Private Label Dips Downscale

Affluent Americans abandon store brands and leave the door open for national brands to score with promos.

One of the consumer marketplace’s most enduring contradictions – private label scores highest with affluent Americans – appears to be subsiding. The reasoning had always been that more upscale, and therefore better-educated, consumers were more likely to try and repeat-purchase quality store brands because they were smart enough to know about the costs added to national brands by advertising and promotion. Now a new study from Chicago-based consumer-cruncher Spectra Marketing shows upscale types running away – and downscale groups flocking toward – private labels in droves.

Largely relying on Nielsen panel data, Spectra compared purchasing habits and sales trends from the years 1994 and 1998. Results showed private label’s share index dropping nine points among upscale suburbans and 17 points among traditional families over the four-year period. Meanwhile, private label indexed up 28 points in downscale rural households and 16 points in mid-urban melting-pot homes.

The downscaling private label trend held true among all the 25-or-so product categories reviewed by Spectra, but was illustrated most starkly in adult analgesics, which saw share index 44 points upward in poor farm communities while dropping 24 points in tony `burbs.

“Brands have traditionally done better in strong economic times, and [the upscale consumer’s] knowledge about private label has become more commonplace,” says Peter Daboll, managing partner of Spectra’s Consumer Science & Modeling Group. “But retailers may have erred in their thinking about what they call the `halo effect.’ That holds that if a consumer likes a private label in one category, she’s more apt to try one in another. But they’ve introduced so many lines that quality is a problem and may be causing a negative halo effect.”

With private label brands cranking up their promotional machines (see story, page 79), Spectra’s findings present a clear mandate to retailers: Don’t over-promote. Store brands, the researcher found, moved slower than national brand counterparts when both featured price reductions – especially when the discounts were deep. A national brand of acetaminophen caplets in the study saw a volume lift of nearly 300 percent on a 50-percent price reduction; a private-label brand with the same offer barely topped 100 percent.

Retailers who look to draw traffic to stores by promoting own-brands play to a disadvantage versus big national names. That’s because, Spectra asserts, private label share is higher in households that go to only one outlet to shop a certain category – a group comprising a commanding 70 percent of all consumers. Households that shop in multiple outlets, meanwhile, prefer national brands. The lesson: Retailers would have a better chance attracting new customers by promoting national brands, not store brands.

“We wanted to look at the rhetoric retailers use to push private label and see if it was valid or not,” says Daboll. “What we found was that private-label products don’t have equity across channel, probably because individual categories vary in quality from store to store.”

That’s a clarion call to national brand marketers to start evaluating private label competition on a chain-by-chain basis. While they’re at it, they can throw out the old book on private labels. A new one is being written.