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BRANDS
“ Walmart is the pioneer of private labels in the world . They began selling private labels in the early 1990s to attract and satisfy bargain hunters and value seekers . About 84 % of Walmart customers keep buying their private labels . Currently , 48 % of Walmart sales come from its private labels ..”
Does Customer Prefer Only Cheaper Brands ?
Private labels work on the premise that ‘ customers prefer cheaper products with fairly good quality and reliability . They do not want to pay for the frills and brand premium .’ But this premise violates many principles of marketing . Private labels hardly look at the heterogeneous market as a group of small homogenous markets . It assumes and integrates the market making different customers give up their choices and preferences . Henry Ford used to say , “ I can give you a car of any color , as long as it is black .” Private labels are just a modern-day version of his viewpoint .
Understanding Maslow ’ s theory of human needs is important for devising a strong branding strategy . The lessons can be summed up in two lines : Different customers buy different products to satisfy the same need ; Different customers buy the same product to satisfy different needs .
Nano , a 624CC car by an Indian car manufacturer cost $ 2750 in Mumbai . It is exactly half the price charged by its main rival and the market leader , Maruti Suzuki Alto- 800 . But Alto features as one of the top-selling cars in India while Nano struggles to sell even 100 cars a month . If buying cheap is the only parameter customers use then Mumbai roads could have been flooded with Nanos . But in the same market cars at different price points are being sold .
Price-conscious customers is an important and large market segment but not the only segment . In other words , a large population of customers are looking to cutting corners while buying products but that is not the only shopping behavior . Customers also look for other aspects like convenience , luxury , variety , service , etc . Just because a cheaper option with a basic product is available doesn ’ t mean customers would jump on it . The concept of the bottom of the pyramid tells us that there is a large market for lower-priced basic products that can be served by private labels . But the market is the ocean and it will always have food for every fish .
My Epiphany
Customers are looking for cheaper options but they are also prepared to pay for certain other needs that will be satisfied along with the basic need for which the product is designed . Customers crowd McDonald ’ s but they also want to go for fine dining . They eat homemade food but also enjoy eating out . Any car can take you from home to office but most of the customers always seek to upgrade the car from a small car to hatchback , from hatchback to sedan , from sedan to SUV and from SUV to a sports or luxury car .
All of us keep climbing Maslow ’ s hierarchy of human needs . Some customers keep buying a one-litre bottle of Heinze ketchup for life but masses need different tastes , sizes , colors , fragrances , etc and they will happily pay for it . Private labels can ’ t forget that .
Customers want equality in terms of the best products and services but they love diversity . Tying customer aspirations with low prices is a kind of communism . Brands represent democracy and affluence ; private labels resemble rationing culture .
Cheap private labels have crossed the introduction stage of the lifecycle , they are in the growth stage but sooner or later they would get into the maturity stage making retailers take a hard look at their assumptions . Winners would be those who don ’ t waste time reinventing the wheel and align their private label strategy with the basics of marketing and branding .
Over-emphasizing ‘ Price ’ and managing ‘ Product ’ on ‘ reverse engineering ’ can take market share only to a certain level . But the real success in marketing needs practicing segmentation , targeting , positioning ( STP ) and also a strong focus on all four elements of the ‘ marketing-mix ’ product , promotion , price and place ( 4Ps ). Whether National or Private labels , brands have to operate in multiple segments with multiple promises and at multiple price points . By doing so they have to keep balancing between the scale and average margins . This is the mass-marketing game . The rest are all niche marketing ventures .
It is not a bad idea for retailers to play just a niche marketing game for their private labels or store brands . They can negotiate their pound of flesh with the national brands . In every category , private labels can focus only on economic segments where customers are looking for the basic product to save money and leave other segments for the national brands .
In many countries like India , such lower price-end segments of the market are occupied by regional or unorganized players . Often , national brands either leave such segments or dilute their focus just to maintain
“ Interesting observations : Rich countries have a higher share of private labels ; Online retailers have a poor share of private labels ; German Deep Discount Supermarkets , LIDL and ALDI have 85 % sales from private labels ; Walmart is reaching a 50 % share of private labels .”
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MAL 45 / 21 ISSUE