What started as a recession-beating tactic seems to have become ingrained in shoppers in the United States. They just can't get enough of store brands, aka generics or private label products.
A new study of 500 U.S. consumers conducted by the management consulting company Accenture shows that 64 percent of shoppers' grocery carts were at least half full of store brand products — and 39 percent said they've bought more store brands in recent years. This is in line with an April 2012 study conducted by Perception Research Services indicating that 38 percent of U.S. shoppers have bought more private label products than they did in 2010, with 86 percent of shoppers saying they purchase at least some store brands on a regular basis.
The rise of store brands has been a phenomenon typically associated with recessionary times, but in recent years, consumers have favored store brands for reasons other than price alone. Two-thirds of shoppers do indeed say they buy store brands because they are cheaper; according to the Accenture study, however, 50 percent of consumers surveyed buy store brand products because they perceive the quality to be just as good as the brand-name equivalent, and 42 percent say they buy private label products because they trust a particular store's brand.
Start throwing around terms like "quality" and "trust" and marketers of brand-name products become very nervous.
It's a well-known fact that it is difficult if not impossible for a brand-name product to compete on price with a store brand, which essentially offers a generic version without the snazzy branding, priced to undercut the brand-name. Brand-name marketers have depended on consumers being loyal to their brands to overcome that price differential, and they often tout product quality and customer service as distinguishing factors.
If consumers' perceptions are changing to the extent that they regard store brands of equal quality to brand-name products, brand-name marketers will be faced with a sobering challenge — either drop prices or lose market share. The Accenture survey indicates that 87 percent of shoppers would buy more brand-name products if they were offered at the same price as the comparable store brand — but 51 percent said it would take a permanent price reduction of the brand-name product, matching the price of the store brand, to persuade them to return to purchasing the brand-name product.
Bob Berkey of Accenture's Consumer Goods & Services practice says with the rise in popularity of store brands, "market position and profitability are at stake" for brand-name products. "Consumer goods companies must create a clearly defined private-label strategy that understands the unique attributes that drive preference and loyalty in their consumer, engages with them across multiple channels and creates an excellent customer experience," Berkey notes.
But even that may not be enough. Berkey suggests a whole new way of doing business may be needed for brand-name products and store brands to coexist. "Extreme competition between retailers and consumer goods companies can result in inefficiencies and waste for manufacturers and retailers, and undifferentiated products for the consumer," according to Berkey. "Consumer goods companies must develop a balanced strategy of collaboration with retailers in some areas and competition in others. This new dynamic — where competitors become partners — will require a considered focus from manufacturers."
That being said, it appears that the product landscape has changed forever, even as economic conditions improve: 77 percent of shoppers say they will not decrease the amount of store brand products they buy — even if their disposable income returns to the same level as it was before the economic downturn.
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