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Professor Carl Mela Marketing 460 Product Management Fuqua School of Business. Brand Management System On Building A Brand Price Product P/L Elements Place Promotion Managing Across Brands. Private Label Brands. Agenda. Extent of private label Causes of private label
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Professor Carl Mela Marketing 460 Product Management Fuqua School of Business Brand Management System On Building A Brand Price Product P/L Elements Place Promotion Managing Across Brands Private Label Brands
Agenda • Extent of private label • Causes of private label • Strategies to combat private label
Private Labels Generally higher retail concentration Source: AC Nielsen
Private Labels • 1996 – 31 % will switch to Private Label • 2001 – 45% will switch • Are 40% of Wal-mart’s $259 BB in sales • #1 grocery brand in US – Great Value brand • If US market comes close to UK, firms will lose $20 BB in sales Source: 2003 BCG Report
Private Labels • P&G shares fall 6% after Wal-mart pursues inventory reduction initiative (WSJ 4/27/06).
What’s Happening With Brands? Shopper Trips/Year By Channel Total Trips 180 167 Down Up Source: AC Nielsen Homescan, Hoyt & Company 2003 CPG Drivers Study
Private Labels • More common in categories where • risk is not a factor (as opposed to shampoo) • margins are high • inventory turns are high
Private Labels Source: AC Nielsen
Private Labels • Until 1950’s more common than national brands, now we are going back in time • A&P #1 Chain in 1930s • Problem exacerbated in weak economy • Until late 1990’s when share grew in spite of good economy. • Why?
Private Labels • Fragmentation of media • 1995 took 3 TV commercials to reach 80% of women. Today, 97 (source: Willard Bishop Consulting). • Consolidation of retail • 10 largest accounts 30% share a decade ago • Now, it is 80% (source: Forbes)
Strategies for Combating Private Labels Provide More for the Money Innovate NATIONAL BRAND Reduce Price Gap Quality Do Nothing Introduce Value Flanker Make Premium Private Label PRIVATE LABEL 1/Price Source: Stephen Hoch
Strategies for Combating Private Labels • Do nothing • Wait for economy to improve • Retailers are sufficiently diffuse, their power is low • In small categories with little potential return, retailers not likely to invest in private label • However, share loss may occur
Strategies for Combating Private Labels • Differentiate • More for the money • Fashion • New and improved • Advertise • Go international • Assortment • Better retail support • Allocate support to weaker retailers
Strategies for Combating Private Labels • Reduce price gap • It is often not profitable for retailer to close price gap (mfr brand loses high margin, store brand loses volume) • Lower costs 3 of these have highest P/L share
Strategies for Combating Private Labels • Me too strategy • Fighting brands (Kodak Funtime Film) • Protects brand (+) • Cannabalization (-); Revenues do not cover product introduction costs (e.g., advertising and slotting fees)
Strategies for Combating Private Labels • Make a private label • Can test formulations as a P.L. • Can increase price on premium brand w/P.L. entry • Can formulate to target competitor, not self • Can obtain cooperation on shelf positions (P.L. to right hand side of competitor - as 90% right handed) • Key threat: retailer owns customer, threatens to drop you without price concessions
Strategies for Combating Private Label • IRI/BCG Study Results Validate This: • Improve quality • Invest in brand equity (increase quality via brand associations and awareness) • Innovate (increase quality through innovation) • Increase merchandising support • Direct delivery • Manage price gap
Strategies for Combating Private Label • Partner with Channel • P&G does $12BB in sales with Wal-Mart • Initial resistance to partnership • 5% of Wal-mart Sales • 16% of P&G’s Sales • Could not break into UK or Canada • Unilever dominates • Traditional brand building did not work • Wal-mart eroded Unilever dominance • Nestle could not access Wal-Mart • Was it buyers or research that said no at Wal-Mart?
Partner with Channel • Fall 2004 Fall Hokey Pokey Elmo Exclusive from Mattel to Toys R Us
Summary • Solutions to the private label problem • Do nothing • Better retail support • Differentiate • Reduce price gap • Fighter brands • Can’t beat ‘em, join ‘em • Source the private label • Partner