Private Label: Collaborate, Not Confront

Can consumer packaged goods (CPG) manufacturers and retailers with private-label ranges collaborate to attract the same consumer? As counter-intuitive as this proposition may appear, the real question is “can they afford not to?” Jostling for consumer mind and supermarket shelf space is hurting both manufacturers and retailers, which are already feeling the impact of the global economic slowdown. Moreover, for many, a plethora of insufficiently differentiated products in several categories risks confusing and frustrating shoppers.
 

Undoubtedly, private labels are here to stay. As retailers grow progressively sophisticated in the development, promotion and pricing of their own labels, consumers are giving them a larger share of the shopping basket. With improved quality and innovative positioning, private labels are also finding consumer acceptance in the niche and premium segments. In several emerging markets, where organized retail is starting to gain traction, private labels are as familiar as big brands.
 

However, buyers still value branded products in a range of categories. What’s more, CPG manufacturers have typically met the onslaught of private labels with aggressive competitive strategies. These include improved innovation, consumer loyalty programs, value tiers, as well as using direct-to-consumer channels to bypass retailers.
 

This confrontation brings downsides. The mix of national brands and private labels vying to satisfy similar consumer needs is leading to category erosion. Also, given the increasing power that consumers wield and the importance they place on trust when buying brands, retailers are being forced to strike a balance between private labels and national brands. Retailers are learning that overemphasis on private labels can alienate shoppers and suppliers, and equally, manufacturers are realizing that taking private labels head on is not sustainable and destroys value for both themselves and the retailer.
 

The path to success for both parties lies in picking their battles: deciding where to compete and where to collaborate. Strategic collaboration calls for a fresh mindset, as well as process and capabilities, that would allow manufacturers and retailers to work more closely to identify consumer demand and quickly respond to it. The payoff is overall category growth and consumer ROI, and the elimination of the inefficiencies of working against each other.
 

Collaborating on assortment planning, for instance, can enable manufacturers and retailers to combine the distinct capabilities, data and consumer insights to view categories and assortments in a more holistic way to drive growth. Both companies can jointly analyze consumer purchase behavior and the product attributes that consumers value to optimize assortment and space.
 

This collaboration creates opportunities to position current or new/exclusive branded products on the shelf and avoid competing with private label alternatives. A further benefit is the increased differentiation, and reduced complexity that helps to simplify the shopping experience and minimize erosion of the category.
 

By sharing data in a “cleanroom” environment to obtain fact-based consumer insights, manufacturers and retailers can improve overall category performance. Advanced fact-based analytics help drive optimization of space, price and promotion mix using volumetric and profitability information. Collaborating on product innovation, as well as marketing and promotion, has other benefits such as improved offerings better tailored to consumer needs, a more loyal consumer base, better margins, and lower costs across product development, marketing and promotion.
 

The opportunity for collaboration is there, with benefits to the retailer, manufacturer and consumer. For example, Procter & Gamble is working with select retailers to introduce new brands and flavors sold exclusively by partner stores.
 

Clearly, manufacturers and retailers are beginning to understand that collaboration can complement traditional competition as an appropriate strategy to deliver “greater than” shopping choices for consumers.