Views

Private Label Brands: What’s Next?

The Interbrand team is gearing up for Velocity’s My Private Brands conference in Charlotte this week, and it got us thinking. As we prepare to meet some of the industry’s best branders and thought leaders, we hope to engage in meaningful conversations about best practices for private brands, what’s next, and strategies for future-proofing. What follows are the questions and thought-starters that have been on our minds. Stay tuned for us to share our learnings when we return at the end of the month.

Growth in the private label sector – specifically in food and beverage – had been moderate until relatively recently (Neilson 2016). What explains the uptick in private label products? Surely, the Amazon effect has an impact, but what other economic and consumer/cultural trends might be in play? According to a 2016 Nielsen study, about 70% of U.S. households agree that, in general, store brands are an adequate alternative to name brand products. However, while private label brands offers consumers “good-as” choices when they’re shopping, good-as isn’t always good-enough. At the macro level, when economies are on the upswing, consumers are free to focus less on price than they would otherwise, and private label brands suffer in favor of known and/or prestige brands. Cultural trends may also disproportionately impact private label strategies, putting pressure on them to innovate ahead of national brands. Health & wellness as a lifestyle is a good example of a trend that is ripe for opportunistic moves by private label. The trend is driven, in large part, by younger consumers who are very receptive to upstart, small, and/or new brands. (Private Label Manufacturers’ Association Conference Proceedings, 2016). The challenge will be for private label manufacturers to stay on top of both the economic and cultural trends to identify opportunities early enough to act.

 

Engagement

Is brand loyalty dead? We know that millennials are less likely to show loyalty to brands than previous generations, and we believe that to be a function of the greater access to information and transparency they have at their fingertips. It still holds true, as far as our work shows us, that brands who deliver exceptional customer experiences have loyalists across demographics and generational cohorts. Interestingly, it seems like that customer experience happens more and more at the brand level, rather than at the retailer. In a 2017 study of 1000 consumers from Astound Commerce, 59% of respondents indicated a preference for researching brand sites rather than retailers, and 55% said they preferred to buy from brands directly. While the survey responses vary by gender and age group, the majority of respondents expressed the general notion that brand/manufacturer websites offered better and more complete product information – and better prices. For private label brands, this presents an opportunity and a threat.

 

Packaging

There are some cues in-store that serve to negatively affect consumer perceptions of owned/private label brands. In particular, cues about quality and “cheapness” that are reflected in the packaging can lead consumers to hold negative sentiments about private label brands. Packaging material and design is crucial here. On its own, consumers report that packaging influences their product choice only about 1% of the time. However, consumers also report that 40% of their purchase decision is driven by the product’s alignment with their values and their perceptions of the product’s quality. When asked how they determined that alignment and the quality of a product, consumers reported that the product packaging accounted for 28% of that determination. So, there’s some connection there, even if it’s one step removed. Private label brands have the same challenge that all brands do: to present themselves in market distinctively, with highly-recognizable visual identities consistent with the messaging strategy, whether it be quality, cultural affinity, naturalness, etc. Packaging design decisions, however, are necessarily more nuanced for private labels and need to balance alignment with the retail brand, differentiation from national brands, delivery of emotional cues, representations of value, and signifiers of quality.

Contributors

Director, New Business Development