Using private label to drive branded product volume

Discount Store News, May 1, 1995 by Jeffrey Hill

While many view the acceleration of private label as a significant threat to branded goods' volume, the private label trend can actually be leveraged to your competitive advantage if handled properly.

Most marketers agree that the No. 1 priority for brands is to secure a proprietary brand advantage relative to private label through technological breakthroughs, and then execute aggressive and innovative marketing techniques to communicate a perceived quality advantage for the brand. While in theory this is an excellent strategy, in reality a proprietary advantage is not achievable in most instances.

Rather than watch your share erode to private label, consider two other less obvious--and less traveled--path-ways: 1) supply private label product as a "stalking horse" to drive branded product volume; and 2) use category management as a "selling envelope" that maximizes the volume and profit potential of both your private label and branded products.

Private Label as a "Stalking Horse"

A growing number of branded manufacturers are today producing private label product and selectively supplying it within the context of an overall "portfolio strategy" that's designed to enhance branded product sales.

In light of developments in ECR and category management, leading retailers increasingly understand the need for more efficient assortment and the efficiency implication of doing business with fewer vendors. Given that retailers are seeking to expand their private label programs while concurrently enhancing "total system efficiency," it is possible to offer private label such that it helps grow your branded goods sales.

You can implement this strategy by first setting a target margin objective per account and establishing a portfolio target of $X of margin per case. This approach permits you to provide highly favorable terms on your private label offerings in exchange for a volume commitment on your more profitable branded product business. The increased volume target on the brand is determined by the account margin goal for the portfolio. This "stalking horse" strategy not only offers significant insulation and protection of your brands, it also helps deflect private label cannibalization pressure to your competitors.

Category Management as a "Selling Envelope"

This strategy is most successful when introduced to selected trade customers within the context of top-to-top category management presentations. Consumer and trade research is first used to define the appropriate role for private label and branded products within the category -- allowing you to introduce the private label strategy within a larger category management context. You effectively establish a strategic platform on which to address category shelf management and promotion merchandising recommendations for the retailer, while achieving your own goals in the process. This research should include:

* Consumer: Use extensive panel data analyses to evaluate brand switching and brand interaction between private label and your branded products. This will ensure an understanding of 1) the potential level of volume shift from branded to private label; 2) the brands most likely to be cannibalized by private label; and 3) the demographics of the private label shopper, which can be matched to store demographics to help the trade understand the nature of the private label opportunity.

* Trade: Execute extensive trade-based productivity analyses using conventional as well as more advanced analyses to determine the contribution of each sku, brand and segment of your category.

These analyses become the backbone of a category management presentation that is designed to help you work with the trade to maximize mutual volume/profit via better shelf management and promotion merchandising decisions for the entire category.

For the retailer, these two strategies drive significant category volume and profit by maximizing the roles and contributions of branded and private label products while also reducing the costs of doing business with multiple suppliers (i.e., branded as well as private label vendors).

Jeffrey Hill is managing director of Meridian Consulting Group, a sales and marketing consulting firm that focuses on category management and private label issues.