Private affairs

One thing I’ve learned over the years: There’s an expert for everything on earth. In this business alone, hundreds of people make a living studying how we shop, how we eat and what types of packaging grabs our attention. Their research is fascinating and worth examining. So I was pleasantly surprised to discover there’s someone who specializes in the study of private label. Her name is Dr. Magda Nenycz-Thiel, and in addition to teaching marketing at the University of South Australia in Adelaide, she looks at how consumers relate to private label products.

What has she discovered? First, the number of people who refuse to buy private label is low in most countries. Only about 20 per cent of consumers in the U.S. reject private label. In the U.K., meanwhile, where all the top supermarket chains have extensive store brand lines (think President’s Choice levels), private label rejection falls to eight per cent.

Not buying private label brands, it turns out, has little to do with the product’s quality. Rather, people who reject private label do so largely on what Nenycz-Thiel calls “extrinsic product cues,” such as unattractive or cheap-looking packaging. Low prices can also hurt. Why? Shoppers may think the product doesn’t have much value. So why risk buying it only to find out it doesn’t taste good. “To reduce the level of rejection,” Nenycz-Thiel told me, “retailers need to invest in extrinsic product cues. They should improve the packaging, increase the advertising spend and pricing accordingly.”

Nenycz-Thiel has also found a big difference in consumer perception of private label vs. national brands. Even people who don’t buy a national brand are quite familiar with it through TV commercials. On the other hand, non-buyers of private labels know almost nothing about these brands.

For private labels, therefore, the trick to sell more is to get the product into the mouths of buyers. Product sampling can work. For nationals, ads are key. Advertising, Nenycz-Thiel says, “acts as a cue to retrieve brands from memory in a buying occasion. In a situation when a national brand does not advertise, we see no difference between perceptions of this brand and a private label brand of the same size.” Retailers tend to think loyalty to their store brands is high. But their viewpoint is often distorted. As Nenycz-Thiel explains, when analysts look at purchasing data on a national scale, store brands can appear small but with a high level of loyalty for their size. What analysts forget is these brands aren’t stocked in nearly as many stores as national brands. So what on paper appears to be a higher level of loyalty is actually a “penetration deficit” across all stores nationwide.

Living in Australia has been quite helpful to Nenycz-Thiel’s research.The country is an odd duck on store brands. Two chains, Coles and Woolworth’s, own the lion’s share of supermarket sales Down Under. Yet, for the longest time, private label’s share was incredibly low: just 13 per cent as of 2008, according to IBISWorld data. (By comparison, Canada’s share back then was closer to 19 per cent.) 

The situation in Australia is starting to change, however. Thanks to competition from Germany’s Aldi, which opened up in Australia a few years ago with a huge assortment of private labels, Coles and Woolworth’s have developed a whole range of private label products, including mid and premium ranges and speciality offerings, such as organics, gluten-free and diet products.The result: IBIS expects private label’s share of supermarket sales will reach 25 per cent next year and top 33 per cent by 2018. Meanwhile, Nenycz-Thiel adds, small national brands that aren’t backed by advertising are starting to disappear.

Something to think about, perhaps, whether your goal is to sell more private label brands. Or national brands.