Where do Private Labels win their share from ?
06/11/08 10:08
Looking at share gains and losses will give you an incorrect view of who competes with whom.
Retailers are putting extra effort into their own, 'private label', brands, partly because they believe that in tough economic times private labels can lure consumers into their store - this is pretty wishful thinking, but nevertheless their extra effort, and some 'trading down' by consumers means that some private labels are posting share gains. Where are they winning these sales from ? Which brands are being hit most by private label competition ?
Supermarkets often think that their private label competes largely with private labels at rival supermarket chains, but mainly they compete with the national brands within their store. This is because consumers have high 'first store loyalty' to supermarkets, we each tend to have one store that gains the bulk of our custom. So most of the time our choice is between that store's private label and the other brands it stocks.
So, if a private label in a category gains share, which particular national brands does it steal from ? The traditional way of answering this is to simply look at the share shifts. If the private label went up, look at which other brands went down to see where the private label 'stole' its share from. But this can be very misleading.
For example, during a recession there may be some degree of 'trading down', i.e. consumers favoring the cheaper brands in their personal repertoire. So cheaper national brands, and private labels can gain at the expense of the more premium brands. On top of this, extra promotion of the private label can see it steal share from all brands, but somewhat disproportionately from the cheaper brands because brands in adjacent price tiers tend to compete slightly more closely. The net result is that the private labels gain looks as if it comes exclusively from the premium brands, because the cheaper national brands have won some share from the more expensive brands and lost some to the private label ending up with steady share - it looks as if they are unaffected by the private label when this is completely untrue, they actually compete slightly more closely with the private label than premium brands do.
To understand the true patterns of competition, who competes with whom, you need to do a ‘duplication of purchase’ (or ‘cross -purchase’) analysis. This reasonably simple analysis is based on the Duplication of Purchase law, described in my book. The Duplication of Purchase law tells us that all rival brands share customers, and it tells us how much they should share. This allows us to spot where brands really do compete more or less closely.
The Duplication of Purchase law also tells us that the idea that a brand could be completely isolated from the rivals in its category is fantasy. Similarly the idea that we can successfully launch a new brand of variant into a category and not have it steal sales from our existing brands is also fantasy - wishful thinking.
Knowing the laws of marketing gives us a much more realistic world-view - and lets us correctly identify what is happening. Relying on commonsense is not enough, it leads us astray.
Supermarkets often think that their private label competes largely with private labels at rival supermarket chains, but mainly they compete with the national brands within their store. This is because consumers have high 'first store loyalty' to supermarkets, we each tend to have one store that gains the bulk of our custom. So most of the time our choice is between that store's private label and the other brands it stocks.
So, if a private label in a category gains share, which particular national brands does it steal from ? The traditional way of answering this is to simply look at the share shifts. If the private label went up, look at which other brands went down to see where the private label 'stole' its share from. But this can be very misleading.
For example, during a recession there may be some degree of 'trading down', i.e. consumers favoring the cheaper brands in their personal repertoire. So cheaper national brands, and private labels can gain at the expense of the more premium brands. On top of this, extra promotion of the private label can see it steal share from all brands, but somewhat disproportionately from the cheaper brands because brands in adjacent price tiers tend to compete slightly more closely. The net result is that the private labels gain looks as if it comes exclusively from the premium brands, because the cheaper national brands have won some share from the more expensive brands and lost some to the private label ending up with steady share - it looks as if they are unaffected by the private label when this is completely untrue, they actually compete slightly more closely with the private label than premium brands do.
To understand the true patterns of competition, who competes with whom, you need to do a ‘duplication of purchase’ (or ‘cross -purchase’) analysis. This reasonably simple analysis is based on the Duplication of Purchase law, described in my book. The Duplication of Purchase law tells us that all rival brands share customers, and it tells us how much they should share. This allows us to spot where brands really do compete more or less closely.
The Duplication of Purchase law also tells us that the idea that a brand could be completely isolated from the rivals in its category is fantasy. Similarly the idea that we can successfully launch a new brand of variant into a category and not have it steal sales from our existing brands is also fantasy - wishful thinking.
Knowing the laws of marketing gives us a much more realistic world-view - and lets us correctly identify what is happening. Relying on commonsense is not enough, it leads us astray.