Brands and private labels have co-existed for years. But with inflation reaching 40-year highs, shopper behavior is changing fast. Pricing and inflation are now overtaking sustainability as the number one concern for many shoppers and as a result, the battle between brand and private label is about to get tougher than ever. So, what’s a brand to do? At Explorer Research, we help brands to understand and navigate these new competitive waters, to find real-world solutions to maintain category share and we have thoughts to help you frame this important conversation as you tackle the challenges inflation is presenting.
How has shopper behavior changed recently?
According to Labor Department Data, inflation has reached its highest levels in the USA since 1981. Peaking at 8.5% in March of 2022, these rates have spurred an almost-overnight shift in shopper behavior. Paired with job losses and income instability for much of the public, the current conditions mean understanding shopper behavior is more important than ever for brands. Here’s what we are seeing:
- People are shopping less often
- They are avoiding impulse purchases
- Brand switching is on the rise
- Shoppers are turning to generic or store brands
- Channel shifting is becoming more commonplace
Our research shows that 84% of shoppers are concerned about inflation (compared to around 66% who are concerned with the environment). The impact of this on brands and the threat it poses to sales and share of category can’t be overstated. In categories where price disparity is at its highest – for example, cosmetics and personal care products – switching from brand names to store brands is an easy trade-off for consumers whose major concern is making their shopping budget go further.
While the switch to thrift may look different in other categories, the battle in the big box stores is going to be played out between name brands and private labels. This battle is fought on two playing fields — price point and brand equity.
Price Point
At least 70% of shoppers have purchased an alternative product because of price increases. Price is an important consideration even without the impact of inflation as a factor, and so, ‘choice substitution’ trends will grow as inflation continues to hit consumers’ wallets. Entering into a pricing war with competitors and/or store brands is not advisable as this is a slippery slope. Battling it out over prices degrades the value of the category, and means negative results for both brands and retailers. In short, no one wins in a price battle. In short, keep a close eye on pricing and price gaps, but focus on other ways to improve category share.
Brand Equity
The brand equity your business has built over the years doesn’t erode overnight, even when inflation and household spending have become such major concerns for consumers. Building on brand equity and using this to position products within the category is vital to maintaining category share. Understanding value drivers is critical to showcasing your brand’s superiority to consumers. In short, don’t give up the brand ship!
What is a brand to do?
The good news is, there is plenty that can be done to tackle the challenges that inflation and household income concerns pose to brands. First of all, it helps to take a look at what we can learn from other markets. In the FMCG category, for example, private labels account for:
30% market share in Europe
50% market share in the UK
19.5% in the United States
These figures tell us that there is a lot of room for growth for private labels in the United States. As many as four in ten shoppers don’t see the added value in brand name products over store brands in Europe and the UK. Brands can’t afford for this view to take hold in the United States. With inflation and the challenges facing households due to loss of income or government subsidies in mind, brands must be prepared to take multiple steps to protect the brand. Winning strategies may include these key concepts:
- Lose some Audience
It is inevitable in times like these that some of your audience will be lost to store brands. Going to war over pricing is not ideal and it can be a better strategy to be willing to lose some audience temporarily rather than be left with only non-ideal clients in the end. - Boost Loyalty
Maintain the loyalty of key groups who are prepared to spend more where they see value. - Focus on the Value
Using reliable insights to uncover the most important element(s) of your value proposition puts your brand at a competitive advantage at the point of purchase. Options for focus could be centered around quality, ingredients, taste, etc., but whatever it is the definition of value needs to come from an understanding of behavioral science - Watch out for Copycats
During inflationary times copycat strategies seem to flourish. Store brands that may have lacked luster during a strong economic period get an extra boost with little to no effort. Paying attention to copycat strategies from store brands can help you respond promptly to combat significant damage. - Mind the Gap
Decide upon a sustainable level of price gap to maintain share of wallet. - Empathize with the Consumer
When tough economic times strike, consumers can often be facing multiple challenges and already be under stress during even a simple shopping trip. Multiple options, often similar marketing messaging and look alike packaging can be confusing for shoppers. Be conscious of the overwhelming amount of pricing messaging on shelves and show empathy by providing clarity during the path to purchase when possible. - Repeat after me, “There is no Box”
While price may seem like the most obvious place to deal with inflation, research shows that brands who think outside the box often activate buyers more successfully. Partnerships with retailers and brand collaborations are just a starting place for creative ideas that can help your brand weather the competitive storm.
What are the fundamentals of building a brand in times like these?
The global pandemic, wage insecurity, and record-high inflation rates have got your consumers rattled. These tried and tested brand-building strategies are more critical than ever to maintaining category share and sales. They will not only help you get through an economic trough, but they can also be great disruptors even when your category is not facing a direct challenge.
Discover the Trigger
It is crucial to make sure you are speaking to the right value triggers for your consumer. A lot is going on even in the unconscious mind of the buyer when they are considering whether to switch or stay with a known brand. When it’s impossible to compete on pricing, discover where the value lies in your product, and present this in the most compelling way to buyers. For example:
Target Channel Shifting
Another rising trend in shopper behavior is channel-shifting. Shoppers are increasingly likely to shift channels, even if less convenient, where they perceive an overall saving to their grocery bill or weekly shopping budget. For example, we are seeing shoppers shift to:
- Dollar General from Sprouts
- Walmart from Loblaws
- Price Chopper from Sobey’s
- Tesco from Marks & Spencer
Brands need to be mindful of shoppers’ inclination to channel-shift and be ready to target channels (including channel-specific marketing and promotions) to leverage this phenomenon.
Additional, but equally important approaches to getting actionable insights from research investment include finding the right methodology for your business purpose from the following options:
Brand Equity Attribute Studies
Brands can continue to leverage their long-standing brand equity over generic store brands even during the major disruptions we are seeing in the market today. A brand attribute study helps you to understand how significant your brand equity is when under price pressure, and what you can do to build on this where necessary.
Claims Testing
While brands focus on valid equity claims, private labels will often forgo these in an attempt to shift the conversation from quality to price. Despite the changes we are seeing in the market in recent years, shoppers are still inclined to consider quality, value, and the brand equity your brand claims.
Identifying the claims that most resonate with your customer can help you to maintain and increase brand preference. Claims testing helps create convincing strategic and effective claims that target your consumers and keep them on-side as brand loyalists even when under budget pressures.
Communication Testing
Revising your communication and product marketing is an important part of building your brand, but it is all for naught without testing. Now is the time to review marketing messaging to ensure it is truly resonating with your target audience. Communications testing will make sure that the wording of a claim on packaging or on in-store signage is focused on the triggers identified as most important to your consumers.
Visual Signage
Although competing on price is a dead-end for both brands and retailers, messaging on value is still a valuable tool in building your brand’s category share. Visual signage should not only communicate quality, but focus on value-added offers (such as 2-for-1, for example), and on amplifying the decision-making triggers for the buyer.
Eye Tracking
It’s important to test what you’ve learned from a project with eye-tracking technology. As part of a comprehensive planogram study, verifying multiple aspects of the product placement, aisle flow and selling configurations is key. Eye tracking can also evaluate the level of accuracy of claims testing, marketing messaging, and signage by examining the actual claim (whether it is being noticed via the right messaging), and evaluating the right location for messaging (whehter the messaging is really getting attention on the shelf).
Pricing versus Value
Inflation is already having an impact on brands. Keeping close tabs on pricing is critical in terms of share of voice and share of wallet. Where competing on price is impossible and inadvisable, instead focus on value.
Regardless of brand, battling on price or price alone is not a good long-term strategy. Instead, successful name brands emerge ahead of the competition by getting the fundamentals right. Your brand’s value proposition in alignment with shopper behavior is the key to maintaining brand equity and, in turn, share of category, during challenging times.
With decades of experience in research and the broadest range of immersive testing environments, we are your brand’s secret weapon in shopper insights. Get in touch with our team today to find out more about how we can help your brand to succeed in the battle of brand versus private label and beyond.
