Over the past several years, private-label products have become increasingly popular with consumers, and in 2020, private-label brands outpaced name brands for the fourth consecutive year.
The rising interest has been mostly driven by an ever-expanding product selection and perceived improvements to product quality and trust. In fact, 89% of consumers trust private brands as much as national brands. Moreover, private-label products – which are often a lower-cost alternative to national brands – are perceived as being better value to consumers.
The perceived value and appeal of private-label brands are most evident in the grocery space. In the face of soaring food costs and ongoing economic uncertainty, many consumers are looking for ways to save on their grocery bill while not sacrificing on other important benefits, and private label offers them a satisfactory way to do so.
However, there is more happening beneath the surface of these grocery shopping decisions, whether they are driven by the pandemic or not. The value that grocery shoppers see in private-label products is not as one-dimensional as it used to be. To unpack this, let’s explore the notion of value for consumers at large.
The new consumer definition of value
There are (and will always be) consumers who think of value solely in terms of price. For these shoppers, the price, discounts and cost-benefits are the key drivers that attract them to private-label products. However, the notion of value is becoming increasingly complex, and the gap between the traditional monetary variables of value and non-monetary variables (e.g., convenience, accessibility, reliability, consistency) is closing for many consumers. For a growing cohort of consumers, value can mean value-added services like personalization, knowledgeable staff, fast delivery and inspirational content. To others, it may directly link to the emotional benefit they feel by supporting a specific brand.
What’s important to reiterate here is that a consumer’s unique definition of value will in turn define their ideal shopping experience, especially when grocery shopping. It will also play a crucial role when they’re choosing between national/mainstream brands or private-label brands. Understanding that consumers’ definition of value is varied and multifaceted will empower grocery retailers to determine the optimal way to strategically position new or existing private-label products and ultimately, offer a unique approach to value that maximizes growth.
Aligning private-label products with consumer values
Here are three ways that grocery retailers can align private-label products with definitions of value that go beyond price, and how researchers can uncover actionable insights to inform these decisions:
1. Don’t just default to price. As mentioned, for many people, value is about more than just price. If you’re focusing on competing solely on this one dimension, you’re missing an opportunity to deliver more value to your customers. Rather than positioning private-label brands to compete on a single functional dimension like price, consider identifying the value-added, emotional benefits they can offer to customers. Identify the specific ways in which you can promote and focus on serving consumers’ emotional desires, such as helping them feel healthier, simplify their lives, or be a source of inspiration. For example, a private-label banner could offer value in the form of inspiration by introducing consumers to new products, flavors, or ingredients. Our “Jackman Human Insights Study” revealed that over 80% of North American consumers view food as a vessel for discovery, so a private-label offering that enables discovery may resonate with such consumers. Researchers should consider methods to understand what their customers think of the existing private-label brands as well as measure their brand equity.
2. Embrace what customers value. Simply having a store brand isn’t enough to compete since nearly all grocers now have some sort of private-label offering. Understanding what factors beyond price are important (as suggested in No. 1 above) gives retailers the ability to think more openly about where their private-label brands have the right to play. Once that step is complete, further research must be conducted to identify what consumers want. These two layers of information will give grocery retailers the ability to map private-label brands to consumer needs. Instead of offering private label merely to save shoppers money, consider what specific values your private label can meaningfully deliver, based on the interests and habits of your most frequent or loyal customers. In some cases, there may be gaps which require the creation of a new private-label brand to appeal to distinct consumer need states. Jackman leveraged this needs-based approach for Rexall, a national pharmacy chain in Canada. We developed five unique private labels for Rexall, including the food-focused Nosh & Co.
Researchers need to understand what proportion of consumers only care about price, and then identify the other meaningfully distinct segments of consumers based on their values and preferences. How do your target customers define value? What is the mix of characteristics or traits that attract them to specific brands? Answering these questions is necessary for the retailer to understand where they have gaps or overlaps with their private-label brands.
3. Promote solutions rather than just products. Consider leveraging private label to bundle products that are tailored to a specific occasion or cuisine at a discounted rate (e.g., spaghetti, pasta sauce, meatballs and garlic bread). This also enables grocery retailers to be transparent about the value customers are receiving by highlighting the cost of each item compared to the bundled price. This type of bundle showcases value in the form of savings but also convenience, simplicity and perhaps even inspiration.
An understanding of what customers truly value will shed light on the types of food-based solutions they will appreciate. It will also enable retailers to think outside the box and create unique ways to solve for their customer’s definition of value. Insight can be gleaned through trial and error; grocery retailers should test new solutions and offerings and embrace potential failure. Every new solution provides a learning opportunity, especially if you encourage customers to share their feedback about what works and what doesn’t.
Ongoing consumer research
The common theme behind each of these action items is the need for ongoing consumer research. What are the consumer’s attitudes, values and needs that grocery retailers must be catering to? What are the consumer’s perceptions that identify where grocery retailers are doing well or not so well? And the only way retailers can truly understand how consumers think is to research them.
Engaging in strategic and targeted research to learn how consumers define and engage with value can help grocers navigate many of the challenges they’re facing now, especially their private-label strategy. With rising food prices and greater competition from reopening (and emerging) food providers, grocery retailers have their work cut out for them. Embracing value – as defined by the consumer – is key to retaining loyalty and offering private-label products that give customers what they need.