Sunday, August 12, 2012

Sleeping With Your Enemy : Private Labels and National Brands, Who Innovates?

In the last few years, private labels have steadily eroded the market share traditionally held by national brands. In fact, in 2008, private labels had taken over 25% and 50% in most European markets and 20% in the US.

There are a few reasons driving private label growth: an increased concentration among retailers, an improved quality perception among consumers, and a rising social acceptance of private labels consumption. In addition, the current economic downturn has further boosted the appeal of private labels because of their price utility.

To combat the threat posed by private labels, consumer packaged goods (CPG / FMCG)  companies frequently adopt new innovation strategies focused on delivering new value to consumers. Furthermore, research shows that national brand manufacturers have mainly focused on increasing their distance from private labels through innovation and advertising in order to provide a superior value to the consumers compared to private labels brands. In this sense, product innovations help to sustain a national brand’s competitive advantage and provide a basis for a sustainable price premium over store brands. Research also shows that the introduction of new products by national brands has a positive impact on their brand equity which makes them less vulnerable to the entry of private labels. 

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