COMPETING AGAINST PRIVATE LABEL: NEW INSIGHTS FROM PACKAGING RESEARCH he growth of private label (tore brands) has been exponential during the past five years. Across retail channels and product cate- gories, private label brands have grown at a rate double that of leading national brands, to the point that pri- vate label now accounts for more than 15 percent of all grocery sales Retailers are making, aggressive efforts to push this figure higher, since store brand sales bring them an av of 10 percent higher margins than national brands, They ate also increas- ingly transforming theic “niche” private labels into mainstream brands like Wal-Mart OF Roy, the nations top-sell- ing pet food, or even boutique brands such as Whole Foods’ 365 Organic. The growih in private label brand ing has certainly been enabled (and perhaps driven) by a change in pack- aging strategy. Not too long ago, the term “private label” conjured images ‘of black print on a white back- ground: packaging that screamed generic’, More recently, private label packaging has been characterized by copycat” style, which mimics the leading national brand in an effor: to provide quality reassurance or per- haps to lead shoppers to mistakenly pick up the store brand. Today, however, store brands are ‘ncteasingly moving away ‘rom copycat design and are instead defining them- selves through packaging that matches the quality of national brand packag- ing, with appealing, visuals, an empha sis on branding, etc. This shift has raised the bar and stepped up the chal- Tenge for national brands: Rather than simply differentiate, national brand packaging must now wor harder than ever 10 justify a price premium Our research design ‘To find out how well n: ial brands are facing this challenge—and to gather insights for improving national brand. packaging—we recently conducted a study acress 10 produet categories in ‘which private label has a significant share, including peanut butter, glass leaner, orange juice and cotton swabs The stuely was conducted via the Internet, and it involved 1,000 inter- views with primary grecery shoppers Within each product category shoppers encountered the packaging of six com petitive products, inckeding two leading national brands and three to four pri= vate label brands (inclucling, Wal- Mar, Target, CVS, Walgreens, Kroger, Stop 7 Shop and Albertson). Initial questioning focused on the packaging alone (without pricing) in order to gauge shoppers’ initial reac- tions and preferences (Do some pack aging systems differentiate and create preference? Do others completely “tim you off"). Later, pricing was intro- duced and questioning focused on the perceived value of each national brend Glass Plus conveyed superiority through a unique clear spray top and the usw of ono simple message ("No ammonta”) that stood out due to its placement on the sprayer. This helped the brand justify its price premium and grab share far more effectively than Windex. 20 BRANDPACKAGING www breadpackaging.com AUGUST 2005AY itetrca) Maid. fe shape of Simply Orange's package created high levels of initial preference (without pricing), ‘8 33 percent selected it for purchase—as opposed to only 15 porcem for Tropicana, (sit worth paying more for?) and pur- chase interest (Which product are you ‘most likely to purchase, when consid- ering the packaging and pricing?) What works for national brands? Findings from this study con- firmed the importance of pricing 22 BRANDPACKAGING across the 10 product categories and illustrated the power of effective packaging to overcome price premi- um concerns. Though there were major differences actoss categories in the bility of national brands to just. fy their premium pricing, Nearly 60 percent of shoppers felt that nationally branded glass clean- www. brandgackaging.com ers (Windex and Glass Plus) were worth paying more for, as opposed to only 20 percent who felt that way about national brands of aspirin ayer and Bufferin). In fact, only 14 percent of shoppers selected Bayer and Bufferin as their first choice for purchase when viewing the packag- AUGUST 2005Jn categories such as skin lotion, where national brands are attempting to justify ‘2-40-83 price promiums, store brands are the strongest. ing and pricing of these products next to private label Clearly, the packaging of these aspirin brands is not justifying their pticing, relative to private label Predictably, the differences across categories correlated to the size of the “price gap” between national brands end private label. In catc- gories such as aspirin and slein lotion, where national brands are attempting to justify $2-t0-$3 prem ‘ums, store brands are he strongest Within the categories, packaging consistenily impacted national brands’ ability to “fight off” private label. Specifically, we saw that packaging differentiation led direct- ly to stronger product expectations (taste, efficacy, ete.) — and ultimately to greater purchase interest and ability to justly a price premium, Peanut butter offers one case in point, Both Skippy ane Petet Pan were priced at $2.19, as opposed to $1.47 for Great Value (from Wal-Mar). However, the similarities between the national brands end there Skippy’ packaging was far more likely to: Create aesthette appeal (40 percent ‘Skippy vs. 12 percent Peter Pan) Be perceived as unique 86 percent vs. 14 percent) 1 Convey appetite appeal 3 percent vs. 29 percend ‘These advantages translated into higher levels of perceived value andConsumers faund Skippy’s packaging more likel superionty (versus store brands) and ultimately to 2 much stronger ability for Skippy to justly the same price premi- tim as Peter Pan, In fact, when pricing, \was intmdhced, 31 percent of shoppers selectec Skippy for purchase, as ‘opposed to only 11 percent for Peter Pan, Meanwhile, Wal-Mart aggressive Dricing capnired a 29 percent share What did Skippy do night? Most 26 BRANDPACKAGING iyo create aesthetic appeal, be perceived as unique and convey appetite appeel. These advantages tronslated ita higher levels of perceived value and superiorly (versus store brands) and a higher price promiom. importantly, it was the only brand to convey personality and an emotional eather than functional) benelit via the packaging, Through the packag- ing visual (of a child at play) and the primary claim (spread the fun"), Skippy differentiated sharply from competition by taking “ownership” of a key underlying dimension—fun In other categories, this study revealed several alternative strategies www, brandpackaging.com for differentiating through packaging In the glass cleaner category, Glass Plus effectively differentiated and con- veyed superiority through a unique clear spray top and the use af one simple message (*No ammonia’) that stood out due to its placement on the sprayer, This helped the brand justily its price premium and grab share 6 percent) far more effectively than AUBUST 2005(err Ga In the cotton swabs category. Johnson's differentiated through diferent size count While all af the other packages included 500 swabs, Johnson’ offered a 525 count highlighted through a prominent “value pack” claim. Windex (only 18 percent) In the orange juice category, the shape of Simply Oranges ccarafe created high levels of iniial preference (without pricing), as 33 percent selected st for purchase {as opposed to only 15 percent for Tropicana) In the cotton swabs category, Johnson’ differentiated through different size count. While all of the other packages included 500 swabs, Johnsons offered a 525 count, highlighted through a prominent “value pack” claim, Asa result, the packaging created initial preference, as 45 percent of shoppers selected it for purchase (as opposed to only 30 percent for Q-tips). ‘Tho implications for private label For retailers, our findings strongly suggest that there is opportunity to further grow private label brands and that some current packaging, muy be limiting this potential. When shoppers were asked about their” receptivity to store brands in tiffer- ent product catego ivity levels ranged from 62 pereent for peanut butier up to 84 percent for aspirin, This finding suggests that ‘most shoppers generally belteve pri- vate label products are comparable (or at feast acceptable) in quality— anid that they would purchase store brands if the packaging gave them the proper reassurances Therefore, the challenge for private label packaging is much less significant ban that facing the national brands. Store brand packaging needs only to avoid alienating or “turning off” shop- pers and to move the product into the consideration set, where it will fequent- ly win due to us pricing advantage. Fortunately, thotigh, for national AUGUST 2005brands, we found that many store brand packages are so unappealing that they fail to meet this standard. The saltines category is one example. ‘Targets Market Pantry packaging was so -unappealing that 64 percent of shoppers said that they would not con- sider it, repardless of price. In contrast, only 23 percent felt that way about Albertson’ saltines packaging ane 10 percent about the Great Value or Kroger packages. Tinterestingly, across several cate- gories, the packaging of the Market Pantry and Target brands consistently elinunated them from consideration among nearly half of the shoppers. Apparently this retailer, which is doing so much to build its brand through advertising, is denigrating its brand and walking away from oppor- tunity that exists with its Market Pantry private label packaging ‘Winning over store brands at retail Taken collectively, our findings confirm both the difficulty of fight- ing private label and the power of packaging in driving preference and Jjustifying 4 price premium, First and foremost, the study sug- gests that if national branés want to maintain their price premiums, they absolutely need packaging that clear ly and effectively differentiates them. from private label. Ideally, this differ- entiation will come at a visceral level, swith packaging that “owns a dimen- sion” (more fun, more effective, bet- ter tasting, etc ) at first glance Alternabvely, we've also seen that national brand packaging, such as Glass Plus and Johnson's swahs, can. differentiate by “owning a message” through very clear communication. If national brands cant simply look bet ter, they need to communicate better, by effectively highlighting a relevant and differentiating claim, To summarize, national brand marketers must continue to ask themselves two key questions: ® Does my brands packaging “own” a key dimension at first glance? AUGUST 2005 Does my brand’ packaging quickly and clearly cényey a point-of-superiority? Given the continued grow private label—and contimed improvement in private label pack- aging—national brand marketers are certain to find it increasingly dilfi ‘alt to justify their price premiums. As this study shows, differentiated n of www, braadpackaging.com packaging is critical to “winning” against private label and is an investment that wil likely be well rewarcled. 8 ‘Scot Young isthe President of Perception Research Services (PRS), which conducts mare than 500 studies each year to help companies _guide, assess and improve their performance ct retail Scott can be reached at 201.340.1600 (or syoursg@prsreseareh.car, BRANDPACKAGING 29