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Winning in a Brave New World: Value and Products

Sunday, November 16th, 2008

This is the second in a three-part report.

“May you live in interesting times.” This Chinese phrase is said to be a curse. Although I prefer not to take this as a curse, it is holding true to be an interesting time in American history and has consequently changed the way consumers shop.

What does “value” mean to consumers? According to Lois Huff, Senior Vice President of TNS Retail Forward, value today has four meanings: “good-enough brands” featuring good quality at a fair price (think Samsung instead of Sony); “private-label brands” like Safeway’s O Organics; “good-enough retailers”, like shopping at Old Navy instead of Banana Republic; and “great deals retailers,” those offering very low prices, such as Kmart and Ross.

With consumers settling for good-enough products and brands, we are seeing a continued rise in the popularity of private-label products. People are experimenting with private brands for cost savings and loving it. According to a recent Nielsen study published in BrandWeek, private label has accounted for $81 billion in U.S. sales this year, up 10% from 2007. These sales now account for one of every five items sold in the U.S. supermarkets, drugstore chains, and mass merchandisers, according to Shelf Impact, an online news product of Packaging World magazine.

The primary driver for a private brand purchase is price, with 74% of consumers expressing this as a primary purchase factor. A Wall Street Journal report noted that according to the U.S. Bureau of Labor Statistics, the consumer price index has risen 7.8% in the last 24 months, prompting Americans to abandon the national brands they might have been loyal to and experiment with a private-label product. Much to the shoppers’ surprise, many are finding the ingredients to be similar to their usual product and are making the switch to all private-label products. O Organics at Safeway is a prime example of a private label with a success story to tell. This private-label brand is able to stand on its own and has taken the notion of these products competing on price alone and exceed it by also providing quality worthy of competing with well-established national brands. Since launching in 2006, O Organics sells 350 products and is on track to “hit sales of $400 million in 2008,” according to the New York Times. A new distribution deal with Sysco foodservice means you’ll be seeing O brands outside of Safeway soon – possibly even on their competitors’ shelves. Please click here to read an April 2008 ShopperCulture report on O Organics.

To stay ahead of these fickle consumers, and to compete with these successful private-label brands, traditional brands must position themselves to give the consumer more for their money. This is being seen through more offers of bulk packaging, giving samples or trial sizes with a purchase, and some are even repositioning the product to offer an added benefit to the consumer. One example is Dawn Plus Hand Renewal from P&G, whose unique characteristic of softening hands may lead consumers to trade up at retail. The key to a national brand’s success — especially in the case of premium-priced products — is to set the product apart from the competition with real points of difference or innovation, and to communicate this clearly to the consumer.

The meaning of value can vary from one product category to the next. Value could mean more volume for the same price; the same volume at a lower price; greater ease of use; greener packaging; or greater overall quality of product. For consumers, it boils down to getting more for their money.

In this interesting time in American economic history, brand loyalty will take a backseat to perceived value in many product categories. Those manufacturers that are best able to reframe product value for their brands in the short term, without compromising brand value in the long term, are most likely to succeed in the uncertain times ahead.

– Contributed by Sarah Lewis

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