Store Brands Aren’t Just about Price
APRIL 15, 2015
More and more, I hear different twists of the same question from clients: Can emotion still influence buying behavior in world where the mobile internet, with real-time access to product reviews and price comparisons, is training consumers to shop purely on rational facts?
On the surface, it looks like rational benefits are winning. According to Nielsen, in the last three years leading national brands in grocery stores, which probably command the lion’s share of traditional “emotive” advertising dollars, grew sales 0.7%. Meanwhile, private label, or store brands, grew 8.8%. That’s scary data, if you are one of the big brands who rely on emotion to drive the business
The core assumption here is that private label sales are only about price. To test this, we decided to take a look to see if private label superconsumers — consumers who buy a lot of private label and have strong emotions about private label — actually existed. It turned out they do exist, but they were different, more prevalent, and more important than what we expected.
The top 15% of private label shoppers across all food, drug, club, and mass channels account for 50-65% of private label sales for that particular retailer. But they’re not just important for private label sales — they also account for 40-55% of total sales for the retailer. So they are extremely important from an economic perspective. But the assumption was a consumer who buys a lot of private label was only concerned about price and other functional benefits. To our surprise, we were wrong.
First, we found two overarching emotions from private label superconsumers. The first emotion was these consumers felt a great deal of affection for that specific retailer overall. Someone who buys lots of Kirkland feels very strongly and positively about Costco. The second emotion we found was a deep level of pride about being a private label superconsumer. The Freakonomics podcast “How to Save $1 Billion Without Even Trying” talks about how doctors and chefs were much more likely to buy private label in their respective fields and feel proud about doing so as an expression of their expertise.
But as we dug further into the integrated big data-set of sales and motivations, it revealed further insights. The incidence of a consumer solely focused on the lowest price and no benefits was extremely tiny. Instead, we found two core private label superconsumers on interesting ends of the value = benefits/price equation. One is a purpose driven shopper; the other is a treasure hunter. Each is driven by emotions, not just price.
The purpose driven supers are not robotic price chasers, but want good quality at a great price. They are consumers with big life aspirations and the discipline to reach their purpose and goals. Life aspirations included starting a family, saving for college and retirement, and making it easier to care for sick family members. But they also care about benefits and don’t want to sacrifice today in order to enjoy tomorrow. These purpose driven supers felt an extraordinarily deep level of emotion for the retailer brand at levels typically associated powerful lifestyle brands in apparel and luxury goods. This is not surprising when you consider that the Bureau of Labor Statistics Consumer Expenditure survey says food for at home expenditures was $3,977 per household in 2013. Savings of 25% equal $1,000, which is real money and about 8% of average discretionary income in 2015. Real emotion comes from making a real difference in a consumer’s life.
The treasure hunting supers are the inverse of their more price driven cousins, they want great quality at a good price. These are consumers who love food, love to cook, and find joy in discovering new experiences. These are consumers who really know their food well and can personally tell which products are better quality or have exciting new varieties. Trying new brands, including private label, is not something they are afraid of, but actually enjoy. The epitome of this is Trader Joe’s, whose entire assortment is private label. But if you ask any Trader Joe’s superconsumer, the array of variety and treasure hunt is glorious indeed.
But these treasure-hunting supers don’t just shop at Trader Joe’s. They are everywhere, but interestingly they cluster together in pockets of the country. There are in fact Super Geos — local markets with high concentrations of supers — of both types of supers that exist in pockets across the U.S. Superconsumers have a network effect and subtle peer pressure, and private label shoppers are no different. Imagine you go to a friend’s house and see a ton of Kirkland and Trader Joe’s products. That sends subtle signals that say, “Your friend is a smart person and makes smart choices. Maybe I should try more private label?”
The challenge is that too many manufacturers and retailers still believe that private label is about the lowest price. And the risk is that this becomes a self-fulfilling prophesy if companies continue to strip out benefits for a lower price.
But companies have a choice — they can find and foster growth for both purpose driven and treasure hunting supers. By innovating on the new mixes of price and benefits should create innovation opportunities for everyone. But most importantly, it reinforces the idea that the right benefits matter and are worth paying for. This way the rise of private label and profitably growing the pie are not mutually exclusive.
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