Who Makes Those Private Label Products In Your Grocery Store and Why?

Ever wonder who manufactures the private label products you purchase at the grocery store?  Most of us suspect it is one of the large branded consumer products companies, but it is sometimes difficult to determine which firm specifically supplied that product to the grocer.   Why do these big national brands choose to produce private label products?  Scholars Yu Ma, Kusum Ailawadi, Mercedes Martos-Partal, and Oscar Gonzalez-Benito have conducted an in-depth study of private label manufacturing, and they offer some interesting insights.  They studied the private label market in Spain, examining data for six of the largest retailers in the country.   

First, they confirm a well-known fact about private label production.  The large brands have an inherent advantage when producing private labels.  They can leverage economies of scale to produce those private label goods at low costs.  Moreover, manufacturing the private label goods, and further taking advantage of scale economies, can lower their costs of producing their branded products.  

Second, they find that manufacturers may be supplying private label products in hopes of strengthening their relationships with key retailers.  In so doing, they hope to gain more shelf space for their branded products.   The scholars confirm that retailers do carry more of a manufacturer's branded products if that company supplies private label goods to their stores.   If a manufacturer exits the private label business, they tend to lose shelf space for their branded goods.  

However, interestingly, they find that the national brands do not gain market share in their categories simply because they have more shelf space and more availability of their product in the stores.  In the end, the consumer drives the success of the brands.  More shelf space doesn't mean more sales, and ultimately, a retailer may take shelf space away if products don't sell.  

One thing that they do not examine is why some branded manufacturers are more successful at private label production than others.  I suspect that some branded goods companies simply do not have the efficiencies and cost structure required to offer private label goods at competitive prices.  Moreover, attempts to become more efficient might harm the quality of the branded goods the firm supplies.  

Experts Buy Private Label

Bart J. Bronnenberg, Jean-Pierre Dubé, Matthew Gentzkow, and Jesse M. Shapiro recently published a working paper titled, "Do Pharmacists Buy Bayer?  Informed Shoppers and the Brand Premium?"  Here's an excerpt from the abstract of their paper:

In a detailed case study of headache remedies we find that more informed consumers are less likely to pay extra to buy national brands, with pharmacists choosing them over store brands only 9 percent of the time, compared to 26 percent of the time for the average consumer. In a similar case study of pantry staples such as salt and sugar, we show that chefs devote 12 percentage points less of their purchases to national brands than demographically similar non-chefs.

Private label products certainly have taken a much larger share in many categories over the past decade.  Nevertheless, the scholars still found this "brand premium" effect, particularly for non-experts.  As private label products continue to rise in quality and availability though, we should expect more people to act like the informed consumers in this study.  Consider, for instance, the success of firms such as Trader Joe's and Aldi, both able to persuade consumers that private label products can deliver solid quality.  

Brands: Embrace Your Haters

Tom Denari wrote a thought-provoking column for Fast Company this week.  The article is titled, "Why Being Hated Isn't the Worst Thing For Your Brand."   Denari stresses that, as brands become popular, haters may emerge.   The typical reaction of a brand manager might be to become very concerned about these negative reactions from some portion of the public.   Denari argues that we shouldn't necessarily panic if we encounter some "hate" from certain consumers:

Despite the lip service that some marketers pay to “breaking through the clutter,” many more are too often concerned that they actually might stand out, and possibly even offend someone. Being conspicuous does create the potential for negative feedback, since everyone can’t like everything.  But a successful brand manager knows the brand can’t be for everyone. The more salient a brand becomes, those that aren’t a part of that brand experience can sometimes become opponents.

Denari argues that many brand managers are risk averse.  They worry about what their bosses will think.  They are concerned about the risks associated with negative public reactions to a brand, its image, and its marketing.  

This argument reminds me of Harvard Professor Youngme Moon's great book, Different: Escaping the Competitive Herd.  In that book, she describes "hostile brands."   These companies truly stand out in a crowded marketplace by deliberating taking a hostile approach toward certain consumers, so as to make themselves highly popular to the target customer that they wish to attract.   She uses the MiniCooper as an example, describing how their initial marketing did not apologize for how small the vehicle was.  It did not try to convince us that the car was quite roomy.  Instead, the company positioned vehicle as a sort of "anti-SUV."   Being making themselves "hostile" to the SUV consumer, MiniCooper became immensely popular with the customer it hoped to attract.  In sum, Moon seems to agree with Denari.   Embracing the haters, or at least becoming comfortable with some haters, can be productive if you are truly trying to build a brand that stands out.  

Can Packaging Innovation Revive Carbonated Soft Drink Sales?

Fast Company features a story this week about Coke's innovative new "sharing can" featured in the video below.  It makes you wonder:  Can packaging innovation revive sagging carbonated soft drink sales?  In developed markets, health and wellness concerns, coupled with many new alternative beverages, have dragged down sales of colas.  We have seen packaging energize other mature brands in beverages.  Take, for instance, the Coors Light cans where the blue color of the Rocky Mountains on the bottle indicate that the beer is very cold.  Coors Light rode this focus on "cold" to a stronger market share position in the US beer market - a market where sales have been relatively flat for some time.  Of course, Coors Light didn't just innovate on packaging... they truly have owned that market position as the "cold" beer.  The combination of positioning and packaging is what made their strategy successful.  Can Coke pull something similar off in the days ahead?

Dove Real Beauty Sketches

This Dove "Real Beauty" online ad has created quite a stir.  You can read about the response to this campaign here.  Dove certainly seems to have struck a chord with its customers.  The fact that some people have criticized the ad doesn't seem to concerning, as most Dove customers seem to be responding positively.  The attention that it has received seems to endorse the view: there is no such thing as bad publicity.   Nevertheless, there's a big question remaining:  Will this attention turn into additional revenue for Dove?  Can the engagement with customers translate into sales in the supermarket?  

New Thoughts about Brand Extensions

For years, scholars and consultants have argued that companies should stick to brand extensions that fit closely with the core brand image and identity.   The logic goes as follows:  It's ok for Coke to make Diet Coke, but it does not make sense for the firm to offer Coke-branded laundry detergent. 

Researchers Tom Meyvis, Kelly Goldsmith and Ravi Dhar noticed something interesting though.  A few firms did extend their brands successfully in a way that seemed to fit much less closely with the core brand's image and positioning.   If these firms had succeeded, then perhaps the notion of fit needed more clarification.  

The scholars conducted an experiment, and in that study, they found that visual cues make a difference with consumers.  Seeing the physical product, as opposed to just hearing about it, can cause customers to genuinely consider a brand extension that appears to be low fit.  According to Kelly Goldsmith, “When you give people pictures, preferences shift because [people] are focused on quality—they are more interested in quality than fit.  Whereas when you show the brand concept without pictures … the reaction is more focused on fit than quality. Allowing product comparisons leads to the same results.”

Goldsmith explains the practical implications of the study: “If you get your brand-extension concept out of the lab and into the store, all of those [benefits from visual cues and brand comparison] are taken care of.  If you are a brand like Nike or Häagen-Dazs, or one of these very large national brands associated with quality, and you want to make money by extending that very successful brand even further—to new [but] lower-fitting categories—what our research shows is that you really need to show people what that product looks like and show it to them in the context of other brands in that category."

I find the research very interesting.  I still believe firms need to be very attentive to fit when it comes to brand extensions.  However, the notion of offering visual cues, sampling, and physical displays does seem to make sense.  Those tactics certainly do help a consumer understand and appreciate a new product offering that may not seem to fit with a brand's prior identity. 

Do Olympic Sponsorships Make Sense?

Knowledge @ Wharton has a special report on Olympic sponsorships this week.   Do these sponsorships make economic sense?   Some experts argue that sponsorships don't offer an immediate benefit, but they have a positive long term effect on brand equity.   That may be the case, but hopefully, firms would experience beneficial short term effects as well.  Unfortunately, that may not be the case. University of Nebraska-Lincoln Professor Kathleen Farrell and her co-author W. Scott Frame conducted a study of the impact of sponsorships on the market value of firms.  They found that stocks tended to fall slightly during the period in which firms announced that they were sponsoring the 1996 Olympics. 

Perhaps even more interesting are two reports by marketing firms.   Gallup and Robinson found that most people cannot identify the official Olympic sponsors.   Another report by marketing agency Jam found that Nike was the brand most mentioned by consumers as an Olympic sponsor, but the firm actually is not sponsoring the London Olympics!