Private label products are not just a fad, says Professor

In a conference call hosted by Bernstein Research, Professor Jan-Benedict E.M. Steenkamp, University of North Carolina, discussed the evolution of private label, its potential and what brands can do to fight back.

Steenkamp said private label goods, or store brands as he preferred to call them, have become increasingly sophisticated in recent years moving beyond copycat products into the premium sector.

His preference for the term store brands is explained here. The marketing professor said private label goods have become brands and this should be acknowledged in the terminology.

What sets store brands apart is not their lack of branding but rather that they are products owned by a distributor who markets and sells them.

Quality improvements have helped drive sales and as a result private label is growing not just in recessionary times but over the entire business cycle.

Steenkamp cited research showing the growth path of private label goods over the last ten years. In Western Europe the market share of store brands rose from 20 to 26 per cent between 2000 and 2006, according to Plant Retail.

Looking at the same data, market share growth in the US was less pronounced but is expected to pick up and grow from 22 to 27 per cent from 2006 to 2010.

Store brands have outperformed normal brands every year over the past decade bar one in the US, according to data from AC Neilson.

Store brands usually pipped other brands in the good times but the sharpest difference came through in the bad times.

In 2001 store brands grew 9 per cent and other brands 1 per cent and in 2008 store brands were up 10 per cent and others grew by only 3 per cent.

Steenkamp, who is the c-author of Private Label Strategy: How to Meet the Store Brand Challenge, suggested some ways that manufacturers could fight against this trend.

One of the keys, he said, was a good advertising strategy. He said manufacturers should not allow their advertising budgets to go up and down with the business cycle.

To this effect he quoted the conclusion of a recent study on advertising spending DeKimpe, Deleersynder, Leeflang, Steenkamp (JMR 2009): “Companies that do not tie their advertising spending to the business cycle exhibit an average yearly percentage growth in their stock price that is 1.3 per cent higher compared to firms that exhibit clear pro-cyclical advertising behaviour.”​

Looking beyond budgets, Steenkamp said ads must demonstrate the “distinctive functional benefits” of products. Advertising can also be used to partner effectively with retailers. On such example given was an ad for a Crest toothpaste that ran “Something now just sprouted in the Wal-Mart toothpaste aisle.”