Across the globe, private-label sales and shares are strongest in commodity-driven, high-purchase categories and where consumers perceive little differentiation, such as among paper products and health remedies like aspirin. In these categories, private-label products can have a distinct advantage over name-brand products. On the other hand, categories where innovation and differentiation is important, national brands typically lead in sales.
A case study on two product categories—hair care and milk—helps shed light on the different factors that drive name-brand and private-label success.
When Brands Win: Hair Care
Though hair-care category share varies by country, name brands consistently outperform private label. In the U.S., for example, only 2% of hair-care sales (as of September 2014) come from private-label brands.
What makes it so difficult for private label to break into the hair-care market? The category has several distinct elements that favor name brands:
- High innovation rate—New products launched within one year make up more than 4% of the total category sales for that same year. Launches in this category are big (generally millions of dollars in sales) and require significant investment, which makes it more difficult for private label to compete.
- High product differentiation—Manufacturers have developed products to serve a wide array of needs, including anti-dandruff, color protection and damage repair, among others. The degree of real and perceived differentiation between products is extremely high.
- Strong brand equity—Name-brand manufacturers’ investments in innovation and marketing has created strong brand preferences and loyalty among consumers. Globally, more than one-third (35%) of respondents in Nielsen’s Global Survey of Private Label say they are willing to spend more than the average price on shampoo because it’s worth paying extra. Shampoo is one of the top three products that consumers are willing to pay a premium for in every region.
When Private Label Wins: Milk
Dollar share for milk varies by country, but private label often represents 40% or more of total sales in developed markets.
Why are name brands finding it tougher to compete with private label in the milk market? The category has several distinct features that favor private-label brands:
- Minimal differentiation and low brand equity—Perceived differences among milk products are low. There are many suppliers, and it’s easier for private label to create “me too” products (at lower cost) in this category. Interestingly, the “Got Milk?” advertising campaign—the most successful in the category—was not branded.
- High price sensitivity and high purchase frequency—Consumers are highly sensitive to price. In developed markets, milk is a low-involvement, low-risk purchase. Consumers are less brand loyal and look for the best price. Switching costs are low. In addition, milk has a fast purchase cycle, making its price more noticeable to most consumers. In the U.S., the average branded milk product cost $3.16, while the average private-label milk product costs $3.
- Low innovation rate—Name brands have done very little to innovate in the milk category. In general, innovation is less common in commodity categories, and new products represent less than 0.5% of same-year sales.
Given the size and penetration of the category, milk has strong private-label growth potential in some developing markets. More than 40% of respondents in Latin America (43%), Asia Pacific (41%) and Africa/Middle East (41%) say they are willing to pay more than average for milk because they think it’s worth it, compared with 25% in Europe and 19% in the U.S. Success hinges on retailers’ ability to convince consumers that their product is of comparable quality to leading name brands.
It’s also important to recognize that while private label holds very high shares in traditional commodity-driven products like milk, sales growth is slow as consumer demand saturates. Additional opportunities exist for retailers who look beyond commodity categories and move into higher growth categories or categories where private label share is relatively low today
The report also discusses:
- The assortment challenge: What do consumers want to see on shelves?
- Regional attitudes and sentiments surrounding private label products.
- How you can optimize private-label retail strategies in both developed and developing markets.
For more detail and insight, download Nielsen’s Global Private Label Survey.
About the Nielsen Global Survey
The findings in this survey are based on respondents with online access across 60 countries. While an online survey methodology allows for tremendous scale and global reach, it provides a perspective only on the habits of existing Internet users, not total populations. In developing markets where online penetration has not reached majority potential, audiences may be younger and more affluent than the general population of that country. Additionally, survey responses are based on claimed behavior, rather than actual metered data.