate themselves benefit from forging ahead with innovative new features. Structural packaging offers an “ownable” aspect of branding that should not be ignored. When eyeing a sea of products on shelving as far as they eye can see, consumers are always able to readily identify brand packaging with distinctive structures.
Even commodity product lines benefit from unique package structures. How many juices and beverages are there in the marketplace? Yet, Jamba Juice is unique. Unique brand in a uniquely structured, “twisted” bottle. Method broke the mold completely when it comes to packaging cleaning products. Environmentally friendly cleaning products presented in highly visible, transparent packaging makes sense after all, don’t they?
Innovative New Products. Breaking new ground in consumer products isn’t the easiest challenge. Creating whole new categories isn’t either. Understandably, an iPod isn’t born every minute. But great ideas have led to revolutionary new products; sometimes in the most mundane, commodity categories.
OXO redesigned the most mundane of objects: the measuring cup, and had a hit on its hands. Finding that people often craned their necks while measuring dry ingredients and liquids in measuring cups while having to make constant adjustments, OXO simply positioned the measurement marks on the inside of their cups. Who knew it could be so simple?
The Apple iPhone is a marvel, too. In spite of the fact Apple was late in the game against behemoth competitors like Nokia, Samsung and Motorola, the company’s killer apps made consumers lust for the iPhone. The best part is that many of the available apps were suggested by and designed by end users. Connectivity and community building should now be part of the equation for product innovations to be successful.
New Media Channels. Manufacturers have not had the opportunity for direct interface with consumers in the past. Retailers acted as middle men between manufacturer and consumers. This relationship has helped savvy retailers glean information to develop strong store brands.
Now manufacturers can use their Web sites to foster direct communication with consumers as never before. Smart marketers are engaging their customers in direct communications, via active email correspondence, blogs, Twitter and Facebook. They are actively soliciting feedback and gaining new insights, as a result.
Negative comments can be used to rectify product issues and reassure customers, building trust. Positive comments can lead to constructive dialogue and ideas for product innovations. This interaction should be leveraged to develop and maintain a loyal customer base, just as brand loyalty is beginning to slip away.
Engagement, connectivity and community building will work to reverse this trend and help keep national brands front and center with consumers as retailers seek greater sales and share with their own brands.
National brands have a choice: they can conduct business “as usual” and prepare themselves for additional lost sales and brand erosion, or they can strike back, adding strength and vitality to the entire marketplace.
Ted Mininni is president of brand design consultancy Design Force, Inc.
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