Private Label has come a long way since the 1970s!

In the US, private-label products have long carried a stigma of being the generics—the items people bought when they needed to compromise. Some point to the energy crisis of the 1970s as a boom-and-bust period for private-label products. Consumers were forced to trade down from their beloved brands to cheaper options because they simply couldn’t afford the items they really wanted. They bought a lot of private-label products, and—by most accounts—the experiences didn’t go all that well.

Two hard lessons were learned during this period:

1) Private label more often than not meant significantly lower quality and;

2) Consumers couldn’t wait to trade back up to brands and products they really wanted when their budgets allowed the switch.

Private-label advocates knew they had to find ways to build brand loyalty and gain credit for more than just being the lowest-cost option.

The good news is that private-label brands have made huge strides in the hearts and minds of American consumers. During the Great Recession of 2007–2009, as in the 1970s, large numbers of households were driven to private label. But one significant difference is that as the economy has shown signs of strengthening, consumers haven’t bailed from private label. A recent Nielsen report indicated that 71% of consumers say private-label quality has improved over time.

Can private-label brands hold on to their good fortune? We’ve identified five key principles that need to be in place for private label to hang on to and advance their share.

BUILD BRANDS INSTEAD OF COMPROMISES

Consumers always claim to want the lowest price, which is why so many private-label efforts follow a national-brand-equivalent (NBE) strategy. But when this happens, consumers are reminded that private label is the trade down from their desired choice. So private label gets no credit for brand or product innovation, nor loyalty based on its own equities. Consumers will trade up and out when possible.

Target’s Up & Up brand abandoned NBE lookalike branding, opting instead for clean, bright packaging and clear system architecture to communicate minimalism without sacrificing style. By building up its own brand, Up & Up created a recognizable, “cheap-chic” offering in line with Target’s master-brand positioning.

LIMIT YOUR LAYERS

Consumers have been trained to perceive three tiers in most retail environments: cheap stuff, expensive stuff and everything else. However, owned brands can fall prey to presenting too many layers. Some retailers have difficulty killing off weak products or collections that no longer match the brand and instead create sub-tiers and super-tiers. When consumers can’t distinguish the nuances, they apply the three-tier rule for simplicity.

Sainsbury’s evolution to private-label leadership began with a clear good/better/best strategy that provided separation within the tiers—“Basics,” “by Sainsbury’s” and “Taste the Difference.” Giving each brand a discrete (and complementary) job to do ensures products are organized in a smart, accessible way so consumers can quickly assess and know what they’re getting.

MATCH THE BRAND SCALE TO THE SITUATION

In today’s superstores, shopper mindsets shift from aisle to aisle. Know where private-label initiatives can succeed as large-scale systems crossing the entire store (such as Costco’s Kirkland Signature brand) or where they are more effective as smaller systems that leverage the unique emotional cues of specific categories (think Walgreens’ private-label-turned-national-brand Boots for high-end beauty). It’s important to match the needs of the brand, category and consumers.

MAKE EACH BRAND STAND FOR SOMETHING DISTINCT

People don’t buy what you make, they buy why you make it. Owned brands can become watered down over time by lack of clarity in the brand purpose or position in the marketplace. Building a purpose-driven brand empowers owned brands to use discretion when it comes to product assortment. And innovation against category white space can be a driving differentiator when tied to an established position.

Wegmans’ Simply from Nature pet line does this well. Driven by the insight that pets are family too, the line cuts out artificial colors, flavors and preservatives. Here, staking a claim to a considered brand experience—while still driving value—elevates product benefits to differentiators and positions for preference.

KNOW HOW GOOD IS GOOD ENOUGH

Consumers tend to shop retail categories in one of two ways as they move across the store: top-down quality assessments and bottom-up compromise. For top-down assessments, they’re concerned about failure, perception and replacement costs. Think about buying fresh meat, where the family meal is on the line. The typical household only buys a few types of fresh meat that they already know how to cook. This drives butchers crazy but it makes sense when you think about it. Because if mom screws up a London Broil she’s trying for the first time she ruins dinner and suddenly the family is doomed to cereal or pizza for the night. The family now has to pay twice for dinner ... and mom feels like she’s failed the family. That’s a lot of pressure riding on one cut of meat. Better just to stick with things she knows how to fix and look like a star at the dinner table. The same logic holds true for other categories as well, such as prestige cosmetics, where emotion and appearance count.

For bottom-up compromise, consumers look for products that deliver their desired level of performance, but at the lowest price possible. Think about buying commodity and high-use items like toilet paper, laundry care, dish care and paper goods. Sure, there are always consumers who want the best. National brands love and court that audience hourly. But not everyone wants to pay for a quicker picker upper. These consumers tend to start at the lower end of the selection set and find what works okay for their needs. For them, a paper towel that works okay is just fine. They’ll save money on paper towels and go buy more ground chuck.

While the faltering economy that drove the expansion of private label has improved, in its wake is a new class of value-minded consumers willing to keep purchasing private-label brands as long as they perceive continued quality and innovation. Brands that leverage these principles will be poised for both elevation and endurance.