written by
Sascha van Holt
Sascha van Holt
Global Trends
2016-12-19

Retail Brands vs. Manufacturer Brands – Is the Race On?

Retail Brands vs. Manufacturer Brands – Is the Race On?

Amazon is currently omnipresent. In addition to the German launch of the smart loudspeaker Amazon Echo and the opening of the first actual store in the USA, they’ve also come up with this: the online vendor recently started its first own-label brand (also known as retail brand) for fashion and is consequently taking advantage of a strategy that German supermarket chains have been using for years. Reason enough for us to take a closer look at how retail brands are currently doing in comparison with name-brand products. So, what is the current image of retail brands? What are the advantages and disadvantages of both strategies? Are retail brands perhaps even more successful than premium brands? Here is an analysis:

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p until just a couple of years ago, it was easy to identify retail brands on supermarket shelves: while name-brand products boasted visually attractive and strategically styled packaging, the retail store brands usually seemed bland and boring in comparison. Besides, manufacturer brands were able to look back on an emotional customer-product relationship that had been cultivated over decades. The result: consumers considered retail brands to be product copies of inferior quality.

This image has been somewhat transformed in the meantime – and that is also because vendors place more value on presentation than they used to: according to a study by the Ipsos market research institute, this has led to the perception in four out of five Germans (84 percent) that there is no difference in quality between retail and manufacturer brands. On top of that, the economic significance of retail brands is also on the rise. According to Nielsen in Germany, they brought in sales of EUR 52.5 billion in 2015 alone, which is equivalent to a healthy 41.3 percent of all consumer goods sales.

 

Brand perception: pros and cons of both strategies

One thing is clear: manufacturer brands are more highly rated by consumers simply because they are more popular – thanks to big marketing and advertising budgets. And there is frequently also the trust, which has grown over the years, along with an emotional connection to the brand and the product. Ultimately, as a result visibility also benefits the shopping experience, with items that are recognized exclusively by their external packaging design features and subsequently purchased. Manufacturers even promote and provide emotional associations to product innovations. This gives them a head-start in regard to product loyalty.

 

Even though brand manufacturers are frequently also market innovators, retailers usually inspire consumers with clever me-too product strategies at competitive prices, which name-brand product manufacturers can’t offer due to higher marketing budgets. But: a growing number of retail companies are offering private labels that have long since left the low-price segment behind them. A strategy mix of products, which cover a wide range of price segments including the premium category, has been common practice for quite some time. But ultimately, price is even a deciding factor in this strategy.

 

Although it has previously still been the low-price items that consumers associate with retail brands, the results of the Ipsos survey show that the premium retail brands are also growing increasingly more important and consequently have a long-term positive influence on the general image of retail brands and stores that sell them. This is not lastly due to the fact that the retailer name is part of the product – like REWE Feine Welt or Edeka Selection – which is not the case in the low-price segment. The authors of the Retail Brand Monitor 2016 from Ipsos therefore establish: “The high-quality image of these (new generation of retail – Editor’s note) brands, like e.g. “environmentally sustainable”, “high-quality standard”, “offers something special”, is already on the right track to catch up with the perception of the manufacturer brands”.

 

The battle for visibility and customer retention

 

It had thereby been infinitely more difficult for retail brands to achieve trust and popularity in the past, due to the minimal media visibility that was due to the low to hardly existing marketing or advertising expenditures of many retailers. But with increasing price diversification and the attempt to establish own premium brands, retailers are also counting on the emotionally charged effect of advertising and other marketing tools, to drum up interest in their private labels. Already two years ago, Rewe was one of the first German supermarket chains to drive their premium brand “REWE Feine Welt” with a TV spot. Various chains also consistently use social media to present their exclusive own private labels in proper style.

 

A further innovation in the battle for customer attention are the single product brands, which have only recently shown that the competition can be beat with a combination of clever advertising and marketing strategy plus innovative product. We can see how that works on the example of True Fruits: the smoothie manufacturer successfully attracts attention to itself with eye-catching advertising that sticks in your memory.

 

The limits of the store brand

 Using True Fruits as an example once more, we can also see where the limits of the retail brand strategy lies – however clever it may be. While name-brand manufacturers can distribute their products globally through a variety of sales channels and retailers using effective creative marketing campaigns, store brands are limited to their own retail space – even if they do spend considerable amounts on marketing.

Overall, as proven by the most recent figures, retailers have succeeded in polishing the outdated image of their own brands. Smart diversification strategies in combination with a clever (even if limited) use of advertising and marketing measures, have now relieved consumers of the preconception that retail brand products are of lesser quality.  So retailers have successfully done their homework. Unfortunately, it is also a fact that retail brands have an average market share of 5 to 10 percent – sometimes more, sometimes less depending on the product category. These are values that have changed only marginally over the past decades. The reasons are due to the abovementioned natural limitations for every retail brand strategy. So the question is not so much whether name-brand manufacturers or retailers are winning the battle for visibility and customer retention, but rather: Is this even a fair battle among equals?



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