How have brands successfully navigated similar challenges of price increases and cheaper private label competitors (especially in a downbeat consumer confidence landscape) to keep growing? and Is building/super-charging Trust through our marketing efforts effective in growing penetration? Let us know if there is something else we should be considering.

In this macroenvironment are you seeing any of the rules for elasticity impact change (i.e., is the +15% changing to +10%, as private label is improving quality?) and is this what your upcoming pricing experiments will look at? If so, when do you expect those to be published?

No, we don’t see price elasticity changing fundamentally. The body of work on brand price elasticity seems to have produced fairly consistent results over a long time (that has included periods of low/high inflation). One thing that does seem to impact price elasticity is the price gap, so the old idea, that if there were 3 brands priced at $2.00, $3.00, $4.00 then say, a 10% price change for the middle one still left an appreciable gap between it and the others ….. but if they are priced at $2.00, $2.50 and $3.00 then a price change by the middle one is much ‘bigger’ in the context of their relative prices. So as private labels get better and perhaps starts pricing closer to manufacturer brands then the cross price effect of private label/new brands becomes larger (in theory).

Yes, we’ve done data collection on our first pricing experiment, it turned out to be a lot more difficult to get it done than we anticipated but we’re looking into this. We mainly want to see if the overall elasticity level is about ‘as expected’ and then hopefully start to see some more details after that.  But I think it will unfortunately take some time to get it to a point where we could share/release.

J.D.
21 March 2025

Do you have any general research on pricing? Do you have research on how big gap between Private Label and brands can/should be and how can one get light buyers into the category with lower prices?

Firstly, what we’re doing currently: we’ve been planning a big study to update our pricing experiments work. We’re going to be doing price experiments to estimate price elasticity and the factors that influence it in CPG categories, — including potato crisps. Results should be written up by mid next year.

Price gap to PL’s. Yes, this is a good question. There isn’t a specific gap to aim for because it depends a lot on the category and country. But a general rule is, if private labels are bigger or they are faster-growing, then you want a narrower price gap. Second is quality – if PL’s are quite bad, then obviously a bigger price gap but if they are close to parity on quality you can’t really get away with a big gap for long.  We suggest to monitor price gap to PLs annually, to make sure it’s not widening too much (seems to go that way more than narrowing).  Some analysis of your store scan data may show that when the gap is wider, the PLs tend to grow more quickly.

Lower prices / category expansion. Another good question! So, research on price elasticity shows brands have a price elasticity of around -2.5. And categories have a price elasticity that is about 0.2 on average, but potato crisps (the only salty snacks category we have this data on) is less price elastic, at about 0.10. That means we’d expect demand to not drop off too much if potato crisps increase in price relative to other categories. I suspect the data on which this is based has shown more increases for the category than decreases for the category, but a lowish price elasticity means that demand would not be expected to increase that much from lower prices – like a 5% price reduction would mean an an-average category volume increase of half of one percent – not much! If there is a way to increase category demand it is likely via bringing in more very light / on category buyers in, and in a pricing sense this would be more likely to be accomplished by very inexpensive small packs to make category entry very easy / inexpensive.  But of course, other marketing factors such as mental &  physical availability would play a part.

Here are some links to various pricing works:

Do we need to discount to reach the deal-prone buyer?

https://sponsors.marketingscience.info/reports/we-still-all-like-a-good-deal-do-brands-need-to-discount-in-order-to-reach-the-deal-prone-segment/

Recession pricing

https://sponsors.marketingscience.info/reports/recession-2020-what-can-we-expect-from-consumers-revisiting-the-2008-09-global-financial-crisis/

Yours and competitor’s pricing

https://sponsors.marketingscience.info/reports/how-your-competitors-prices-affects-how-consumers-react-to-your-price-changes/

JD

21 November 2024

We would like to understand the potential risk of launching a “value oriented” (less expensive, lower quality) line under the parent brand. We are currently experiencing some capacity constraints to fulfil increased demand and future growth. The team is evaluating a few options to unlock capacity. One option would be to leverage a Private Label product producer to produce a sup-par (vs our internal production) product and market it as a “Basics” type line or leveraging it outside of the US where the category is under-developed. We are compiling learnings on potential impact to the brand, and examples of situations where this type of strategies have resulted in success for the parent brand/company vs situations where it failed.

The potential downside is that marketing the product produced by the store brand manufacturer could harm perceptions of the parent brand. That said, if the product is overall quite usable, and doesn’t actually result in product function failure then the chances of that are fairly small. It could however be that the experience in using the product is less pleasing than for the usual, high-quality primary brand product. In theory that could detract from your brand image among some users. But perhaps that change in brand perceptions will affect only a small proportion, and if you are planning on signalling this is a ‘basic’ product then perhaps not at all. Many brands use a good-better-best kind of quality-price hierarchy and consumers seem to understand this. They know the basic / no frills level is different to the premium. An idea might be to highlight the sub-brand or ‘basic’ aspect on packaging and less emphasis on the primary brand. Unfortunately, we can’t point to specific case examples of where this strategy has worked or not worked.

J.D
8 April 2021

The impact of sub-brand for eg. Toyota Corolla, when and why should we use it? A marketing practice is to utilise sub-brand to attach new associations to stretch the Masterbrand into a new category.  For eg. McDonald’s is strongly associated to burgers and fast food, so McCafe is an efficient way to stretch and link McDonald’s to coffee and cakes, in the absence of which would be uphill task for McDonald’s to own on its own. Has the Institute investigated this? How do we use it well? In private label, our teams are working on the assumption that sub-branding will stretch our supermarket brand (or give it more credibility) into many categories we sell, some of these are very ‘close’ to supermarkets for eg. chocolate chip biscuits, whereas some of these such as nappies are typically perceived as ‘high risk’ for a supermarket brand to own. We’re hoping to set up some ‘branding’ rules to guide the team, and am wondering if the Institute can share any learnings.

Yes, sub brands can be used to attach new associations, particularly where the new offering is at a different price/quality level. McCafe signals not only coffee and cakes but a bit more ‘café’ experience compared to the usual McDonalds. We have not specifically investigated how to best use sub-brands or how to structure a portfolio or what some people call a brand architecture. We have found that sub-brands appeal way, way more to existing brand users – the levels of cross-purchasing between two brands within a parent is 2 or 3 times higher than expected.

Yes, using sub-branding will help stretch your supermarket brand. I perceive that a crucial attribute that your brand has is “inexpensive” or “value” – which means it will work well in categories where there is a big enough demand for lower price options. But of course this core attribute will make it difficult to pitch higher end products or in categories where perhaps as you say there could be a risk perception in buying less expensive options. Tesco has done well with quite a simple price/quality laddering – Tesco value, Tesco, Tesco premium … UK consumers seem to understand this structure but it’s taken decades of work by the retailer. Your supermarket brand doesn’t necessarily have to be so explicit, but a hierarchy of strongly signalled different price and quality levels should help, but will take time for consumes to learn there are actually differences between them. Then the higher-quality one can be used in the categories where there is more perceived risk.

23 September 2020
J.D.

I’m thinking about launching a new product. Typically that means tons of time pitching to distributors and retailers to try to get on store shelves before ever worrying about awareness. However, this product is fronted by a celebrity, and I’m confident we can get a lot of awareness very quickly. I have an idea for a new model of distribution in my category, patterned after direct-to-consumer businesses like new fashion brands. I want to produce a set amount of the product, say 500 cases, and then let people know there will be one release on X date and they can get it from X retailer. Then, three months later come back with a different variant (under the same distinct assets) and do it again with 750 cases, and do that again in 3 months with 1000, etc. The hope is to build up name recognition and demand before pushing for wide spread distribution, so that when we do ask for distribution we can dictate better terms.

Does the institute have any research on direct to consumer distribution models, or scarcity as a business tactic? I’ve read the report on luxury brands, but it doesn’t really get at what I’m considering. I’m hoping to use scarcity as a way to spur purchase.

It’s an interesting problem! There are two perspectives – the distributor’s and the consumer’s view – and a final consideration.

We don’t have much evidence about strategies for dealing with distributors, so if in your experience getting new product in is a nightmare then it might be worth trying a different approach. It’s such a tricky, unknown area that a test-and-learn approach is the best suggestion.

With regards to scarcity as a business tactic, it goes against the evidence we have about brand growth. Selling less means just that, selling less. We don’t have evidence that niche brands (that is, brands with excess loyalty compared to their penetration) are widespread. When they do, it is almost always to do with well-known circumstances like restricted distribution. The classic case (and most easily observed case) being that of Private Labels. The ‘excess loyalty’ status coming by virtue of the brand having high penetration within a limited area (a single store/chain in this example) and is therefore bought with a frequency inline with that penetration, however when the penetration is ‘averaged out’ within the entire market, the overall penetration percent then becomes much lower and so the purchase frequency then appears too high for a brand of that penetration. The same thing can happen where there is limited distribution to, say, specific geographic areas or regions, or ethnic enclaves etc. The key however, is the high penetration within a sub-market. At some scale, the brand appears, or actually is, ‘big’. It is a well-penetrated brand within that small area.

Brands grow by reaching many people, at scale, being well-branded, and linking the brand to category entry points that matter to the consumer. Usually, mental and physical availability should grow at the same time, as they form a feedback loop working with each other – seeing the brand for sale can help build MA. Scarcity is unlikely to be a long term brand growth strategy, and if it fails, it might fail not because the product is bad overall. It’s risky, but can be reversed at any point, I assume.

Then there’s the consumer. Consumers are cognitive misers, who want to reduce the total effort required to buy a product. And, even if a product seems to be quite differentiated, consumers probably see it as substitutable, and are unlikely to go to much effort to try and buy it. Reducing friction is going to be important – If the celebrity you have planned is an instagram celeb, making it possible to buy online is going to make it easier for consumers than having to go somewhere in person.

And, using celebrities can be problematic. Celebrities can detract from the effectiveness of advertising for two reasons: the vampire effect, where the celebrity gets all the visual attention when consumers see an ad, and that the brand is linked only to the celebrity, rather than useful Category Entry Points – reasons for buying the category in the first place. Celebrities are also more linked to the competition, unrelated brands, and clutter brands, than brands they actually endorse.

Whatever you do needs to be combined with a high-reach comms campaign (for sustainable, long term growth). The key is to ensure that the comms reach the bulk of category buyers, that they are well-branded, and that they build memory structures that are useful over time – rather than memory structures for a celebrity. And make sure that the ads reach the most important demo: the distributors.

And the final consideration – are your resources best spent on a new product, sold through being linked to a key celebrity, or supporting your existing brand/s? Are there potential portfolio effects from the new product? e.g. will expanding it help get the portfolio into more distributors, is there potential for increased business growth that can’t come from your existing portfolio and investing the resources (all of the dollars and time and effort and focus of attention) into building MA and PA for your existing range?

As with ANY and ALL decisions regarding marketing activations, you need to cost out what the cost per reach point of the category buyers will actually be. An inflated cost over other, more traditional, approaches will probably not be justified. It might be a useful exercise in reaching parts of the market (especially light buyers) that are particularly difficult to reach. However, you need to be honest about the extent of that, and make that a key metric for evaluation in your test-learn process if that is the case.

B.P.
25 July 2019

We are trying to set up an NPD score-card for our team that includes metrics such as buyer acquisition to brand and category, trial and re-purchase etc and we would like to get the Institute’s guidance on any other metrics or analysis that would be useful to add. Apologies if this sounds like a rather broad request.

We are proposing to use the below-mentioned metrics and benchmarks for NPD analysis. Let me know your thoughts on this.

These sound good.

Repeat-rate relative to sub-category median is great. One thing to note is that new products tend to be unduly bought by heavy category buyers, so this might be artificially high. But over time with more launches, you will develop a sense for the extent of this phenomenon.

Customer penetration relative to sub-category median, again great. You’d want to use quarters for this since it will take a while for the new product to gain penetration. Also for most manufacturers, it takes time to build distribution coverage so penetration overall is low even for first year. But if you can distribute 100% into all your stores then penetration by quarter & then 12 month is fine.

Rate of sales per store relative to deleted product – yes; that’s if you can match the new one to an old one / that the new one is specifically created to replace something else.

I would suggest to add something for Margin. Replacing a product that earns .50 per sale with something that earns .40 per sale would only be good if it sells at a higher volume to compensate for the lost margin.

Additionally, I wonder if it’s possible for you to determine if the new product is selling to ‘light’ store buyers. This way it might be possible to discern if the new product launch is playing some role in helping make the store attractive to those who currently do most of their shopping elsewhere. If you launch new products that appeal mostly to existing heavy buyers then, while that’s fine, it’s not helping in customer acquisition and recruiting new/light buyers which is necessary for long term steady growth.

The only other thing I’d suggest considering is a longer-term measure such as how long the product was alive for. Many makers launch and launch and launch and their new products have an average life of say, less than a year. Which seems a huge waste of resources.

J.D.
16 July 2019

Have you got any information on brand rejection rates primarily to understand the following:
· How to define the rejection rate and
· How to identify rejection rate which is acceptable vs. rejection rate which is very high.

In general, rejection rates are very low and are mainly linked to past experience with a brand. Rejection tracking is important especially for new brands / variants as it can give early warning signals on why the brand may not be repurchased – a success factor for any new introduction.

The following two papers will help with your questions.

• Report 61: Do consumers reject brands? Which, where and how often.
• The nature and incidence of private label rejection

M.N-T.
12 September 2017

A question about branding on pack – there’s an ongoing debate about whether we should have one brand for all our private label products in stores vs creating different brands for different categories. What is the institute’s view on this?

There are advantages and disadvantages to umbrella branding. The advantages are the positive spill over effects – trying a PL in one category has been shown to impact trying a PL in a different one. Given that PLs are not advertised by category by rather as a group of brands, this also makes it more effective.

On the other side, one negative experience will also spill over easier if all brands are under the same brand.

What we would recommend is clear: “value, mainstream, best” branding. And for the best/premium tier having a different brand has been shown to be beneficial. Otherwise, the premium option is perceived close to the mainstream line.

So to summarise, I’d keep the umbrella branding within the price tiers but separate the tiers better, so that the premium category is distant enough from the value and mainstream.

M.N-T.
1 Aug 2017

We have been asked for a story on the role of brands alongside private label products, as part of a planning presentation to a retailer. The team are looking for evidence of the commercial benefit of ‘branded products’ and how they can best be complemented with private label products. A very broad brief, but I would be interested to be referred to any work you might have done on the power of brands. Many thanks!