Current Pricing Practices Impede Private Level Growth: Study

CHICAGO -- Retailers may actually be damaging the potential growth opportunities of their private label business, according to a study conducted by Damon Worldwide, ACNielsen, and DamandTec. The study, which spanned more than a year and involved over 200 stores at multiple retailers, was released during Daymon Worldwide’s biannual forum, held here this weekend. The study integrated consumer demand into strategic merchandising planning, to identify and resolve shelf inefficiencies and create optimal pricing strategies for branded and private label products.

"We actually made some discoveries that were contrary to current beliefs on private label pricing," Kevin Steneckert, Daymon’s e.v.p. told Progressive Grocer during an interview at the event. "For example, increasing the price of private label products may in some cases actually increase volume sales at the same time. Pricing should reflect the quality of products and consumer expectations, so increasing the price of some private label items may actually strengthen the image and competitiveness of both the brands and the retailer."

New York-based marketing information firm ACNielsen provided relevant market data, for the study, while San Carlos, Calif.-based DemandTec's consumer-centric merchandising and marketing software and services were used to analyze data for the stores and markets involved in the retailer case studies.

Two case studies were conducted. One focused on proliferation, with its goal the elimination of excessive SKUs that don't add variety and price-point targets. This study found that reducing such redundancies improves overall category performance, and that consumers had no complaints when 7 percent to 10 percent of the SKUs in various categories were removed.

In the pricing case study, the three companies sought to identify categories in which private label brands were undervalued (or overvalued) relative to national brands, and employed pricing to shape consumer demand and drive private label and category growth. This case study found that there's no one correct price gap between private label and similar branded products, and that price management should be based on consumer demand and aligned with strategy and objectives for volume, sales, profit, and price image.

"There is no 'right' price gap," said DemandTec senior director Mark Dietz. "Such gaps are a byproduct of pricing one brand relative to other brands, and will therefore vary by SKU."

Following were some key findings from the study:

--Consumers who buy higher quantities of private label products shop the store more often

--Private label is no longer limited to the historic buyer profile of low- to middle-income families.

--Seventy-two percent of consumers don’t believe that national brands are worth the extra cost.

--Forty-nine percent of consumers say private label is "just as good" as national brands.

--Sixty-eight percent of consumers believe private label is an extremely good value.

--Pricing should be an integral part of category management.

--Joseph Tarnowski
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