Premium brands vs supermarket private labels

Premium brands used to only have to battle against each other. Now they have to compete with rivals that are cheaper and readily available.

For years supermarket store brands, so called private-label brands, were seen as low quality products that were not really comparable to real premium brands. There are still some private labels that are clearly inferior to the brands, but the gap is closing.

To my mind, retailers’ growing focus on and investment in their own products has come about for several reasons:

First, these private labels are profitable. They undercut the premium brands but still make a healthy margin. Second, they present an opportunity for retailers to build loyalty with customers; after all, if you love Coles’ muesli, then you have to shop at Coles to buy it. And third, with the rise of discounters like Aldi, supermarket chains have to work harder to retain shoppers who might otherwise be lured away by cheap, no-frills products elsewhere.

Retailers are also inclined to give an increasing proportion of shelf space to their own products. And retailers are not likely to dispel the misplaced view of many of the general public who think private label products are made by the same people who make the more attractively packaged and advertised products that cost more.

So, with retailer brands increasing share across categories, premium brands face a considerable challenge. Their task is to convince consumers that they’re paying for more than a nice box and the ad they saw last night.

Premium brands, in general, have strong equity and consumer trust and are seen as innovative. Companies like Nivea and Heinz have many years of heritage yet continue to innovate and invest in product development and packaging, making sure they are prominent on the shelf. They invest in advertising to create desirability and differentiation. They do not stand still. They continually seek to justify the fact that they’re more expensive.

In The Paradox of Choice, Barry Schwartz persuasively makes the case that complexity undermines consumer decision making and increases dissatisfaction. Believing that only new news sells and that people will pay a premium for a brand that fulfills their specific needs, marketers of consumer goods have extended their brands to the point where shoppers are faced with a staggering number of alternatives. And as the number of branded alternatives has increased, so has the amount of marketing communications people see and hear (though, of course, many people now have DVRs and PVRs that allow them to skip TV ads), making it less likely that anyone will remember the advertising for an individual brand.

In an increasingly cluttered world, the clarity of a brand’s proposition will become ever more important. A clear and differentiated identity will need to be established. In many cases brands that embody a particular belief or set of values perform best. They say, “This is what we believe; join us if you agree”. Research can help to identify what customers really care about and credibly match values to ensure success.

The ultimate goal is to manage premium brands in such a way that they become icon brands. Then there is no need to ask for alternatives; there are no viable rivals. For example, when I want sticky tape, I ask the assistant for Sellotape.

Similarly, at a recent dinner party, I was asked by my cousin’s 20 year-old girlfriend if I had any Gladwrap (cling film). She didn’t know any other cling film brands. Gladwrap was the best, period.

I worked at DHL some years ago, where we attempted to instill in consumers' minds a perception that DHL was an icon. In research, we found that when DHL users wanted to send a document or parcel they simply “DHL'd it”. This was the language they used. Using this insight we developed a clear and credible campaign that was very successful, and led to increased brand affinity and market share.

In summary, it’s up to premium brands to out-innovate and out-image retailer brands in order to prosper.

Observations, insights and ideas

You know us marketers use the term ‘insights’ as if there is no tomorrow. And yet it amazes me how often it is misused.

To be clear, in market research, we begin with observations of behaviour. These are facts, nuggets of consumer information that can be the raw material for insight generation. For example, US researchers in the 1970s saw kids walking around with big stereos on their shoulders.

An insight is when we get to the heart of people’s thoughts and feelings. It provides inspiration for business growth. Taking the aforementioned example, the insight was that these kids wanted to listen to their music when on the move.

So Sony developed the Walkman.

Interestingly though, when it was researched, consumers said they wouldn’t buy it because they couldn’t use it to record music like they could with a traditional tape recorder. But Sony believed in the core insight, pushed on with producing and marketing the product, and the rest, as they say, is history.

So from an insight comes an idea, in the above example the idea being to produce a small, portable, lightweight machine that can play music (tapes). Good ideas come from great insights which in turn come from deeply understood observations. And good ideas potentially go beyond what consumers say they need. It can require a leap of faith, as in the case of the Walkman.

Analysing market research data

At a recent Xmas party I attended, a friend of mine, who considered himself quite numerate, asked me how I went about analysing market research data. Did I use the same techniques and steps for each piece of work? And if not, how did it differ?

Now, I would not describe myself as a statistician, but over the years I have gained an awareness of the methods and techniques that may be employed to tease out insights from data. And so, after a few moments to think, I tried to give an answer in simple, clear terms. It went something like this…

There are, to my mind, essentially two basic groups of techniques used to analyse research data:

On the one hand there are structural techniques. These identify the relationship among variables, for instance, when a researcher wants to know which product variables are related to one another or how consumers group into homogeneous clusters. Factor analysis, cluster analysis, etc., belong to this class of techniques.

And then there are functional techniques, that concentrate on how a set of variables influence a variable we are interested in, for example, identifying purchase drivers, and what attributes distinguish users and non-users of a certain brand.

I went on to say that historically the general approach to data analysis is sequential: first obtain the cross-tabs, then use structural and functional techniques to sharpen our understanding of the data. This approach has been, and will continue to be, useful in analysing data.

However, at AMR Interactive (a market research agency I worked for some years ago), I came across a new approach that combined the 2 classes of techniques into one single analysis procedure. In doing so, it provides considerable insight into how brands and attributes are related to one another and which attributes (or demographics) are crucial in distinguishing brands.

In addition, this Correspondence Analysis also provides Perceptual Maps that can be used to strengthen a current brand position or find opportunities for a new or existing brand. It puts important patterns in the data into bold relief by visually depicting the prominent relationships. Richer interpretation of data and more relevant cross-tabs may be generated once we identify the important patterns.

The data-driven organisation

As I may have mentioned before, I worked a good number of years for DHL (a multinational, wholly owned by Deutsche Post, with an annual turnover of AUD $7bn), in various European senior marketing roles. Since moving to Sydney, I’ve worked on the other side of the fence, both in research and advertising agencies, and, having worked with a number of clients, I’ve come to the view that DHL was a highly data-driven organisation.

I believe many Australian businesses would benefit from instilling a stronger culture of analysis within their organisation, by adopting some of the following practices employed by DHL:

DHL used business goals to drive decision making.

One of the common problems with analysing data is that companies look at their numbers without putting them in the context of their overall business. As a result, when they receive an analytics report (often in a crisp, new binder with colourful, attractive charts) they sift through it without knowing what it means to their bottom line. Data-driven organisations make sure that goals and metrics are defined and agreed on, and they communicate them to everyone according to role.

Data-driven organisations never rely solely on gut feelings.

For sure, data and research will never give you definitive answers. However, making educated decisions based on analytics-driven insight will help you meet your goals. This doesn’t mean you should throw your experience out the window. But you should be honest with yourself about what you really know and don’t know. I have observed many clients mistake their own personal likes and dislikes for insights in customer behaviour.

Successful data driven organisations spend money in the right places and in the right way. As a result they can justify every marketing dollar they invest and tie it to business goals and KPIs.

For example, instead of putting millions of dollars every year into a full website redesign, they target their spending according to where it will be most effective. To do this, you first need to identify which aspects of your website are most important in driving your business. Let’s say you have a lead generation site that tries to get visitors interested in you offerings so they will request a meeting with a sales rep. Every upgrade you make to the site should improve the way it converts your visitors into high quality leads. Your efforts may involve highlighting calls to action or streamlining request forms so that it’s easier to separate good prospects from bad.

Companies like DHL that are serious about data also use analytics to maximise their ROI for online and offline initiatives. If you have an underperforming marketing campaign, you should reallocate resources to areas that have a better probability of success. That way you’ll always be sure you’re investing wisely and strategically in areas that drive your business goals.

In a data-driven organisation, every team, business unit and individual operates under a unified, global set of standards.

To do this, you need to set overall business goals and metrics. Then you assign different groups in the company their own targets and metrics based on how their works impacts the top-level goals. This process continues down the chain of command until it reaches individual employees. In the end, everyone is aware of how their actions contribute to the success of the company. I’ve found that once people and departments have clear and specific metrics to define their success, they tend to have an entirely different (and often much more motivated) approach to their work.

Whenever a data-driven organisation launches an initiative or campaign, it has already put together a forecast of its potential impact on the business and bottom line. When these projects are complete, the organisation also wants to know how the outcome of the project compared to earlier estimates. For this, you need to include a full post-launch analysis in your process. You should not only focus on the outcome but also use the opportunity to look at the forecasting process. Are you making accurate predications and if not, why?

Woolies finally get it together

Woolworths (aka Woolies) are really getting their act together. The big supermarkets in the UK introduced a loyalty card to their customers about 20 years ago. This year Woolies introduced their version – the Everyday loyalty card. After Coles introduced their card, it’s a distinct case of better late than never. And from what I can gather it’s been a great success, which isn’t a surprise.

Woolies has around 4.5 million people signed up to the loyalty program, and is sending an estimated 1 million emails each week to the 3 million who have registered their personal details, according to The Age. Their offering is centred on petrol, with the card a simpler alternative to dockets for providing customers with fuel discounts. Their tie-up with Qantas has apparently given their card a strong boost.

More importantly, Woolies now have the buying habits and shopping patterns of its customers in a mega-database, which it can, in turn, use to target customers with promotions and offers (and this is important) that are relevant to them. This drives loyalty differentiation.

Having registered online for my Everyday card, I recently received this very good DM piece from Woolies. Essentially it was a solid promotion targeted at and relevant to me: it offered me a good credit card deal with 5% off my groceries for 3 months (this was pertinent because I usually buy my groceries with a credit card) and 40c/litre off my next fuel visit (again, this was attractive because I top up each week).

Above all that though, the look and tone is so right. It’s colourful with not too much text. The informal, un-corporate-like tone is pitch perfect. The first line says, “Hi Alex, Here’s a new offer from Everyday Money that I thought you’d be interested in.” There's no off-putting hard sell here. Just a “thought you might be interested in this” sentiment. And with its “Yours Sincerely, Deborah, Everyday Rewards” sign-off, I was left with the feeling that Deborah was a pal, not a faceless corporate big wig. Nice work Woolies.

Entertaining mobility

I recently read that the US computer game industry is now bigger than Hollywood. Multi-player gaming as well as file sharing, online communities, and user-generated content are redefining entertainment as we know it.

A key driver of this change is that one-man band of digital devices, the mobile phone. Consumption of games, music and TV on mobile phones is growing along with the uptake of 3G services.

A recent survey in Europe suggests that 70% of teens use their phones to listen to music, with games and video penetration just behind. The mobile facilitates seamless retailing with ‘purchase and play’ whenever and wherever we feel like it. Handset manufacturers are pushing the next phase of mobile music consumption hard. The Nokia Music Store http://www.nokiamusic.co.uk/#/manifesto4/ and iTunes http://www.apple.com/au/itunes/mobile/ allows you to download music to a mobile. It seems the hardware, the connectivity and marketing dollars are all in place to deliver a new form of music on the move, assuming the price is right.

From a gaming and video perspective, made for mobile shows and games have created a new usage occasion and a commensurate need to cater for the additional opportunity, increasing the size of the industry. Mobile games will incorporate additional features, such as a GPS, enabling a truly unique gaming experience.

User-generated content has added a new dimension to entertainment. Cameras on mobiles are enabling opportunistic content creation that can at times have a profound effect on the viewer - think of the recent images, beamed around the globe, of the disgraceful treatment of protesters by authorities in Iran.

Additionally, social networking has become compulsive viewing. The mobile products of both MySpace and Facebook have been hugely successful, allowing you to communicate for less than an SMS, share anything you want instantly through mobile upload and see exactly what everyone in your life is doing all the time. Global CEO Chris De Wolfe said he expects up to 50% of MySpace traffic to be from mobile devices within the next 2 years. Interestingly, he went on to say that users return multiple times per day, indicating snack consumption for the moments in between times.

It seems unlikely mobile TV will replace home entertainment centres, but it can augment your entertainment experience. For example, in addition to made-for-mobile content, Foxtel iQ has launched a mobile product that allows you to plan your evening’s entertainment from the comfort of anywhere but your lounge http://www.foxtel.com.au/discover/mobile/default.htm. It’s a great example of how the mobile platform can act as enabler and add value to other platforms.

With processing power ever-increasing, you’ll soon be able to continue playing World of Warcraft even when you leave the house. Because of the constraints determined by the size of the handset, it’s debatable though whether the mobile phone will ever replace the mainstream gaming console. However, it looks certain to complement the online variant, with the trading and training of characters being activities that will be managed on a mobile.

An increased consumer repertoire will continue to grow the entertainment market, specifically the share attributed to mobile. Some of this will be pure entertainment on the handset, but increasingly we shall see cross-over with other entertainment platforms.

The impact of web development on brands - some predictions

I’ve been thinking a fair bit lately about the future of the web. It’s tough to make predictions, but hey, it’s fun to think about how radically the web will transform our lives and the way brands will need to evolve to attract and retain customers. With computing power doubling every 2 years, it’s predicted that at the current growth rate computers should be equal to the intellectual processing capability of humans by 2019! This seems a bit far fetched to me.

Nevertheless there is no doubt that sooner rather than later computers will become super-smart, meaning that the future may be less about what we do as a race but more about what happens to us as a consequence of the technology we have developed. Indeed, it has already begun - many folks claim that visiting virtual worlds helps them understand more about themselves.

The number of people ratings products and services on the web will increase. Only those brands that can monitor and respond effectively to this online scrutiny will prosper. Consumers will discuss benefits rather than features. Niche players will multiply leading to greater diversity of product and offer and, ultimately, consumer choice.

The online space will eat up an ever increasing portion of the sales cake due to lower cost of sales and consumers' buying habits. Brands on the High Street will have to increasingly create innovative, experiential environments to attract customers, like the Apple Store in Sydney or Nike Town in London.

Tools for creative self expression will continue to emerge, allowing for works limited only by the imagination. Brands that celebrate the individual nature of humans will increase. As consumers experience greater variety and diversity, they will tend to value the unconventional over the conservative.