JournalofRetailingxxx(xxx,xxxx)xxx–xxx
The Future of Private Labels: Towards a Smart Private Label Strategy
Katrijn Gielens
a,1, Yu Ma
b,1, Aidin Namin
c,1, Raj Sethuraman
d,∗,1, Ronn J. Smith
e,1, Robert C. Bachtel
f,1, Suzanne Jervis
g,1aUniversityofNorthCarolinaatChapelHill,UnitedStates
bMcGillUniversity,UnitedStates
cLoyolaMarymountUniversity,UnitedStates
dSouthernMethodistUniversity,UnitedStates
eUniversityofWyoming,UnitedStates
fInformationResources,Inc.,UnitedStates
gSam’sClub,UnitedStates
Abstract
Moderndaystorebrands(SB)orprivatelabels(PL),nowalsopopularlycalledprivatebrands,arebrandsgenerallyownedandmarketedby retailers.Theyhavebeenactiveonthemarketforabout70years.Overthistimespan,thesebrandshaveevolvedfromgeneric,cheap,low-quality economyorbudgetprivatelabelstolower-priced-than-nationalbrandbutacceptable-qualityvalueorstandardprivatelabels.Overtime,retailers extendedthevaluepropositiontotheconsumersegmentseekinghigherqualitybyofferingpremiumprivatelabels.Thisstrategy,calledthetiered- privatelabel,comprisesofferingeconomyPLtotheprice-sensitivebutnotqualitysensitiveconsumers,standardPLtomainstreamconsumers seekingacceptablequalityatlowerprices,andpremiumPLtothequality-sensitivesegmentseekingvalue.Overthelast40years(1980–2020), theseversionsofprivatelabelshavewitnessedsubstantialgrowtharoundtheworld,thoughthegrowthissaidtobetaperinginrecenttimes.
Asretailerschartthefuturestrategyfortheirprivatelabelsin2020andbeyond,apertinentquestiontheyfaceis:Shouldtheycontinuetooffer valueoreventieredPLwiththesameformulathatbroughtthemsuccessinthepast,orshouldtheymorphandadoptnewstrategiesinkeepingwith currentmarkettrends?WesupportadoptinganewstrategythatwecallthesmartPLstrategy.ThevaluePLstrategyanditsmanifestationasthe tieredPLstrategycatertodifferentconsumersegmentsbutfocusprimarilyonpriceandqualityasattributesofchoice.Inthecurrentmarketplace, consumerscarenotonlyaboutpriceandquality,butalsoaboutsustainability,ethics,socialresponsibility,image,soforth,perhapsmoresothan earliergenerations.Theyarealsomoretech-savvyinusingdigitaltoolsforsearchandpurchase.Retailers,ontheirpart,arenowendowedwith rich,extensivedatathattheycantapintotounderstandcustomers’diverseneeds,andtheyareabletoharnesstechnologyfordevelopingtheright productandcommunication.Thus,thesmartPLstrategyisastrategybywhichretailerscanleveragedataandtechnologytomarketprivatelabels thatmeetdiversecustomerneedsandachievegreaterretaildifferentiation,storeloyalty,margins,andprofits.Thisthoughtpieceprovidesaroad mapfordevelopingsuchasmartPLstrategyanddirectionsforfutureresearch.
©2020NewYorkUniversity.PublishedbyElsevierInc.Allrightsreserved.
Keywords: Storebrands;Privatelabels;Privatebrands;Retailstrategy
∗Correspondingauthor.
E-mailaddress:[email protected](R.Sethuraman).
1 All academic authors – Gielens,Ma, Namin, Sethuraman, and Smith, contributedequallytothismanuscriptandtheirauthorshipispresentedalpha- betically. Bachtel and Jervis provided excellent, insightful comments and inputsfromapractitionerperspective.Thismanuscriptbenefitedgreatlyfrom ideasgeneratedduringthejointAcademic–PractitionerConferenceonRe- StrategizingRetailingorganizedbytheJournalofRetailingandUniversityof ArkansasinOctober2019.OurspecialthankstoBusterArnwineforhisvalu- ablecommentsattheconference.Thepaperwasalsoimprovedsignificantly thankstocommentsmadebytheSpecialIssueeditorsDineshGauriandDhruv Grewal,andtwoanonymousreviewers.
AccordingtoarecentreportonprivatelabelsbyInformation Resources,Inc.(IRI),storebrandsorprivatelabels(PL)inthe grocerymarketintheUSAgrewby5.8%in2017,fourtimes fasterthannational brands(Vimari2018).PL shares forgro- ceryproductsintheUSAareatanearall-timehighof18.5%
indollarshareand22.3%inunitshare.In a2019nationwide surveyconductedforthePrivateLabelManufacturersAssocia- tion(PLMAReport2020),two-thirdsoftherespondentsagreed thatthePLproductsarejustasgoodas,ifnotbetterthan,the nationalbrandversionofthesameproduct.PLshareinEurope isevenhigher,reachingnearly40%insomecountries,though marketersbelievePL shares maybeplateauing. PLsare also
https://doi.org/10.1016/j.jretai.2020.10.007
0022-4359/©2020NewYorkUniversity.PublishedbyElsevierInc.Allrightsreserved.
Pleasecitethisarticleas:Gielens,Katrijn,etal,TheFutureofPrivateLabels:TowardsaSmartPrivateLabelStrategy,JournalofRetailing,
beginningtotakerootinemergingeconomiesinAsiaandLatin America(NielsenReport2019a).
Although PLs havemade substantialinroads inmostcon- sumermarkets,theconsensusuntilrecentlywasthattheywere stillthe “poorcousins” ofnationalbrands(NBs)inconsumer packagedgoods(PauwelsandSrinivasan2009).PLsweretyp- icallypositionedasofferinggoodqualityatanattractiveprice.
They were thought of as acceptable alternatives rather than desirableordestinationbrandsthatconsumerswouldusecon- spicuously ata partyor the dining table. WhileNBsled the waywithnewproductintroductions,PLsfollowedthemonce thecoastwasclear.Inessence,PLsdidnotgenerallypossess thestatus,imagery,ormarketpowerassociatedwithanational brand.
Nevertheless, retailers realized that by adding more premium-oriented PLs, they could penetrate the high-end, morequality-sensitivecustomersegments simultaneouslyand improve overallstoreimage(Martos-Partal,González-Benito, andFustinoni-Venturini2015;Keller,Geyskens,andDekimpe 2020).Costco’sKirklandSignaturepremiumPL,forexample, generated more than $39 billion in sales in 2018,making it oneoftheworld’sbiggestbrandnamesinconsumerproducts (Mullen2019)whileofferinghigherdollarmargins(TerBraak etal.2013).RetailerslikeWalmartofferstorebrandsfordif- ferentprice-qualitytiersundertheumbrellanameGreatValue forthosewhowantacceptablequalityatlowpricesandSam’s Choiceforpremiumconsumers.Inthistiered-PLstrategy,one PLisofferedforeachprice-qualitysegment.
Lookingtothefuture, retailershavetwo optionsforcraft- ingtheirPLstrategy.Theycancontinuewiththestatusquoby stickingexclusivelytotheprice-qualityvaluepropositionthat theyhaveusedallalongandcatertojustthemainstreamcon- sumers by offeringavalue brand or tootherniche segments withtieredPL.Alternately,theycanfacilitatetheemergenceof anewwaveofprivatelabelsthataremoreconsistentwithcurrent markettrendswhilenotabandoningtheiroriginalvaluepropo- sition.Werecommendthelatterstrategy,whichwecallsmart PLstrategy.Specifically,thesmartPLstrategyisastrategyby whichretailerscanleveragedataandtechnologytomarketpri- vatelabelsthatmeetdiversecustomerneedsandachievegreater retaildifferentiation,storeloyalty,margins,andprofits.Thekey driversoftheneedforchangeare:
1 Changingcustomerattitudeandbehavior:Theattitudes,pref- erences,choiceprocess,andbehaviorofanewgenerationof consumersthatwehavecometocallMillennials,GenXers, andGenZ’shavechangeddramatically(Naminetal.2020).
2 Increasedretailcompetition:Retailcompetitionhasincreased significantly with the entry of e-tailers and the expansion of traditional retailers into multi-channel retailing. Savvy retailersarebeginningtorecognizethatthediversityandcom- petitiveforcesinthemarketplacerequirePLsthatmeetneeds that gobeyondpriceandqualitytodifferentiatetheir store andincreaseloyalty(Keller,Geyskens,andDekimpe2020).
3 Rapidtechnologicaladvancement:Inthepast,retailerstypi- callydidnothavethemeansorcapabilitiestoactuponthese consumerneeds.However,awiderangeoftechnologyisnow
availabletoretailersthatcanenableretailerstooffersmart PLsupportedbysophisticateddigitalmarketingcampaigns (RoggeveenandSethuraman2020b).
4 Availability of data: Technology also enables retailers to collect data that are timely andrich, as well as providing modeling,machinelearning,andartificialintelligencetools toanalyzethedataandcomeupwithoptimaldecisionswith respect to targetsegment, product offering, and marketing mixfortheirPL.
Inessence,Stern(1966),over50yearsagoinhispioneering articletitled,TheNewWorldofPrivateLabels,heraldedthebirth ofwhatwenowcallstandardorvalueprivatelabelsreplacing theearliergeneric,economyversion.Inthispaper,wediscuss theemergenceofanewwaveofprivatelabelscalledsmartPL, which:
1 aremulti-faceted,multi-tiered,multi-segmented,andimage- oriented,
2 relyonnewproduct(co-)development,aswellasin-storeand digitalcommunication,
3 adoptdynamicandevenindividualizedpricing,
4 areenabledandsupportedbyinformationtechnology,and 5 mayevenbeofferedoutsidetheconfinesoftheirownstore
environments.
Reputed,forward-lookingretailers are alreadyadapting to thesechangeswithproductinnovation,multi-tier brands,and sophisticated marketing of their private labels. For example, TargetandWalmart havelaunchedmorethan25 newprivate brandssince2016.Amazonandotheronlineretailersalsoare tryingtoleveragethesurgingdifferentiationopportunityinpri- vatebrandsbycollectingatreasuretroveofdata.Atthesame time,retailers like Sam’sClubare consolidatingtheirprivate labellinestoasingular,umbrella“Members’Mark”labelwhile engagingcustomersandinnovatingnewPLproducts.By‘open- ingtheumbrella,’retailershopetorevitalizetheirPLsandcreate amoreloyalfollowing(Keller,Geyskens,andDekimpe2020).
Inthispaper,wediscussthedriversofthenewwaveofPL andthecharacteristicsofthesmartPLthatarisefromit.Fig.1 takesyouthroughthePLjourneyandprovidesaframeworkfor ourstudy.First,toprovidecomparisonandcontrast,webriefly elucidatethetwopriorstrategies–economyandvaluePLstrate- gies–andtheiroffshootcalledthepremiumPLstrategy.Then wediscussindetailthefuturisticPL strategythatwecallthe smartPL–itsdriversandstrategycharacteristics.Finally,we provideseveraldirectionsandquestionsforfutureresearch.
EconomyPLStrategy
Modern-dayPLs wereintroduced inthe mid-20thcentury insomelimited items liketea by largesupermarketssuch as theAtlantic&PacificCompany(A&P),primarilyaseconomy brandsto serve as lower-priced, lower-but acceptable-quality alternativestoNBs.MarketingofeconomyPLsconsistedpri- marilyofthefollowingstrategies.
Fig.1.Theprivatelabeljourney–conceptualframeworkandtopicscovered.
ProductStrategy
Usually,economyPLsareofferedincategoriesthatarehighly commoditizedwithlittle qualitydifferentiation (e.g.,salt), or wherebrandeditemsareprohibitivelyexpensiveforasegmentof consumers(e.g.,cereals,chips,nonprescriptiondrugs).Inaddi- tion,suchitemstendtobehigh-volume,high-turnoveritemsand catertoanon-competingprice-sensitivesegment(Sethuraman 2018). Packaging is kept minimal– often simple: black and white,or4-color.
PriceStrategy
Economybrandscallforeconomypricing.Themaximis“the lowerthebetter,”subjecttosomeminimumacceptablequality levels.Typically,theseeconomyPLsarepricedabout50%–75%
lowerthantheNBs(Stern1966).
PromotionStrategy
EconomyPLs,almostbydefinition,donotincuranymar- ketingorpromotionalspending.Retailersseldomresorttoprice discountsontheseitemsnordotheyactivelyadvertisethePLs instoreorthroughTVorfeatureadvertising.Atthestore,PLs areoftenplacedonseparateshelvesoraislesdistinctfromwhere NBsaredisplayed.
BirthofValuePL
TheexistenceofeconomyPLsisperhapsahappysituation fortheNBmanufacturers,price-sensitiveconsumers,andeven publicpolicymakers.However,offeringjustacheapPLisnotan appealingpropositiontomainstreamconsumersortoretailers.
Mainstream consumers feel that they must compromise sub- stantiallyonthelowerqualityofeconomyPLstoobtainalower price.RetailersfeelbyfocusingexclusivelyoneconomyPLs, theyforgoanopportunitytomakemoremoneyfrommainstream
consumers.Thislacunaefrom bothdemandandsupplysides gaverisetovalueprivatelabels(Stern1966).
ValuePLStrategy
In thisstrategy,retailers offeredacomparable qualitypri- vatelabel, often equal in qualityor even better than that of nationalbrand. Butthe price of the PL isalways lower than thatofthecompetingnationalbrand.Sinceperceivedvaluefor aconsumeriswhatyouget(productquality)forwhatyoupay (productprice),itfollowsthatthevaluepropositionwasthepri- marysellingpointfortheprivatelabels,hencetheyarecalled valuePLs.Thisvaluepropositionof PLshasbeen sopopular thatthebrandshavealsocometobeknownasstandardPL.Due totheir popularity,retailershavedevotedsubstantialattention tothemarketingofvaluePLs,andacademicshaveconducted extensiveresearchonthemarketingstrategyofvaluePLs(see SethuramanandGielens(2014)forareview).Thesestrategies arebrieflydescribedbelow.
ProductStrategy Conducivecategories
Intheeconomystrategy,PLshadadominantpresencemainly inundifferentiated commodityproducts andin products with highpenetrationandpurchasefrequencysuchasmilkandbread.
Inthevaluestrategy,PLsexpandedtocategorieswherearetailer canofferacceptable-qualityalternativesatalowerprice,either toenhancestoreloyaltyorgainbetternegotiatingpositionwith theNBmanufacturer,resultinginhigherretailer profits.Such productsincluded healthandbeauty,bakery, andsnackitems (Fitzell,1992).Academicshavealsoconductedextensiveana- lytical,empirical,andmanagerialresearchtoidentify product characteristicsthatareconduciveforvaluePLintroductionto gainsalesandprofits(e.g.,Sethuraman1992;HochandBanerjee 1993;Raju, Sethuraman, andDhar 1995; Sethuraman 2009).
Thesecharacteristicsare:(i)highpricesubstitutabilitybetween
NBandPL;(ii)lowadvertisingsensitivity;(iii)highcategory sales;(iv)highPLmargin.
Productpositioningandpackaging
IneconomyPL,simple,low-endpositioningwithblack-and- white packaging andplacement onshelvesseparate fromthe nationalbrandswasthegeneralpractice.InvaluePL,thefocus isoncompetinghead-onwithNBs.Therefore,toconvincecon- sumersthattheirbrandsoffergoodvalue,retailerspositiontheir valuePLclosetotheNBinatleastfourways:(i)increasingthe qualityof storebrandandreducingthe perceived qualitygap betweennationalbrandandstorebrand,(ii)imitatingnational brandpackaging,(iii)placingthestorebrandontheshelfright nexttothenationalbrand,and(iv)usingshelftalkerswith“com- pareandsave”orsimilarslogans.Academicresearchershave addednuancedinsightstothisgeneralstrategyofclosePLposi- tioningalsocalledcopycatpositioning.Sayman,Hoch,andRaju (2002)showthatiftherearetwoNBs,itisbettertopositionthe PLclosetooneofthemthantostayinthemiddle.IftheNBs havedifferentmarketshares,thenitisprofitableforthePLto goaftertheNBwiththelargershare.Infact,thelargertheshare oftheNB,themoreprofitableitisforthePLtomimictheNB.
Insupportoftheiranalyticalresults,Sayman,Hoch,andRaju (2002)findthatwhenPLsdotargetaparticularNB,thetargeted brandistheleadingbrandin80%ofthecases.However,PLs target anNB inonly about30% of the categories. The find- ingsuggeststhatpositioningthePLasacopycattotheNBis not alwaysprofitable.Sethuraman (2004)suggeststhat copy- cat positioning candecrease aretailer’s category profit ifthe NBmanufacturercansignificantlyexpandthecategorydemand throughnon-pricemarketingactivitiessuchasadvertising.Choi andCoughlan(2006)introducethenotionoffeature(attribute) differentiationasopposedtoqualitydifferentiationwhenana- lyzingthecompetitionbetweenNBandPL.Theyshowthatit ismoreprofitablefortheretailertodifferentiateitsPLbypro- viding anadditional feature toconsumersthanby competing head-onwithNBsthroughcopycatpositioning.
PricingStrategy
The“lower-the-better”approachtopricingofeconomyPLs gavewayto“lower-but-optimal”pricingtoreflectbothquality andvalue.Practitionersandacademicssuggestthatthepricedif- ferentialbetweenNBandPLshouldbebetweenalowerlimit (floor) andanupper limit(ceiling). The lowerlimitis setby theJustNoticeableDifference(JND)concept,whichsaysthat consumerswouldnoticeapricedifferentialonlyifitisabovea thresholdvalue.InthecontextofNB-PLcompetition,according toDonegan(1989),thatthresholdisaboutfifteenpercent.That is,consumerswouldnoticeandconsiderbuyingavaluePLonly ifthepriceofPLisatleastfifteenpercentlowerthanthepriceof NB.Atthesametime,retailerscannotchargetoolowaprice(set toohighapricedifferentialwithNB)asineconomyPLbecause ofunfavorablequalityimputation.Ifthepricesaretoolow,con- sumersmightperceivethePLtobeacheap,low-qualitybrand andrefrainfrompurchasingit(Sethuraman1992).Settingalow pricemayalsohurtPLmarginsandretailers’categoryprofits
(PauwelsandSrinivasan2009).Hoch andLodish(1998),ina comprehensiveanalysisofover-the-countermedicines,suggest thatthemaximumprofitableNB-PLpricedifferentialmaybe around50%.Inotherwords,academicandpractitionerinsights suggestthattheNB-PLpricedifferentialtobebetween15%and 50%.
PromotionStrategy
InthecaseofeconomyPL,thesimple,standingmantrawas
“nopromotionisoptimalpromotion.”Inessence,economyPLs seldomengagedinanykindofpriceor non-pricepromotion.
Intheory,someofthoserecommendationscarriedovertovalue PLsaswell.
With respect to price discounts, analytical modelers such asRao (1991)haveconcluded that PLsshouldnotpricepro- mote in equilibrium. The logic is as follows. The incentive for value PL to price promote stems from having to charge aregular price to cater to its loyal customer baseand occa- sionallymake foraysinto theswitchersegmentthroughprice cuts.Because PLs are primarily viewedas brandswith little loyalty and which cater mainly to the price-/value-sensitive (switcher)segment, thisincentive does not arise. Supporting thisviewpoint,BlattbergandWisniewski(1989)proposedthe asymmetricprice-tiereffecttheory,whichstatesthatwhenthe higher-price-tierNBsdiscount,theytakesalesawayfromlower- price-tier PLs, but not vice-versa. This theory predicts that valuePLshavelessincentivetodiscount.Therehasbeensome counter-evidencetotheseresultsthatshowsthatPLsdoengage infrequentdiscountingatleastinselectproductcategorieswhere thepercentofvaluePLsoldondiscountiscomparabletothatof NBs(NielsenReport2019b).Nevertheless,thediscountdepth isgenerallylowerthanthatofNBs.Thatis,valuePLdiscounts areshallower.
Withrespecttonon-pricepromotion,PLsgenerallydonot advertise through traditional mediachannels. The promotion options for thesebrands are primarly in-storenon-price pro- motionssuchasfeaturesanddisplays.NBdisplaysandfeatures canaffectPLshare,andvice-versa(Cotterill,Putsis,andDhar 2000).ValuePLdisplaysandfeaturesareprevalentespeciallyin categorieswherevaluePLscanattractstoretraffic.Inaddition, managerscanincreasefamiliaritywithvaluePLsbyinducing trialthroughfreesamples,qualityguarantee,andaliberalreturn policy(Sethuraman2006).
ExtendingPLPortfoliowithPremiumPL
With growing awareness of the profit potential of higher- pricedPLsthroughenhancingstoreimage(Akcura,Sinapuelas, andWang2019)andgeneratingstoreloyalty(NiesandNatter 2012),retailershavestartedaddingpremiumPLstotheirport- folio.Essentially,thepremiumPLcanbedeemedasanactive strategyonthepartoftheretailertoincreasetheirshareandprof- itabilityoftheirPLportfolio(Keller,Geyskens,andDekimpe 2020). The premium PLs are targeted at less price-sensitive consumersegmentswithscopeforgaininghighermargins(Ter Braaketal.2013).Theysellatpricescomparableto,or even
above,thoseofstandardNBsbutbelowthatofpremium(higher- priced)NBs(PauwelsandSrinivasan2009).PremiumPLsare mainlyintroducedinvariety-enhancingorfill-incategorieswith higher functionalbutlowersocialrisk andthat arecharacter- izedbylongerinterpurchasetimes andlowerpricesensitivity (Ter Braaket al. 2013). With this positioning, premium PLs donotseemtohurthigh-marginpremiumNBs,butdoattract sharefromlowerpriceditems,sooverallcategoryprofitability increases(Geyskens,Gielens,andGijsbrechts2010).
The market is replete with many examples of successful launchesofpremiumPLs.Kroger’sPrivateSelectionpremium PL,forexample,waspurchasedbymorethan30millionhouse- holds,andgrewatoversevenpercentin2019(Aylwad2019).
BJ’s Wholesale Club has introduced three new spirits under theirbrand,AlbertsonsrolledoutSignatureReservevodkaand whiskies,anddiscounterAldisintroducedapremiumgin,show- ingthatpremiumPLscanthriveinnichesubcategories(Ochwat 2020).
From astrategyviewpoint, the growing widthof PL port- foliosposessomeinterestingbrandingchallenges,specifically withrespecttoumbrellabranding.PremiumPLsarebeingadded toalreadyexistingeconomyandstandardPLstoformtieredpri- vatelabelscateringtoconsumerswithdifferingpriceandquality sensitivities.ShouldallthreePLtypesbesoldunderacommon brandnameassociatedwiththeretailer(umbrellabranding),or shouldeachtypeofPLhaveadifferentname(distinctbrand- ing)?Target,forone,believesintheformerumbrellabranding strategy,soitisrollingoutallitsPLundertheGood&Gather brandandphasingoutotherPLnames.ArcherFarms,Simply Balanced, andMarketPantryretailersare alsoadoptingsimi- larstrategy (Kumar 2019). Whereassignificant economiesof scaleandscopecouldbeanticipatedofsuchanumbrellastrat- egy,itisnotwithoutrisk.Indeed,withacommonbrandname, economyPLsmayendupcannibalizingthehigher-priced(and higher-margin)standardandpremiumlinesaswellas hurting their brandimage(Geyskens,Gielens, andGijsbrechts2010).
Notsurprisingly,economyPLsmoreoftenfeatureanunrelated brand name, whereas value andpremium lines tend toshare acommon,store-bannername. WerefertoKeller,Geyskens, andDekimpe(2020)forarecentandin-depthdiscussiononthe mainstrategiesusedtosupportthepremiumPLandumbrella branding.
Overall,withtheemergenceofpremiumPLlinesandmore diversifiedPLportfolios,retailerslearnedthatPLscanbeusedto servemultipleconsumersegments,inmoreproductcategories, andathigherpricepoints.Thisexperienceandknowledgecom- binedwithchangingmarketplacebehaviorpavesthewayforthe emergenceofsmartPLstrategy.
SmartPLStrategy–Drivers
WhenmovingfromvaluePL,premiumPL,andtiered-PLs to smart PLs, two questions arise: (i) Should a PL aspire to be anotherNB? and(ii)Even if itwantsto, does theretailer havetheresourcesormarketingacumentomakethathappen?
Astothe firstquestion, we believetherearemany consumer andcompetitortransformationsthatareoccurring inthemar-
ketplace,enabledbytechnology,whichsuggestthatPLsmust evolvetokeeppacewiththosechanges.Atthesametime,the smart PL strategy should continue toadhere to the retailer’s corevaluepropositionthathasmadethemsuccessful,insteadof becominganotherNB.Astothesecondquestion,goingbeyond value proposition and gaining status as a brand may require substantialinvestmentinadvertising,promotion,andR&Dthat are typically the forte of the NBs andwell beyondretailers’
budgets.Howdoretailers,withlimitedbudgets,enhancethesta- tusoftheirbrandswithoutimpairingtheirvalueproposition,as wellasleveragenewtechnologiesandbehavioralchanges?We describefourtypesoffactorsthatdrivesmartPLs:(i)Consumer, ii)Competition,(iii)Technology,and(iv)Datadrivers,andwe thendiscussthemarketing mixstrategiesthat areappropriate forthosesmartPLsalongwithseveralrealexamples.
ConsumerDrivers Consumerfragmentation
Retailers have primarily adopted the one-size-fits-all approach when individually marketing their economy, value, and premium PLs to their respective segments to maximize economiesofscaleandscopeandminimizecosts.Evenwhen theyfollowedthemulti-tierPLstrategyofofferingallthreePL versionsatthesametime,thefocuswasprimarilyonconsumers’
tradeoffbetweenpriceandqualityasthecorecriteriaforassess- ingvalue.Butconsumersinthecurrent marketarebecoming morefragmented.Newgenerationsof consumers(calledGen Z’s)areenteringthemarketplaceandolderconsumers(GenX’s andMillennials)arepracticingnewnorms.Theseconsumersare reformulatingtheirownexpectationsofwhatvaluetrulymeans.
GenZconsumerstendtobelessbrandloyalandaremore inclined to buy the product that best suits their needs rather than be influenced or dictated by the brand name (Sharma 2019).GenZ shoppersalsocaremoreaboutwhetheraprod- uctalignswiththeir beliefsystemsthanpreviousgenerations.
Aspartoftheir moreholisticapproachtolife,theseshoppers aremorelikelytoengageinresponsiblepurchasingandcon- sciousconsumption.Conceptssuchasinclusivity,transparency, environmentalfriendliness,sustainability,ethicalpractices,and fair-tradegoodsresonatewiththisconsumersegment.
Manydemographicandbehavioralchangesalsoarehappen- ingwithrespecttoolderconsumersintheworld,includingGen X’s,Millennials,andBabyBoomers,whichmayimpactcon- sumergroceryshoppingchoices(NaminandDehdashti2019).
Manyoftheseconsumersaregrowingolderandlesswealthy.
Thebig-middleisshrinking,withtherichgettingricherandpoor gettingpoorer.Peopleliveinsmallerhouseholds,bothinterms ofareaandfamilysize,andhaverestrictedmobility.Inthefuture, theseolderandpoorerconsumerswillbeforcedtorefocuson thebasicsoflife,withhealthandconvenienceastheirmainpri- orities.Assuch,theirneedforconvenienceandproximitymay leadtofurtherboosts inonline ordering, eveninthe grocery space,particularly accelerated bythe present COVID-19 cri- sis.Thisriseinonlineshoppingmayonceagainfundamentally changeconsumers’expectationswithrespecttoprivatebrandsas easeofnavigation(throughsearchenginesandpersonalizedfil-
ters),individual-tailoredsuggestions(throughrecommendation systems),andeasypricecomparisons(throughcomparisonalgo- rithms)willincreasetheneedformorefine-grainedPLportfolios atmultiplepricepoints.
In sum, as the consumer base fragments, more retailers will moveout of the mid-marketprice-tier space tosharpen theirprivatebrandingpositioning.Asconsumerattitudestoward spendingareshiftingbeyondpricetoincludemultipledimen- sionsofvalue,suchastransparency,health,andalignmentwith personal beliefs, retailers need to address these attitudes by rebalancingtheirPLportfoliosbeyondpricetiers.
Changingmindset
Ingeneral,shoppersnolongerwantjustacceptablequality productsataffordableprices.Theydesireproductsthatareboth affordableandexperiential,affordableandsustainable,afford- ableandhealthconscious,whilerequiringconvenienceatthe sametime.Retailerswillhavetoaddressthisincreasinglycom- plexarrayofneedswithabroadersetofprivatebrandproducts andlines. Whereasmany retailershave builtexperience with PL portfolios by extendingtheir SB program into new, high price-qualitytiers(Amaldoss,Desai,andShin2015;Geyskens, Gielens,andGijsbrechts2010),thequestionariseswhetherthis experience translates well toportfolios that ventureinto new benefitsandclaimsoutsidethepureprice-qualityspectrum.Can privatebrandsaddresstheseneedsinanauthentic,transparent, andtrustworthymanner,whilepursuingcommercialobjectives atthesametime?Moreinsightsareneededtoseetowhatextent theselinescanbeaddedtothePLportfoliowhilemaintaining, andevenimproving,bothprivatebrandandcategoryprofitabil- ity.
CompetitionDrivers
WhereastraditionallythemaincompetitorofthePLwasthe NB,availableontheretailer’shelvesnexttothePL,newvalue propositionsofferedonlineas wellas inthe brick-and-mortar arenaarefurtherreshapingconsumermindsetsregardingvalue.
Online, new direct-to-consumer (D2C) initiatives are break- ingthe price-qualityboundariesbysystematicallycuttingout middlemen. Inthe physicalworld, harddiscountretailers are alsoreshapingconsumers’beliefsontheprice-qualitytrade-off.
Theseevolutionshaveimplicationsforprivatebranding.
DigitalD2Ccompetitors
Awave of denovo companies istrying tobuild premium brandsatdiscountpricesbycuttingoutintermediariesandgoing straighttoconsumersdigitally.Pop-upshopsarealsobecom- ingapopularformattosupplementanonline-onlyexperience andalleviatetheneedstomaintainaphysicalstore.Thistypi- callyresultsincheaperproductsforconsumersandhigherprofit marginsfor thecompany.AswithPLs,thesenewdigitaland pop-upretailerbrandsbreaktheprice-qualityrelationship,cre- ating yet another layer of competition for private labels.An eyewearbrand,WarbyParker,forexample,maneuveredaround the price-qualitynotion byestablishing thebrand as atrendy alternative providing the same, if not higher, qualityat good
prices(Kahn,Inman, andVerhoef 2018).Moreover,not only arethesedenovoD2Cmodelsdisruptingthetraditionaldistinc- tionsbetweenbrandsandretailers,buttheyarealsoempowering consumerstodirectlyengagewiththemanufacturer-sellers,pro- vidingrichdataforthosesellersfromtheirmostloyalshoppers thattheycanthenexploitforfutureinnovationandnewproduct development–adataadvantagehithertoheldbyonsiteretailers.
Notonlydothesenewbusinessmodelsforretailersuptheante inthequalitydepartmentoftheirPLportfolios,theyalsoforce retailerstoworkharderonassortmentcurationandown-label development.Todososuccessfullywillrequireretailerstobuild capabilitiesinclientengagementonline,throughsocialmedia anddataanalytics.
Harddiscountcompetitors
Harddiscount(HD)retailerssuchasALDI,WinCo,Trader Joe’s,andevenwholesaleclubslikeCostcoandSam’sClub,in manywaysaimatofferingbasicgoodsofdailyneedatthelowest possibleprices – upto30%–50% below traditional retailers’
prices–whilemaintaininghigh-qualitystandards.PLsfeature prominentlyintheassortment.Around90%ofGermangrocer Lidl’sSKUsarePL. Therelative emphasisof PLsisthe key differentiatorbetweenthesediscountersandotherdeep-discount retailstores,suchasDollarGeneralandDollarTree.Theformer hasdeepexpertiseinhowtheirproductsareproduced,whocan producethem,andwhattrade-offstheyneedtomake.Thelarge revenuescombinedwiththeirsmallnumberofSKUsmeanthat thevolumeperSKUisverylarge.AldiandLidl,forexample, arethe biggestsellers ofPL groceryproducts worldwide.As aresult,theycandriveout everycentof excesscost without compromisingonqualityandcanoutcompeteotherretailerson price(Steenkamp2018).
ThepresenceofHDcompetitorsnotonlyposessubstantial threatstoNBmanufacturers (Deleersnyderetal.2007),butit mayalsohavesignificantimplicationsforretailerswhowantto transformtheirPLsintosmartPLs.IfaHDretailertrulymanages toofferqualitystorebrandsatsuchlowpricesunattainableby regular retailer PLs, then the competitive scenariomay limit regular retailers’ ambitions to upgrade their PLs. The extant literaturehassofarmainlyinvestigatedtheimplicationsofthe HDbusinessmodelforNBs.Verylittleisknownabouthowthis modelaffectsPLsatregularmassretailerssuchassupermarkets.
TechnologyDriver
Toolsof technology canenable retailers tobetter support theirsmartPL.SethuramanandParasuraman(2005)presented ataxonomy of retail technology by classifying it as primar- ilycost-savingorservice-enhancing,whilealsoacknowledging that cost-saving technologiescan increase, decrease, or have noeffectoncustomerservice,justas service-enhancingtech- nologiescanincrease,decrease,or havenoeffecton product costsor prices. Accordingly, thoseauthors propose six types of retail technologiesand provide oneexample of each type of technology including self-checkout, cross-docking, Radio FrequencyIdentification– RFID.Even e-commercewascon- sideredanewretailtechnologyatthetimeofthatstudy.Injust
thelast20years(2000–2020),growthinretailtechnologyhas exploded.Onlineretail,webrooming,digitalpaymentsystems, andmobileshoppinghavebecomethenorm;additional,novel optionsaregrowinginnumberandfamiliaritytoo.Technolog- ical developments inretail seem likelyto acceleratein 2020 andbeyond,involvingexpandedapplicationsofartificialintel- ligence,machinelearning,virtualreality,bigdata,andmobile apps. These retail technologies can help customers navigate throughallfacetsoftheirjourney.RoggeveenandSethuraman (2020b) callthemcustomer-interfacingretail(CIR)technolo- giesandlist40typesofretailtechnologiesintroducedinjustthe last20yearsthatcanhelpatdifferentstagesofcustomerjourney.
Ateachstageofthejourney,theretailercanusethetechnology bothtounderstandwhatcustomerswantandtorecommendand promotetheappropriatePLtothoseconsumers.Forexample,in thesearchstage,theycanworkwithsocialmediaplatformsto inform,promote,andselltheirPLproducts,asAlbertson’sgro- cerychainhasdoneonPinterest.Inthepurchasestage,Amazon mightprogramAlexavoiceassistantstoplaceordersforitsown brandedproducts.
DataDriver
Toolsoftechnologynotonlyenableretailerstoreachtheir consumers moreeffectively withtheir PL offerings, butthey also helpretailers tocollectandanalyzedata todevelopand promotetheirPL.Inthepre-purchasestage,retailerscanassess needs using web cookies, data mining, and algorithms, and detect needs unmet by the current competitor offerings, and developnewideasthattheycantestandco-developwiththeir existingcustomerbase.Theycanalsopredictwhatcustomers wantandwhentheywantit,usingconsumersearchdata.Inan examplethatwentviral,Targetpredictedateenagecustomer’s pregnancybasedonherbrowsingdataandsentrelatedproducts andcouponstoherhome,evenbeforeshehadsharedtheinfor- mationwithherfamily(Hill2012).Furthermore,retailerscan gaugeafter-purchasesatisfactionbyanalyzingreturnsandrepeat purchasepatterns,allowingthemtocontinuouslyfinetuneand tweaktheirPLoffering.Whileallthesedataleveragingstepscan beimplementedtopromotenationalbrandsandprivatelabels, retailersmayhaveavestedinterestanduniquecapabilityand opportunitytoharnesstechnologytodrivethedevelopmentand marketingoftheirownsmartPL.
TheonlineretailgiantAmazonoffersagoodcaseinpoint.
Accordingtosomereportsbyformeremployees,Amazonrelies not only on massive data involving third-party sales made throughitswebsitebutalsosnoopsandusesinformationabout competitors’salestodeterminehowtodesignandpriceitsown private-labelproducts(Mattioli2020).EvenasAmazondenies theseallegations,theideareflectsthetremendouspotentialfor online platforms to draw from their vast data to understand customers’ needsand designnew andprivate-label products.
Thus,companiessuchasAmazonaswellasNetflixandAirbnb likely canpredict, withahighdegreeof accuracy,what cus- tomerswant,sometimesevenbeforetheyrealizetheywantit.
Insummary,withtheonsetofnewconsumerengagementtools andtouchpoints,newcommunicationandproductdevelopment
optionshavebecomeavailabletoretailersthatmayhelpthem supporttheirprivatebrandsinamorefine-grainedandtargeted way,withoutsignificantlyincreasingthecostofthePLprogram oritsmarketinginvestment.
SmartPLStrategy–Implementation
InthecaseofsmartPLs,targetsegmentsarewide-openby design.Ontheonehand,retailersshouldnotabandontheirbase consumerswhorecognizethevalueofPLintermsofpriceand qualityandhavepatronizedtheminthepast.Ontheotherhand, theyshouldreachouttoawidergroupofconsumerswhoear- lierfeltthat thePLsdidnotmatchuptothe NBsintermsof imageryornoveltyorauthenticityorotherexperiential/societal attributes.Furthermore,themulti-tierednatureofPL callsfor multi-tieredtargetsegmentswhereeachtypeofPLcanfocus oncatering toaspecificgroupof consumers,not necessarily definedbytheirdemographics,withlesspotentialforcannibal- ization.Exactlywhatthenatureof thosemulti-tieredPL,and whattheirtargetsegmentsshouldbeineachcategory,areripe areasforfutureresearch.
Below,wediscusssomefutureevolutionsinproduct,pricing, place,andpromotion/communicationstrategiesforsmartprivate labelsthatarehighlyinter-linkedandleveragenewtechnologies andtouchpoints.
ProductStrategy Conducivecategories
What categories are conducive for PL introduction in the smartPLstrategy?Intheeconomystrategy,PLparticipationwas primarilyconfinedtocommodity productswithhighvolume, purchasefrequency,andpenetration.Inthevaluestrategy,the scopeofPLparticipationexpandedtoawiderrangeofproducts whereretailerscanofferanalternativethatiscredibleandcom- parableinqualitytoNB,butatalowerprice.Thescopeexpands evenfurtherinthe smartPL strategy.Infact,any categoryis fairgame for introducingand eveninvesting in smart PL so longasitenhancesretailerimage,storetraffic,and/orincremen- talprofits.Conceptssuchasdata-basedthinking,newproduct innovationnichestrategy(DargahiandNamin2020),sustain- able/socialmarketing,orproductsocialpreferences(Dargahi, Namin,andKetron2020)thatwereonceintheexclusiverealm ofmanufacturershavebecomestrategiesofchoiceforretailers whenintroducingandmarketingsmartPLs.Privatelabelswill penetratemanymorecategoriesinthisstrategy.Suchcategories includebioproducts,organics,healthandbeautyitems,prod- uctswithsustainablepackaging,andevenelectronicgoodssuch ascomputersandtablets,asdetailedbelow.
Innovationandnewproductdevelopment
Innovationis akey pillarof everysuccessful brand. Until recently,innovationwasconsideredmainlytheprerogative of the nationalbrand (Gielens2012), butthisis quickly chang- ing.On theconsumerelectronicsfront,forexample,Walmart launchedtwotypesofcomputertabletsunderitsONNprivate labelbrandtoprovide alowercostalternative tomajor play-
erssuchasAppleandSamsung.Walmarthasbeenexpanding itsPLpresenceinkeycategoriestogaingreatercontrolof its productmix,increaseitsprofit margin,andsqueeze competi- tors.Todoso,itislookingatgapsinthemarket,inthiscase the sluggishtablet market that isaresult of shoppers buying tabletslessfrequentlythansmartphones.Tothatextent,retail- ershavetheadvantageofcustomerdatafromtransactionsand loyalty programs,whichgivesthemapowerfuldatabasethey can analyze to better understand customers, something most consumerbrandscannotmatch.Inaddition,retailersfacelower costsformarketinganddistributiontoend-consumers,andthey canleveragephysicalstorestogivetheirPLsprominent shelf anddisplayspace.Tothatextent,retailerslikeCarrefour,Tesco, andAsda,forexample,haveusedinputfromloyalconsumersto test,fine-tune,andchoosetherightproductsfortheirstorebrand selection.Asdathenwentontomarkettheproductsas‘Chosen by You,’therebyfully exploiting their consumer engagement potential.Indoingso,retailershopetogobeyondpurecatch- ingupstrategiesandcreateexcitementfortheirprivatelabels byofferingtrulynewsolutions,benefits,andusageopportuni- ties.Thesenewwaysof‘crowdsourcing’thecustomerbasecan indeedofferviableinroadstosuccessfulinnovation strategies forretailers.Moreresearchis,however,neededinordertosee whenandtowhatextentthesecrowdsource-likeactivitiescan beimplementedsuccessfullyinPLportfolios.
Still,successfulinnovationisandwillalwaysbeariskyand expensive strategy, regardless of whether it is undertaken by aNB or aPL. Over85% of allnewproducts fail withinthe first year (Emmer 2018). For retailers, such flops may have widespreadimplications,astheymayjeopardizetheperceived qualityoftheir PLsinalmosteveryaisle.Moreover,withthe increasing importanceofspeedwithwhichsocialmediapen- etratethe world,everymistake potentiallybecomessalientto theentireworldandgoesbeyondthecurrentcustomerbase.For example,blogs like“Itried sevenof the weirdestproducts at TraderJoe’ssoyoudon’t haveto”dissingaPLpopcornmay havewiderimplicationsthansimplydispleasingsomepopcorn shoppersatTraderJoe’s.Thispossibilitybegsthequestionof whether retailers canbuild sustainable andprofitable innova- tionstrategiesaroundtheirentirePLprogram,whichcoversall aislesof thestore.Retailers mayhavetoprioritizeandselect categories wheretheycan berelatively moresuccessful with theirinnovationefforts.Thisstrategymayrequireabalancingof newproductassessment,easeofimplementation,andspillover potentialtoothercategoriesandtheentirestore.Indeed,creat- ingapotentiallysuccessfulnewproductmaynotbeaneasyfeat inless-commoditizedcategories,wherePLstendtobeweaker to begin with. More insights are, therefore, required to help retailers successfully innovateoutside the confines of typical PL‘stronghold’categories.
Convenience/serviceinfusion
IntheirsearchformoreuniquetailoredPLofferings,retailers areexploringhow theycanofferfullyintegratedconvenience solutionstotheirshoppers.Asmoreandmorefirmsareinfusing service intheir productoffering(Kowalkowski,Gebauer,and Oliva2017),retailersmayindeedexploretheoptionsofcom-
biningretailconvenienceandservice,bothofwhicharefully undertheircontrol.Specifically,asthemulti-facetednatureof retailconvenienceischanging,retailersaretryingtoinfusetheir productswithsolutionstoaddressunmetserviceneeds.Ama- zon,forexample,isbringingbackhomemilkdeliverywithits HappyBellybrandmilk(Brown2019).HappyBellyfoodprod- uctsare available for regular delivery via Amazon’swebsite, withitsresidentialmilkdeliverytrucks.Amazonisthusattempt- ingtorestoretheold-fashionedconvenienceofin-homedelivery intoitsPLprogramforadailyusedstaplethroughitsAmazon- Freshdelivery,thoughtheserviceonlyoperatesinninemajor metropolitanareas.Inasimilarvein,AlbertsonsacquiredPlated, asubscription-basedmealkitprovider,andisturningitintoa privatebrandgoingbeyondadinner-basedsolutionandintoa comprehensivein-house‘culinary’brand.Indoingso,Albert- sonprovidesabroaderscopeofPLofferings,“solvingcustomer demandsaroundconvenience,lifestyleandcookingexperience, whileaddingyetanotherlayerofinteresttoourin-storejourney”
(Wilcox2020).
Developmentthroughacquisition
Tofacethenewonlinecompetitivethreatheadon,physical retailersareincreasinglymimickingbrandedmanufacturers,and theyareonthelookouttoacquireandintegratedenovodirect- to-consumer(D2C)playersintotheirPLprogramsorofferthem exclusivelyinthebrick-and-mortarspace.Bystockingdigitally nativeor emergingbrands,retailersaimtocreatemoreexclu- siveassortmentsandaddressnewneedsinthemarket.Having theseunique, buzz-creating products on the shelves canlead toincreasedstoretrafficbytappingintoanewdigitallysavvy consumersegment,whilegeneratingapositivespill-overeffect whenconsumersalsobuyotherproductsinthestore(Gielens, Gijsbrechts,andDekimpe2014).In theUSA,Targetislead- ingthewaysellingseveralformerlyonline-onlybrandssuchas Casper,Quip,andFlamingoinitsstorestocreateexcitement.In theUK,Sainsbury’shasasimilarapproachthroughits“Future Brands”program,whereitisnurturingemergingbrands,suchas theonlineshavingbrandHarry’s,throughexclusivelistingsand adedicateddiscoverysectionacrossitswebsiteandstores.Inthe Netherlands,Ahold’sAlbertHeijnintroducedastart-upshelfin itsstorestogivenewbrandsvisibilityonarotatingbasis.These D2Cbrandsofferretailersawaytobuildappealamongstdigi- tallysavvymillennialsandGenZ’s,lockinginshoppersthrough subscriptionmodels,withouthavingtoinvestthemselvesinthe requireddigitalengagementtoolsanddatasystems.Atthesame time,thesedenovobrandsbenefitfromthelocalbrickandmortar presence,whichincreasesoveralldemandandefficiency(Bell, Gallino,andMoreno2015,2018).
Takingitonestepfurther,thesedigitalnativescanbeinte- gratedintothePLprogramandofferedaspartoftheretailer’s private brand assortment, as Target has done by offering an extensiverangeofexclusivePLbrandsthroughpartnershipsor acquisitions of digitallynative brandssuch as Quip.Leading pharmaceuticalretailerCVShasalsoenhanceditsPLofferings andcustomerexperiencebyenteringintopartnershipswiththird partiesthrough store-within-store formatsandin-store health clinics.
Still,questionsariseastowhethermovingfromonlinedirect distributiontostore-basedindirectdistributionwilladdtothe overallcoststructureofthesedenovobrandsandwhethertheir (lower)pricelevelscanbemaintained.Arelatedquestionfor retailersiswhetherthesedenovobrandswillstaytruetotheir promise, and towhat extent theycan be incorporated in the retailers’PL program.More insightsareneeded onhowboth exclusivity arrangementsandintegrationaffectretailers,their PLprograms,anddenovoD2Cplayers.
Nationalbrandcollaborations
Inasimilarvein,retailersmaytietheirsmartPLstoestab- lishedNBs. In thecaseof economyandvaluePLs, retailers’
“collaboration”withNBmanufacturerswasconfinedmainlyto dualbranding–thatis,NBmanufacturersproducingPLstobe marketedbyretailers.
In the caseof smart PL, collaborationwith NB manufac- turers can take on many forms, with the goal of creating a Win–Win–Winsituationfortheretailer,manufacturer,andcon- sumer. One avenue for collaboration is product innovation.
Retailers canprovidedataandlocal marketknowledge about consumer behavior and emerging segments. NB manufactur- erscanleveragetheirproductknowhowtotap intothesenew segments for incrementalgains. Recently, health and beauty retailer AS Watson partnered withpremium cosmetics brand Shiseidotoco-createanexclusiveskincarerange.Thesetypes ofcollaborationsallowboththeretailerandthebrandtoshare marketingcostsandcross-promotionalactivity,whileallowing bothtoreachnewcustomersegments.TerBraaketal.(2013) showedthatNBmanufacturersarewillingtoworkwithretailers inordertogenerategoodwillintheformofshelfspacefortheir NBproducts.
However,thereisverylittleempiricalresearchthatlooksat thesesupply-sideissues,mainlybecausetheprocurementstrat- egy is generallya well-kept secret inthe business. Needless to say,more researchis needed to explorehow retailers and traditional NB manufacturers or digital native manufacturers collaborate;towhatextentandtowhomthebenefitsorcostsmay accrue; whethertheseoutcomes accruesymmetricallyor not;
and whetherthese national brand-privatelabel collaborations mayhaveanegativeeffectonconsumerwelfare.
Sustainablemarketing
When tapping into consumers’ beliefsystems or stepping ontothewidersustainabilityandsocialresponsibilityplatform, retailers,justlikebrandedmanufacturers,runtheriskofbeing accusedofappropriation,green-washing,ormonetizingshop- pers’socialconcernsandfears.Nevertheless,retailersmaybe inabetterposition toincorporate new,less- tangiblebenefits than brand manufacturers in their product offering. In 2019, Target, forexample, launchedanewhousehold essentials SB designed withsustainability inmind, featuring morethan 70 itemsthatincludebio-based/recycledmaterialsornaturalfibers.
Christina Hennington, Vice PresidentandChief Merchandis- ingOfficer,calledtheinitiativeagreatexampleofhow“we’re listening—andresponding—totheevolvingneedsofourguests
inawaythat’s uniquelyTarget[...]offer[ing]guestsanother compellingreasontostockupatTarget.”
Based on nearly 3,000 product introductions, Olsen, Slotegraaf, and Chandukala (2014) find that stronger, more establishedbrandsmayhaveaharder timeincorporatingnew claimsandbenefitsintheirexisting brandset.Whereas these brandscanrelyonasetofstrongbrandassociationssupporting thebrandposition,thesesamestrongassociationsmayprevent thebrand fromincorporatingnew, unrelatedassociations and beliefs successfully. Weaker brands, however, are not inhib- itedbythesestrong brandassociations.Translatingtoprivate branding,context,thisfindingimpliesthatretailersmaybeina betterpositiontoincorporatenewbeliefswithrespecttohealth, sustainability,andothersocialconcernsintheirprivatebrand products.Moreresearchisrequiredtotestthispropositionand explorehowitcanbesuccessfullyimplemented.
Positioningandpackaging
SmartPLsshouldbepositioned as“right-for-you” brands, implyingthattheneedforcopycat“as-good-as-NB”positioning withtheircounterpart,whichwasconsideredoptimalinthevalue phase,becomeslessrelevant.
Packaginghasalwaysbeenanimportantqualitycueforany brandandproduct(Underwood,Klein,andBurke2001).PLs haveconsistently(ab)usedthequalitytransferpotentialthrough packagingbypresenting their storebrandswithadesignthat issimilartoNBs,calledimitationpackaging(VanderBel,van Hoorn,andPieters2013).MovingtowardsmartPLimpliesmov- ing awayfrom copycatting strategies,that is,transition from imitationpackaging toexclusive packaging. Thischange not onlyapplies tothetypicalhigher-pricepremiumretailers,but also tolow-cost discounters, especiallyin the case of online retailing.Forexample, inthecaseof UniquelyJ,the jet.com andWalmart-ownedbrand,substantialfreedomwasgiventothe designertocreateanonline experiencethatgoes waybeyond thephysicalshelf.Thegoalwastoeliminatethetradeoffscon- sumers face as each productis intended tooffer the options of quality, style, andvalue. In a similarvein, German hard- discounterLidl,incombinationwithasupportingsocialmedia campaign,decided for its own brandpeanut buttertofeature acustomer’spictureaspartofanautismawarenesscampaign.
Indoingso,retailersareventuringintopartiallyunknownterri- tory.Whereaspackagingwasmainlyusedtoindicateacceptable qualityatalowpricepoint,packagingcuesarenowdeliberately movingawayfromthesetwoPLstrongholds.Itremainstobe seenhowprivatebrandscanpursuethisstrategywithoutjeop- ardizingtheirintendedpricepositioning,which,especiallyfor low-costretailers,mayentailsubstantialrisks.
PricingStrategy
Managingthepricegaphasalwaysbeenoneofthemarket- ingmixdecisionstightlyscrutinizedbyretailerswhenitcomes totheirprivatelabels.Maintainingacomfortablepricegapwas believedto beessential to safeguardPL’s long-termviability (Barskyetal.2003).Byusingadditionalprice-qualitytierPLs inthecategory,additionalconsumersegmentscouldbeserved,
withoutdilutingthevaluepromiseofthestandard(mostpopular) lines.Nevertheless,withtheincreasingimportanceof innova- tion andconsumerengagement,maintaining thosepricegaps maybe adifficulttasktoaccomplish.Not onlymaythe cost structureofthePLproductincreaseandnetmarginsdecline,a lowpricepointmaynoteasilygeneratetherequiredtrustneeded toconvince consumersofthequalityandinnovativenatureof theprivatebrands.Anincreaseinpricetomakeupforincreased costs may, however,leaveroomfor newentrants inthe mar- ket.Especiallygiventhatthephysicalshelfnolongerconstrains newentrantswhocanreachpotentialconsumersthroughD2C or online third-partyplatforms, retailers mayfind themselves vulnerable from a pricing standpoint. In sum, retailers must avoid acatch-22 situation where higher pricehas the poten- tialofPLrenegingonitsvaluepromiseandwherelowerprice iscost-prohibitive,throughdefthandlingofinnovation,product development,costcontrol,andmarketingoftheirsmartPL.
Technology,however,addsanewlayerofopportunitytothe pricingofsmartPL.Asomni-channelretailerscanobtainand combineonlineandofflineinformationaboutwhatconsumers doanddonotpurchase afterbrowsing,theycandynamically personalizethepriceoftheirPLtosteershopperstowardtheir brands. Taking it one step further, retailers like Safeway are exploring howtheycanmovetowardsindividualized pricing, wherebyconsumersinthesamelocationatthesametimecan be offered special prices. Although these practices and tools presentsubstantialavenuesformicro-targetingandindividual- ization, privatebrandpositioning andmanagingthepricegap maybecomeevenmorecomplex.Howfarcanretailersallow dynamicpricingtodeviatefromtheintendedpricegap?Isper- sonalizedpricingalwaystrulybeneficial,especiallyinthelong run?
Promotion/CommunicationStrategy
Advertising, typically one of the tools to create and pre- servebrandequity,hasfor alongtimebeen themainbastion for NBs(Karray andMartín-Herrán2009).Beyondshelfdis- playsandfeatures,valuePLsrarelyadvertisedtheir products.
Whereasretailerscouldonlycomeupwithcampaignsforbroad ranges,nationalbrandscanspecializeandcommunicateabout theirproducts’specificbenefitsandfeaturesthatgowellbeyond general value claims.Still,changes in communicationmedia andtechnologyhaveyieldednewopportunitiestoretailersfor promoting their smart PL. Although paid-media have been consideredthetraditional meansof generatingawarenessand demand,thatmodel ischangingrapidly (Brennan2017).Tra- ditional advertising media (TV, Print,Radio) now sharethat role with so-called non-traditional ad media, such as digital banners and social media platforms (Namin, Hamilton, and Rohm2020).Inaddition,acombinationofdifferenttechnolo- giesallowsretailerstocommunicatemoredirectlyandflexibly withconsumerswhiletheyareshopping,bothonthebrick-and- mortarstorefloorandonline.Below,weelaborateonsomeof thesenewoptionsavailableforretailerstocommunicatetoshop-
persabouttheirsmartprivatebrandstoawideaudiencewithout incurringtheexcessivecostsassociatedwithtraditionalmedia.
Communicationinthebrickandmortarenvironment
Retailersincreasinglyimplementbeacontechnologytotrack customers’in-storemovementsandtohelpthemfindtheirway around the store(Dekimpe,Geyskens, andGielens 2019).In combinationwith smartphone applications, thisbeacon tech- nology offers retailers unprecedented opportunities to raise awareness of their smart private brand programs while con- sumersarewalkingthroughthestoreaisles.Kroger’sapp,for example,simplifiestheshoppingexperiencebydisplayingthe exactaislelocationofproducts,whileTargetusesbeacontech- nologytodynamicallyre-sortshoppinglistsastheusermoves throughthestore,similartohowsmartphonenavigationappsre- routedriverswhenveeringoffcourse.Smartphoneapplications thusturn intoshoppingmanagement devices,andthe number of consumer touchpoints multiplies. While transparency and choiceexpandfor consumers,fortheretailer thisimpliesthat traditionallevelsofshopperbrandloyaltycanbeundermined.
Indeed,smartphoneandconnecteddevicescreatevastamounts of shopper data, which retailers canleverage to inform con- sumersinrealtimeabouttheirprivatebrandproductsandsend personalizedand targetedpush messages todrive consumers toward the private label options. At this point in time, little researchhasbeenconducted toguideretailers onhowtouse thesenewreal-timecommunicationdevicestoinfluenceprivate brandchoice.Whattypeofmessagesworkbest?Dopriceincen- tives(still)havetobeincluded?Dothesemessagesworkbetter forNBsorforPLs?Inaddition,howcantheseapplicationsbe usedwithoutnegativelyinterferingandinterruptingconsumers intheirshoppingexperience? Canretailers overstepandulti- matelypushconsumerstooptoutofthereal-timeapplicationor abandonsmartPLalternatives?
In addition to smartphone applications, augmented/mixed reality(AR/MR)–whichintegratesphysicalandvirtualexpe- riences–offerspotentialtoshowcaseandvirtuallytryawider rangeofprivatebrandproductsinaphysicalstoreenvironment (Gilliland2019).Sephora,forexample,offers“magicmirrors”
initsstorestohelpconsumersvisualizedifferentmake-uptreat- ments.Inaddition,L’OréalandYouTubeofferARplatformsfor tryingoncosmeticitemswithouthavingaccesstothephysical product.Homeinteriordesignactivitiescanalsobedonevir- tuallythroughDuluxVisualiserandIkeaPlace.Intheapparel world,AsosusesARtoenableconsumerstoexperienceavirtual
“catwalk,”VF(ownerofTimberlandandVans)usesvirtualman- nequinstoshowcaseitsproducts,andGucciandAdidasutilize ARtechnologyforconsumerstovirtuallytryontheirbranded shoeproducts.Useofthistechnologyhasevenbeenextendedto thecarindustry;ToyotaoffersafullyAR-based“vehicledemo”
andprovidesanimmersivedrivingexperiencetoanywhere,such assportseventsandfestivities.Notonlydothesetechnologies createfrictionless experiences (Gilliland2019), buttheyalso allowconsumerstoeasilyexperimentwithproductstheyareless familiarwith,onceagainofferingretailersavenuestopromote and“sample”theirPLproductsvirtually.
Finally,asretailersarerethinkingthestorefloorinorderto motivateconsumerstoshopbrickandmortarratherthanonline, shelfspacefor stockinventory istradingplacesfor dedicated experientialspace(Kahn2018).Onceagain,retailersmaytap intothegrowingimportanceof storeexperiences toshowcase andintegratetheirprivatebrandprogram.Walgreens,forexam- ple,hosteda“houseparty”tohighlighthowitswideassortment ofprivatebranditemscanfitintoashopper’shomeandevery- daylife(Loza2019).BrandssuchasNice!,SleekMakeUp,and PetShoppewereusedtodemonstratethequalityandbreadthof theportfolio.Typically,thesededicatedareasareco-developed withnationalbrandssuchasMarsorApple,whocanrelyonsub- stantialmarketingandmerchandisingexperiencetobuildinan entertainmentandexperiencefactor.Thequestionariseswhether smartPLscanbeequallysuccessfulinthisrealm.Moreresearch isrequiredtogaininsightintohowPLscanuseandbuildexpe- riential elementsinthestoretogeneratemoreawarenessand enhancestorebrandequity.
Communicationintheonlineenvironment
Online retailers can track and monitor every move con- sumers make as theysearch and navigatethrough the digital store (Gerstner2017),givingthemunlimited opportunitiesto influence consumers’choice decisions. In the USAAmazon, forexample,testedapop-upfeaturetosuggestitsPLproducts tocustomerssearchingonbrandedproductpages.Amazonwas evensoaggressive as toforceconsumerstoclosethepop-up featurebeforetheycouldcontinuetheirshoppingtrip,thereby surreptitiously guidingthemtothe PL page.Nevertheless, in employingthisstrategy,online retailerswalkatightrope.Not onlydotheyruntheriskoffrustratingconsumers,theyalsorisk alienatingconsumersfromtheirPLs.Moreover,NBmanufac- turers mayinterpretthesemovesas anticompetitive andalert anti-trustauthorities(Soltani2015),whichintheend,maylimit theirpracticesandopportunitiestosupporttheirprivatebrands.
Voiceapplicationsareanaturalextensionofexistingdigital interfaces,playinganever-increasing roleinallfuturedigital ecosystemsandcustomerengagement.Thespreadofvoicetech- nologycanmakeroutinereplenishmentpurchasesextremelyfast andconvenient.Above all,it allowsthe retailertoimpactthe discoveryandsearchstageoftheshoppingjourney,limitingthe numberof easilydiscoverable items persearch term,evento theextentthatvoice-supportedtechnologymaydiminishbrand visibilityandvirtuallyturnbrandsinvisibleonthedigitalshelf (GielensandSteenkamp2019).Incontrast,retailerscaneasily integratevoice capabilitiesintotheir ecommerceofferings,in ordertoamplify visibilityandtopplacements insearchrank- ingsoftheirprivatelabelsacrossallrelevantsearchterms.For example,someonewhowouldaskAmazon’sAlexatobuybat- teriescouldverywellacceptwhateveritselectsatagivenprice.
Retailerscantrytoleveragethesevoicecommanddevices,and eveninstallthematspecificpointsintheirstores,toguidecon- sumershoppingdependingonwhatsearchqueriesconsumers use.Forexample,incertainproductcategoriessuchasbeauty products,consumerssearchmorebyingredient(e.g.,Retinol)
thanbybrandname(e.g.,Olay).Retailerscanofferasolutionto thisqueryontheirvoicedevicebysayingtheirPLhasRetinol.
Socialmediaenvironment
Going outsidethe confines of their stores,digital or brick andmortar,retailersareincreasinglysupportingtheirPLswith messagingonsocialmediaplatformslikeFacebook,Instagram, andYouTube,oftenwiththehelpofpopularinfluencers.Albert- sons,forexample,hasenlistedPinteresttohighlightitsrange of PL products, thereby leveraging the Pinterest Trends tool thatprovidesinsightsinthe topUSsearchtermsonPinterest in the previous 12 months (Newsroom 2019). This arrange- mentallowed Albertsonsto, for example,glean more insight onholiday food andbeverage trendsanddevelop aPinterest campaigntospurin-storesalesforrelevantownbrandproducts.
TraderJoe’s,ontheotherhand,hasmorethanadozenprofes- sionalinfluencersonInstagramalone,highlightingfavorite(PL) productsrolledoutbytheretailer.Krogerworkstogetherwith bloggers,invitingthemtocorporateevents,inanefforttocreate acommunityaroundKroger.Onceagain,notmuchinformation isavailableabouttheeffectivenessofsocialmediacampaigns in thiscontext. Whereas the Return on Investment(ROI) of socialmediaissometimes questionedeveninbranded goods settings(Barnhart2018),evenlessisknownaboutsuchmedia’s impactonPLsales.Whattypeofplatformsaremosteffective?
Can influencers become reliable private brand ambassadors?
Whatarethepotential darksidesofsocialmediacampaigns?
Asretailers takeamoreaggressive approachtoinnovation in productdevelopmentandcommunicationtogainalargershare ofconsumers’wallet,moreresearchisneededtoanswerthese questions.
Place–DistributionStrategies
Whereasexclusivitywasoneofthemainreasonstopursue strong PL lines, smartPLs are venturing beyondthese tradi- tionallimits.First,bothtraditional andpureplayretailersare activelyofferingandpushingtheirprivatebrandsonline.Inaddi- tion,retailersareexploringtheopportunitiestotaketheirPLsto boththedigitalandstoreshelvesofotherretailers,therebytruly turningtheprivatelabelintoabrandinitsownright.Finally, withretailersbecomingmoreandmoreinternationalinnature, itremainstobeseenwheretheycanbesuccessfulwiththisstrat- egyassubstantialheterogeneitystillexistswithregardstoglobal privatelabelpenetration.Insum,the“P”ofPlaceisbecoming atruestrategicdifferentiatorforprivatebrands.
Digitizingthestorebrand
By2024,ecommercewillaccount for30%ofglobalchain retailsales.E-commercewilladdmoresales(USD1.7Trillion) totheglobal economyby2024,highlightingjusthowbigthe prizeisforretailersandbrandsinvestinginthischannel.Froma privatebrandingperspective,itisparamounttoknowhowPLs canbebuiltandmanagedondigitalshelves.
Priorresearchsuggeststhatthedigitalshelvesmaynotoffer the most nurturing environment for retailers to support their PLprograms.Asamatteroffact,onlineenvironmentsmaybe
more beneficial to stronger (national) brands than to weaker brands(Ho-Dac,Carson,andMoore2013),evenmoresothan intraditionalchannels(Degeratu,Rangaswamy,andWu2000).
Inonlinesettings,anytouch-and-feelopportunity,whichisan importantsourceofinformationdisappears,especiallyforPLs that have not been established. Online consumers only have accesstoproductdescriptionsandcanviewtheproductsbutcan- notinteractwiththemphysicallyortrythemout.Theintangible natureofthissearchandpurchaseprocessforcesconsumersto paymoreattentiontoothercuesofproductperformance.There- fore,theroleofthebrandnameandreputationshouldbecome morerelevanttocompensatefortheabsenceofphysicalcontact (González-Benito,Martos-Partal,andSanMartín2015)andthus brandloyaltymaybehigher(Chuetal.2010;Danaher,Wilson, andDavis2003).
Doesthisimplythatonlineretailersarelimitedinbuilding successfulPLprograms?Manyconsumergoodscategoriescon- tainrelativelyfewsearchattributes,andthus,physicalinspection does not provide much information. For such products, pri- vatebrandscanmaketheonline selectionprocesssimpleand smart,especiallywhentheyalreadytrustthe retailer(Gielens andSteenkamp 2019). Ifconsumers alreadytrust theretailer theyarepatronizing,theymayextendtheirtrusttotheretailer’s own brands(Ailawadi, Pauwels,andSteenkamp2008).Inter- estingly, apureplayretailer likeAmazongot highmarksfor meeting customer expectations, quality, joy,satisfaction, and trustontheNationalMostTrustworthyBrandSurveyfromThe ValuesInstitute(Howland2017),therebyofferingaplatformto launchprivatebrands.In addition,online retailerscanexploit their knowledge, generated by optimizing word-search algo- rithms,analyzingsalesdata,andcustomer-reviewnetworks,to steershopperstowardstheirprivatelabels.Furthermore,ascon- sumersmayadoptvoicetechnology,theplayingfieldbecomes evenmoretilted.Forinstance,ifyouweretoaskAmazon’sEcho tobuybatteries,Echowillsuggest(atleastatthetimeofthis writing) AmazonBasic Batterieseventhoughplentyof other brandsaresellingonthesite.
Interestingly,pureplayretailersareexpandingprivatebrands well beyondthe typical setof commoditized categories. The likes of Amazon, for example, are testing the water in lux- ury,consumerelectronics,furniture,andvirtuallyanyconsumer goodscategoryimaginable.However,howfarcanonlineretail- ersstretchthisstrategy?Whatcategories,segments,andbenefits canrealisticallybeconqueredwhileatthesametimemanaging thecredibilityoftheoverallprogram?Moreover,whereastrust canbehighfortheindividualretailer,trustinthequalitycues andinformationprovidedonlinemaybehardertomanageand control.Withseriousconcernsraisedregardingtheauthenticity ofreviewsandthe provenanceofcertainproducts,generating trustforPLsmaybeharder topulloff thanhopedfor.Ifpri- vatebrandsareindeedapriorityfortheseonlinejuggernauts, the assortmentclutterof thedigital shelfandtheheterogene- ityin qualityofferedbythird-party suppliersmay jeopardize theirlong-termsuccess.Ifprivatebrandingreallyisapriority, thismayrequireare-thinkingoftheentireendlessassortment strategy,whichnecessitatestheinclusionofasmanybrandsand suppliers as possible,mostly obtained through (independent)
third-partyproviders.ManyevenquestionwhetherAmazonand othersmaycometoregretbuildingprivatebrands(Marketplace Pulse2019).Currently thejuryis stillout andmoreresearch iswarrantedon the long-termsustainability of onlineprivate labels.
Takingtheprivatebrandtootherretailers
Increasingly,retailersareexploringopportunitiestoselltheir private brand products at other retailers. Often these moves involveacross-bordercomponent.WalmartCanada,forexam- ple,introducedarangeofPLproductsfromCoopItalia,covering diverse categories ranging from pasta, sauces, cheese, wine, pickles,oliveoil,andmanyothers.UKdrugstoreretailerBoots haslongsolditscosmeticslineNo.7atotherretailersincluding US-basedTarget.Thegeneralideabehindthesetypesofpartner- shipsistohelpthesupplyingretailertoincreaseitssalesvolumes andscaleandhenceimprove itscoststructure. Thereceiving retailer,ontheotherhand,gainsanexclusiverangeandcanstand out from the competition. Interestingly, these arrangements extendbeyondthetypicalstore-basedretailsphere.Forexample, SwissretailerMigros’sprivatebrandline,M-Industry,supplies privatelabelsforAmazoninseveralcategories.Whetherornot thesepartnershipstrulycanbeWin-Winarrangementsremains tobe seen. The risk of informationappropriation, especially when working with juggernauts like Amazon, is substantial.
Giventhatmostretailers,bothdigitalandbrickandmortar,are activelyexpandingtheirfootprintoutsidetheirtraditionalmar- kets,thisstrategymaycomeattheriskofcreatingstrongfuture competitorsabusing the knowledge acquired through private brandingarrangements.
Takingtheprivatebrandglobal
Within the consumer packaged goods (CPG) market, PL brandsintheUSAreachedavalueshareof 14.9%andaunit shareof17.7%asof2018(IRISpecialReport2018).Still,one canwonderifthesenumberstrulycaptureaglobalmarket.For example,shares currentlyobservedinmostdevelopingcoun- trieshardlyexceedthe fivepercentmark. Sethuraman(2018) callsconsumersinthesedevelopingmarketssimplytooenam- oredofbrandslikeKelloggandCoca-Colatoevercaremuch aboutPLsinthecategoriesinwhichthesebrandsoperate.The questionremains,however,whetherthiswilltrulyremain the caseasemergingmarketsmature.Especiallyasmanyretailcon- glomeratessuchasAmazonandWalmartbuildandexpandtheir presenceinthesemarkets,privatebrandsmaygainground.More insightsare,therefore,requiredonwhatmarketsareboundto becomeprivate-brand-prone.
IsSmartPLjustAnotherNationalBrand?
Itistrue thatasprivatelabelsareelevatedtosophisticated levels,thereisatendencytobelievetheyare becomingmore likeanationalbrand.Tosomeextent,thisistrue,butthegoals, opportunities,andchallenges facedfor a privatelabelby the retailermanagingmultiplecategoriesaredifferent fromthose facedforanationalbrandbythemanufacturermanagingasingle orjustafewcategories.Asaresult,therearesomecommon-
alities and several differences between a national brand and a sophisticated private label. With respect to commonalities, ourpapersuggeststhatretailersshouldtargetnichesegments, engageinproductinnovation,emphasizeattributesbeyondprice andquality,enhancebrandimage,andleveragetechnologyjust asanationalbrandmanagerwould.Inessencetheymusttreat their PL as a“brand” as opposedto avaluealternative for a NBandmustcareaboutitsbrandequity.However,while the manufacturergenerallyappliesits brandstrategytoonecate- gory, it has moreresources and moreavenuesfor promoting itsbrandincludingmassadvertising,socialmediacampaigns, couponing,sampling,soforth,that areappropriateandexclu- siveforthecategoryandbrandinquestion.Incontrast,aretailer willbemarketing theprivatelabelacrossmultiplecategories, evenacrossretailformats,andacrossconsumer segmentsbut with limited budget. The retailer’s goal isto maximize store differentiation,foster storeloyalty, andincrease categoryand overallprofits.Therefore,theretailerfirsthastomakeamajor decision about whether to umbrella brand or not, and if so, how it should open the umbrella – across tiers, across seg- ments, or market allprivatelabelsunder onebanner.Onceit decides, then the retailer can resort to specialized marketing focusedongainingthetrustofconsumersanddevelopingbrand image – through unique, identifiable packaging across cate- gories, featureadvertising andspecialdisplays,andsampling thatpromotesthePLportfolioratherthanasingleitem.Several innovativetechniqueshavebeen describedinthispaper,with examples.
Atthesametime, asPLs increaseinsophistication,retail- ersshoulddecidehowtheycompetewithothermanufacturers’
brands.Again,thetemptationistoreplace majorbrandswith theirsmartPL.Wedonotadvocatesuchastrategy.Attemptsto forcejustthePL ontheconsumersattheexpenseof national brandshavenotbornefruitfortheretailer.Forexample,Wal- martexperimentedwithareducedassortmentstructurewithonly oneleaderbrandandtheirownGreatValuebrand.Thecompany facedcustomerresistanceandsalesloss,andtheywereforcedto reverttotheiroriginalassortmentcomposition(DassandKumar 2012).SpanishchainMercadonadelistedhundredsofnational brandswithastore-brand-onlyassortmentinmanycategories, buthadtorelistsomeofthedelistednationalbrandstoprevent increasedconsumerboycotts anddamage totheirstoreimage (Gázquez-Abad et al.2015). In the consumer durable goods market,theascentandfallofSearsduringthemidtolate20th centurymayalsobepartlyblamedonitsfailedover-emphasison itsprivatelabelssuchasKenmoreappliances,Craftsmantools, andDiehardbatteriesandtryingtomarket themas anyother NB.Atonepoint,Kenmorewasthelargestappliancebrandin theUSA.ButconsumersabandonedSearsbecausetherewasno alternativeNBtoconsider(Isidore2018).
In fact, smart PL strategy calls for sophisticated joint marketing of NB and PL in the spirit of coopetition (com- petition+cooperation) tocreate Win–Win–Win situations for consumer,retailer, andmanufacturer. Thesestrategiesinclude collaborativeproductinnovation,jointpromotions,andsharing dataformutualbenefit.ThegoalofsmartPLisnottotakeover theturfbuttoexpandandparticipateintheturf.
PandemicDisruption
A remaining issue, however, that we need to address is howtheunfortunate,unexpected,andunprecedentedCOVID- 19pandemicthat paralyzed theglobal economysinceMarch 2020mustbefactoredintothisPLjourney.Earlyfiguresreveal thatPLsposteddouble-digitsalesincreasesintheUSAduring theinitialstagesoftheCOVID-19pandemic.First-quarter2020 PLsalesincreasedfifteenpercent,orabout$4.9billion,overthe year-agoperiod,whileunitvolumegrew13%,therebyoutpac- ingNBs(Thakker2020).Movingslowlyoutofthepandemic andentering a downturn and likely recession, two questions needtobeaddressed.First,willthisrecentgrowthandPLshare last?Moreover,andmoreimportantly,towhatextentwillthe pandemicinterferewithretailers’intendedmovetowardssmart PL?
WillthisCOVID-19inducedSBliftstick?
SinceCOVID-19hit,manypeoplehavefiledforunemploy- ment,leavingmanyshopperslookingforcheaperalternatives.
Moreover,aboutthree-quartersofshopperssaidthattheyplan tocurbtheir spendinginthe monthsfollowingthe pandemic outbreak(RoggeveenandSethuraman2020a).Weknowfrom academicworkonbusinesscyclesandprivatelabelsthatcon- sumersswitch moreextensively toPLs duringbadeconomic times,thentheyswitchbacktoNBsinasubsequentrecovery.In addition,theswitchtoPLsduringeconomicdownturnisfaster thanthe opposite movementto NBsafter the recession ends (Lameyetal.2007).Duetobudgetaryconstraints,consumers maybemoreeasilyinclinedtotryavalueoption,likePLs,that theyhavenotpurchasedbefore.Iftheyalsosubsequentlylearn thatthequalityisonparwithsomeNBalternatives,theymay altertheir attitudes towardsPLs and remain loyal tothe PL.
GiventhatPLqualityhasonlyimprovedoverthelastdecade,it isfairtoassumethat(partof)theCOVID-19PLliftmayindeed last.
However,willthisincreasedneedforvaluealternatives hamperthesmartPLrollout?
WillCOVID-19 andtheensuing economicdownturnforce retailerstoshifttheirfocus backtowardsvaluePLs?Grocery retailers,deemedessential,emergedaslifelinesforconsumers duringthepandemic,givingthemsubstantialtrustandapproval fromconsumers(Redman2020).In Canada,groceryretailers evenemergedas the mosttrustedbrands duringthe COVID- 19crisis (Powel 2020). Keeping inmind that trust isone of theessentialprerequisitestobuildingbrands,thispost-COVID era may offer an ideal launching platform for smart brands.
In fact, this is the avenueKroger seemsto be following, by kicking off a virtual campaign called Kroger Social, which promotesits PLs byportraying activities that consumers can doat hometogether as afamily, whereby theretailer’s “Our Brands” take center stage. Consumers can also visit a new site(https://krogersocialsocial.com) to downloadactivity kits withrecipescenteredaroundthedifferentPLtiersandbrands:
Kroger,SimplyTruth,andPrivateSelection.Eachweekisanew theme.ThereisalsoadesignatedsocialhouronFacebookfor
