Customers crave more than the right price

Jonathan Bacon
18 October 2012
Marketing Week

Retailers are giving manufacturer brands a run for their money with wider ranges of own-label products but research shows that consumers’ buying decisions are rarely guided by price alone.

The choice between retailers’ own-label brands and manufacturers’ brands has become more of an emotional one for customers than a question of price, according to new research seen exclusively by Marketing Week. Retailers are increasingly stepping into the role of brand creators, forcing manufacturer brands to keep up with bigger and better promotions.

Retailers’ own-label products now account for a third of the UK market. The study, by market information provider SymphonyIRI Group, collates data across supermarkets and pharmacies in the UK, looking at all packaged goods except fresh produce, fresh meat and alcohol.

It reports that the value share of own-label products rose by 0.2 percentage points in the year ending 7 July 2012 to 29.5 per cent compared with the same period the year before, while the unit share increased 0.3 percentage points to 33.9 per cent.

SymphonyIRI director of strategic insight Tim Eales says the own-label market is showing signs of growth and vitality after a decline in recent years. “Retailers have worked extremely hard to offer all kinds of product tiers so that they are now mirroring all the different options you can get on the branded side,” he explains.

“Own-label has become a key differentiator for retailers, allowing them to innovate and bring in products that their competitors don’t have. This is putting pressure on manufacturers to re-establish their own unique selling points in order to maintain their status.”

A cheaper option

The difference between the value share and unit share of private label products reflects the fact that own-label remains a cheaper option, even taking into account premium ranges such as Tesco Finest and Sainsbury’s Taste the Difference. An extreme example of this disparity is seen in health products, where own-label brands take 21.3 per cent of the value of the market but 37.8 per cent of the volume, demonstrating the cheapness of retailers’ own-label paracetamol or cough medicine, for example.

However, there does not appear to be a clear link between price and sales performance. Eales explains that the research deliberately includes a series of graphs that fail to show a direct correlation between the sale of own-label products and price differential in the food, milk and hot drinks category.

“It’s not often that researchers will show a lot of charts where there is no correlation,” he says. “But we were trying to ask the obvious question: does the fact that own label is on average lower priced actually drive its sales? The research tends to show it doesn’t.”

So if price is not as important a factor as might be assumed, choosing between retailers’ and manufacturers’ labels is now more of an emotional decision for consumers. For example, own-label sweets and chocolates have just 6.3 per cent of the market, when only the value is taken into account. Eales says this shows that customers choose the brands they know and love when it comes to buying a treat – rather than worrying about price.

Low price, low emotions

Conversely, own-label’s highest share is of milk, where retailers’ brands account for 66.3 per cent of market value. This seems to reflect the fact that milk is an everyday product to which customers have little emotional attachment.

This kind of response creates a challenge for a food producer such as Arla Foods. To differentiate its Cravendale milk brand from own-label milk, the brand runs major TV advertising, recently adopting a humorous ‘cats hatching plots to steal milk’ theme. It has also undertaken extensive social media activity. Cravendale brand manager Sophie Macaulay explains that the brand focuses on developing a distinctive identity that appeals to all members of a family.

“Because milk is consumed by the whole family, our advertising has to appeal to parents and kids alike,” she says. “We want people to feel part of the Cravendale world through our advertising and on-pack promotions.”

Price premium

Macaulay believes that price and the emotional response that customers have to brands are interconnected, rather than separate factors. She points out, for example, that Cravendale has “a big price premium” compared to standard own-label milk, which makes an emotional response even more important.

“People are looking hard at their shopping and what they can afford, so we need to make sure they have bought into our brand and want to be seen with Cravendale in their basket,” she says. “It’s a very tough market out there but at the same time we’re holding our own and forecasting good performances.” (See The Frontline, below.)

Indeed, although there is seemingly no direct link between price differential and own brand sales, the findings show the continuing impact of price on some of the items customers choose. For example, the figures clearly show that the market share of own-label products peaked in the run-up to Christmas last year, reaching nearly 36 per cent of total unit sales.

This suggests that customers turned to cheaper own-label options so they could economise during the expensive festive season.
The research also shows that manufacturer brands are using price as a way of competing with private label products. As sales of own-label products increased last year, the percentage of manufacturer brands that were sold on promotion rose by 2 percentage points to 62 per cent. The rise was seen across all product categories: for example, the percentage of household products that were sold through promotions rose by 2 percentage points to 64 per cent. At the same time, the percentage of own-label products sold through discount deals fell a percentage point to 41 per cent.

Cut-price outlets

Eales suggests this decline could reflect a belief among retailers that they don’t have to work as hard to push their own products. “It’s possible retailers believe consumers are already moving in their direction because of the recession and the fact that people are looking for better value.”

The recent success of discount supermarket chain Aldi shows what can happen when retailers get their own-label strategies right. This month the company announced a 30 per cent surge in sales and a five-fold jump in profit for 2011. Of course, this performance is partly attributable to the impact of the recession and the migration of shoppers to cut-price outlets.

But as Marketing Week columnist Mark Ritson pointed out a fortnight ago, Aldi has also done a lot of work to reassure customers about the quality of its own-label products, which make up the vast majority of its offering. The link between price and emotion is perhaps best summed up Aldi’s campaign slogan last year: Like brands. Only cheaper.