The choice between retailers’ own-label brands and manufacturers’ brands has become more of an emotional one for customers than a question of price, according to new research seen exclusively by Marketing Week. Retailers are increasingly stepping into the role of brand creators, forcing manufacturer brands to keep up with bigger and better promotions.
Retailers’ own-label products now account for a third of the UK market. The study, by market information provider SymphonyIRI Group, collates data across supermarkets and pharmacies in the UK, looking at all packaged goods except fresh produce, fresh meat and alcohol.
It reports that the value share of own-label products rose by 0.2 percentage points in the year ending 7 July 2012 to 29.5 per cent compared with the same period the year before, while the unit share increased 0.3 percentage points to 33.9 per cent.
SymphonyIRI director of strategic insight Tim Eales says the own-label market is showing signs of growth and vitality after a decline in recent years. “Retailers have worked extremely hard to offer all kinds of product tiers so that they are now mirroring all the different options you can get on the branded side,” he explains.
“Own-label has become a key differentiator for retailers, allowing them to innovate and bring in products that their competitors don’t have. This is putting pressure on manufacturers to re-establish their own unique selling points in order to maintain their status.”
A cheaper option
The difference between the value share and unit share of private label products reflects the fact that own-label remains a cheaper option, even taking into account premium ranges such as Tesco Finest and Sainsbury’s Taste the Difference. An extreme example of this disparity is seen in health products, where own-label brands take 21.3 per cent of the value of the market but 37.8 per cent of the volume, demonstrating the cheapness of retailers’ own-label paracetamol or cough medicine, for example.
However, there does not appear to be a clear link between price and sales performance. Eales explains that the research deliberately includes a series of graphs that fail to show a direct correlation between the sale of own-label products and price differential in the food, milk and hot drinks category.
“It’s not often that researchers will show a lot of charts where there is no correlation,” he says. “But we were trying to ask the obvious question: does the fact that own label is on average lower priced actually drive its sales? The research tends to show it doesn’t.”
So if price is not as important a factor as might be assumed, choosing between retailers’ and manufacturers’ labels is now more of an emotional decision for consumers. For example, own-label sweets and chocolates have just 6.3 per cent of the market, when only the value is taken into account. Eales says this shows that customers choose the brands they know and love when it comes to buying a treat – rather than worrying about price.
Low price, low emotions
Conversely, own-label’s highest share is of milk, where retailers’ brands account for 66.3 per cent of market value. This seems to reflect the fact that milk is an everyday product to which customers have little emotional attachment.
This kind of response creates a challenge for a food producer such as Arla Foods. To differentiate its Cravendale milk brand from own-label milk, the brand runs major TV advertising, recently adopting a humorous ‘cats hatching plots to steal milk’ theme. It has also undertaken extensive social media activity. Cravendale brand manager Sophie Macaulay explains that the brand focuses on developing a distinctive identity that appeals to all members of a family.
“Because milk is consumed by the whole family, our advertising has to appeal to parents and kids alike,” she says. “We want people to feel part of the Cravendale world through our advertising and on-pack promotions.”
Macaulay believes that price and the emotional response that customers have to brands are interconnected, rather than separate factors. She points out, for example, that Cravendale has “a big price premium” compared to standard own-label milk, which makes an emotional response even more important.
“People are looking hard at their shopping and what they can afford, so we need to make sure they have bought into our brand and want to be seen with Cravendale in their basket,” she says. “It’s a very tough market out there but at the same time we’re holding our own and forecasting good performances.” (See The Frontline, below.)
Indeed, although there is seemingly no direct link between price differential and own brand sales, the findings show the continuing impact of price on some of the items customers choose. For example, the figures clearly show that the market share of own-label products peaked in the run-up to Christmas last year, reaching nearly 36 per cent of total unit sales. This suggests that customers turned to cheaper own-label options so they could economise during the expensive festive season.
The research also shows that manufacturer brands are using price as a way of competing with private label products. As sales of own-label products increased last year, the percentage of manufacturer brands that were sold on promotion rose by 2 percentage points to 62 per cent. The rise was seen across all product categories: for example, the percentage of household products that were sold through promotions rose by 2 percentage points to 64 per cent. At the same time, the percentage of own-label products sold through discount deals fell a percentage point to 41 per cent.
Eales suggests this decline could reflect a belief among retailers that they don’t have to work as hard to push their own products. “It’s possible retailers believe consumers are already moving in their direction because of the recession and the fact that people are looking for better value.”
The recent success of discount supermarket chain Aldi shows what can happen when retailers get their own-label strategies right. This month the company announced a 30 per cent surge in sales and a five-fold jump in profit for 2011. Of course, this performance is partly attributable to the impact of the recession and the migration of shoppers to cut-price outlets.
But as Marketing Week columnist Mark Ritson pointed out a fortnight ago, Aldi has also done a lot of work to reassure customers about the quality of its own-label products, which make up the vast majority of its offering. The link between price and emotion is perhaps best summed up Aldi’s campaign slogan last year: Like brands. Only cheaper.
We ask marketers on the frontline whether our ‘trends’ research matches their experience on the ground
Marketing director, bath tissue Europe
There’s no doubt that the awareness and credibility of retail brands has grown as the brand equity of retailers themselves has grown. For manufacturers, the challenge remains the same: to be market leaders. It’s up to us to innovate and to engage people in our brand, make it relevant and interesting for people – and make retailer brands follow us. The greatest form of defence is attack.
Andrex is a mega brand – we lead the category by a long way in terms of equity and share. So we have to make sure that our brand continues to be as relevant today as it has been for the past 70 years. That means our communication has to evolve. For example, our recent campaign Puppy World was designed to keep people engaged in our brand today rather than living in the past.
We’ve also launched about four or five significant pieces of innovation over the past three years. Our most recent one is Andrex Eco, which is the sustainability lead product in the category.
In-store value is very important too. Yes, we’re a brand and yes we’re going to charge more than private label, so we need to justify that. We do that by having products that give added benefits and value that are also at prices that are attractive and keep people with our brand. And it’s about the combination, not just one of those things that is key. As a result of that combination, our share has grown over the past two years in a category that’s growing in value. So there is a way of getting it right.
Head of product development
The Co-operative Food
Our own-brand ranges allow us to give our customers the things they tell us they want – whether that’s British, Fairtrade or animal welfare products, for example. It’s all about customers trusting the retailer to give them own-brand products that are great value and that meet their needs and requirements. We have lots of techniques for talking to our customers, from our taste team process where all our new products get signed off by customers, to our virtual customer groups.
A lot of work goes into our designs and packaging because we’re trying to ensure our ranges stand out. We preview a lot of our own-brand packaging with customers to make sure it’s doing a good job and that the key messages on provenance and welfare are clear. There’s a danger of completely overwhelming people with messages so we try to avoid that.
In terms of the idea that price is no longer a major factor in choosing own-brand, I think we need to be a bit careful. There are emotional aspects but we also have to deliver own-label at better value than brands. Customers expect that, particularly in our business where the majority of them are top-up shopping. They know top-up shopping will be a bit more expensive so they look for the own-brands when they are doing that to save them money. So we mustn’t let ourselves off the hook when developing own-brands by thinking ‘well there’s an emotional connection, we don’t need to be offering great value and great prices’: we absolutely do.
Milk is a very mundane category. It’s one of the freshest products in the supermarket but it’s treated in a way that’s not dissimilar to detergent. That dullness is an opportunity for Cravendale. We’ve tried to inject life into the category through creativity.
More than any other product, milk is consumed by the whole family, so in our advertising and communications to consumers we have tried to be populist and memorable.
For the past 18 months the starting point for our advertising has been around a ‘milk truth’. So we’ve had ads that have asked questions like ‘why do cats always stare at you while you’re pouring milk?’ The question for the current ad is ‘where have all the milkmen gone?’
Because we have adopted this tone of voice, we’re able to be very social in our marketing. We’ve almost created our own ‘licence’ to post about cats or whatever is most linked to our conversation at the time. For example, our ‘cats with thumbs’ ad has so far had 6.4 million views on YouTube. We’ve also got a Facebook cat fan page with 80,000 followers.
We have a big price premium compared with own-label milk, which makes it even more important that we’re doing all that engaging advertising.
With the state of the economy as it is, people are looking hard at their shopping and at what they can afford, so we need to make sure they have really bought into our brand and want to be seen with Cravendale in their basket.