The New Disruptive Strategies of Private Brands

Private brands use to follow a simple set of strategies. Not anymore. All that is changing…

After spending over 30 years, much of it in strategy jobs, with a company that has some of the most recognized brands in the world, it’s possible I left the place just a little bit biased.  “Our” brands were the most recognized because for years they were not only the best quality, they were trusted implicitly and had painstakingly built deep emotional connections with consumers through years of consistent communication and delivery of the value propositions.  Private brands were derisively referred to as “generics” with inferior quality, questionable consistency and certainly the only emotional appeal was through the pocketbook, not the heart.

But all that is changing…

Private brands use to follow a simple set of strategies. First, leave the cost and investment in innovation and marketing to the national brands. Instead, be a fast-follower.  Getting to market late might not get you leading share but it has benefits on the cost structure side (see strategy 3).

Second, offer undifferentiated choices.  Make the alternative to the national brand “similar” enough that the consumer no longer automatically considers the branded choice but instead has to do a little comparing and trades off a little quality to get a better deal; which leads to strategy 3.

Finally, win on price through low cost sourcing.  Once the consumer compares and there is no longer any easily discernable product differentiation, it comes down to price.  And private brands can win when it comes down to price.

But, private brand strategy is changing. There are now many examples of private brands innovating and creating new products that they market to their consumers.  Companies like OfficeMax, which created a premium line of cool office products specifically designed and marketed to appeal to their predominantly female shoppers, have begun to differentiate their private brands from the national ones.  And companies like Meijer who offers Meijer Gold, a premium private label along with Meijer Organic and Natural, have also closed the quality gap.  And with all that, private brands still win when it comes to price.

These strategies have been used before to successfully disrupt a marketplace full of entrenched brands.  Three or four decades ago, Japanese automakers entered the automotive industry by introducing low cost cars to the American consumer. By continuing to optimize their supply chains to keep costs down and continuously improving quality, market share has grown steadily and, well, you know the rest of the story.

A similar storyline is playing out with private brands, while initially competing primarily on price, private brands are now innovating and moving up the quality continuum to include products with premium positioning.  Combine this with the current economic climate which is driving consumers toward private brand purchases and perhaps we have the perfect storm.  We certainly have a changing private brand strategy and without question they are disrupting the marketplace. 

(Want to learn more about private brands? Check out OfficeMax or the presentation “Private Label Innovation: Not an Oxymoron. Really” by Rick Rommel, SVP and General Manager of the Exclusive Brands Business at Best Buy, Inc. at the upcoming Private Brand Movement conference September 19-21 in Chicago sponsored by IIR USA.)