Retailer brands - heaven or hell, opportunity or threat

Oliver Koll and Richard Herbert
Europanel, United Kingdom

BACKGROUND

In late 2001, together with P&G and our academic partner, Professor Jan-Benedict Steenkamp of the University of Tilburg, we were finalising several stages of work on turning Rogers' Diffusion Theory into marketing practice within FMCG (M. Aboul-Fath, R. Herbert, “Research Can be Innovative Too”, Esomar Congress 2002). One factor with a strong impact on diffusion within a category was the presence and size of Retailer Brands (we will use the terms Retailer Brands and Private Labels interchangeably). This, coupled with our concern about the significant rise in Retailer Brand, led to further work with P&G, this time on the issue of Retailer Brand success.

Private Labels are a major threat to manufacturer brands. Besides impressive growth rates the very nature of the Private Labels turns them into a different type of competitor: on the one hand, they are proprietary to the distribution partners manufacturers depend on. Therefore they cannot be dealt with in the same way as “regular” competition. On the other hand, Private Labels typically use a very different business model (little R&D investment, little category-specific advertising, no cash expense for slotting allowances, etc.), which renders any benchmarking efforts against Private Labels difficult. Nonetheless, manufacturers need to better understand key success factors of Private Labels in order to stop their current growth patterns.