Private Labels: a Holistic Survey of the DIY Retail in Europe and Romania
Private labels have become a constant presence in our shopping carts, thus reflecting their growing success in industries ranging from food to tires, from over-the-counter drugs to financial services, from household care products to do-it-yourself products. With the consumers becoming more conservative, the difference between today’s “here and now” generation and the earlier generation whose behavior was shaped by the Second World War or the Communist System, the tendency towards spending less and borrowing even less becomes the new reality.
The seductive advantage of the consecrated brands, against the plain packaging of generic brands seem to vanish under the scrutiny of the new somewhat bleak economic perspectives; yesterday’s private labels are today’s new brands and consumers seem to cannot have enough of that, in the new post-recession economy. Could this be a symptom of a tangible shift in motivation and attitudes or is it a real conversion in values and priorities, the evolution toward a more conscious consumer behavior? The implementation of private label strategies may be one of the key answers for marketing professionals struggling to retrieve at least partially the losses brought about by recession and at the same time consolidate market share and consumer retention.
Following the intense globalization efforts of the last decade, both concentration theories and globalization practices have been found wanting, due to damaging effects propagated internationally; global concentration efforts (Bloom, 2000) provide different groups with increased force to face increasingly challenging threats. But at the same pace, in times of hardships, the domino effect is devastating.
After the peak of 2007, international stock exchanges had a sudden decrease in 2009, up to half the value; the later recorded return failed to reach the level of December 2007, but rather the one in 2005 (Vizjak and Iuga , 2011). Although markets have regained trust and the threat of a new recession in 2012 apparently does not appear so frightful to markets and consumers, certain shopping behaviors were forged and sharpened during the prolonged present economic crisis. While values and priorities are shifting, with home and stability gaining a greater importance, apparently luxury and status have lost appeal in view of uncertainty.
The great hunt to find the best value and the lowest price remains top of mind in every household (Roche and others, 2010:4); as the consumers slowly return to spending, it is hardly expected that they will behave as they did before the crisis. One of the challenges for the traditional product-price marketing is the advance of the private label products and the subsequent strategies to compete in the new marketplace.
The private label products are available in a wide range of industries from food to cosmetics to web hosting; their positioning as lower cost alternatives to regional, national or international brands, is one of the reasons of their present advance, in the present economic context, where private label penetration is considered to be as high as 40 % in certain markets. In the DIY retail, a sector severely affected by the current recession, different players attempt to identify and implement product strategies that would bring competitive advantage and stop the decline in turnover and market share.
How the challenge of the private labels is met by consumers and producers alike, is already a worldwide debate and concern. We will attempt to empirically analyze the ascent of the private label products as an international phenomenon, but also as a major trend that will govern the DIY retail sector especially in the developing countries, using the latest available data gathered from scientific and professional sources, as well as from reputed financial and consulting companies.
The twentieth century was the century of manufacturer brands. The shelves of the supermarkets, superstores, small corner shops or simple ABC’s contained different types of products, from store brands of inconsistent quality and reputation to well known brands such as Coca Cola or Heinz. Consumers developed over time a strong preference for brands that used to be associated with emotions, meaningful marketing tactics and endless innovations (Thomassen and others, 2006).
Consumers, as early as the in the nineteenth century, learned to prefer the branded products from global manufacturers led by Coca-cola, Disney, Johnnie Walker Scotch, Johnson& Johnson baby products, Kraft, Levi’s jeans, Procter& Gamble, Nestlé’s infant products and Unilever’s household products (Kumar and others, 2007), to no-name products manufactured by local factories.
These famous brands used emerging media – first newspapers, billboards and radio; later television and the Internet – to market their message effectively. The branded message to consumers was one of smart shopping – brands are trustworthy, delivering quality, consistency and innovation at a fair price (Roma and others, 2010). Initially, consumers bought manufacturer-endorsed brands as symbols of quality, trust and affluence. Subsequently, these brands were consumed as symbols of aspirations, images and lifestyles. Consumer drive the economic boom: the new consumer behavior brought about a new economic reality for the United States and Europe, becoming the motor of a new era of prosperity and affluence.
Manufacturer brands reached consumers through distributors and retailers. For most of the twentieth century, retailers were relatively small, compared with their largest suppliers. This allowed branded manufacturers to develop a series of quality products, through innovation and mass advertising that finally established their power over the distribution channels. Manufacturers exploited this new gained power over retailers by becoming strong negotiators, forcing thus retailers to accept their products with the associated price and promotion policies. Retailers were usually given the classic “take it or leave it” choice (Kumar and others, 2007).
The Ascension of Retailers
Private labels have also been associated with inexpensive, low quality products, initially popular in the Food and Non-Food categories. Private labels have been in the background in every family, some have been on the market for more than a century (Bokkerink and others, 2010). Yet, despite some significant exceptions, private labels products, with their black and white labels or poor quality packaging were seen as poor cousins to the manufacturer brands, with a small share of the overall market that was considered unlikely to become significant.
The evolution of the private label products on the present markets is reminiscent of Bruce Henderson’s “Concept of Strategy”, leading us back to Charles Darwin and Alfred Russel Wallace and their theories on survival of species. In short, biologists have noticed an increase in competition between the large number of competitors sharing the same resource-rich environment; practically, although hardly distinctive, only the strongest and fittest, with a larger number of offspring and better adapted to the environment, survive the “competition exclusion principle” (Henderson, 1981).
Systematically underestimated, but present in the daily lives of the consumers, the private label products have constantly specialized, won market shares and learned to use the same strategies as the recognized brands; in times of economic recession, the key factors of performance in retail such as customer loyalty, store reputation, prices and margins, marketing costs, brand value and market share are under intense pressure to deliver constant results and retailers tend to adopt brand strategies that serve their best interests.
Our two hypotheses that associate the growth of the private label segment in the DYI retail have been established both theoretically, against the shift in consumer preferences and values, and practically, by the necessity of ensuring the retailer’s survival on highly competitive markets and increasing customer retention. We have demonstrated, using the comparative analysis, how DIY retailers that concentrated on the development of the private labels have managed to obtain an increase in the turnover, even during recession times, while other players, with inconsistent product strategies are facing significant decline.
The is an except from the article ”Private Labels: a Holistic Survey of the DIY Retail in Europe and Romania”, Presented at Augustin Cournot Doctoral Days, 9-11 mai 2012, Strasbourg, France.