How can manufacturers and retailers meet demand for less expensive alternatives and private label products without sacrificing the integrity of their existing portfolios? We share essential strategies for private label manufacturers, branded manufacturers, and retailers.
At a time when financial prudence takes the spotlight, consumers are approaching their spending habits with a discerning eye. In our recent study, 25 percent of consumers ranked “seeking out less expensive alternatives and embracing private label products” among their top three strategies to combat the challenges of inflation and volatility.
This underscores the pivotal role that private label manufacturers, branded manufacturers, and retailers play in meeting this evolving demand for cost-conscious choices. As the market narrative pivots toward practicality, it’s imperative to delve into effective strategies for managing private labels and/or providing budget-friendly alternatives that resonate consumers without sacrificing the integrity of your existing portfolios.
Diversification is key, as the market now seeks a wider spectrum of these products – not just those catering to the budget-conscious consumer. Manufacturers and retailers must embark on a journey of enforced product development, coupled with a refined and smarter price architecture.
While meticulous market scenario planning is key for all players to get a view on the potential market environment in the next one to three years, the action items differ between private label manufacturers, branded manufacturers, and retailers. So let’s take a look at all three of them:
Solutions for private label manufacturers
At first glance, the future looks brightest for these players. Overall consumer demand in this segment is increasing and some players have even been able to increase their tight margins over the past years despite the strong raw material and energy cost movements. However, since overall consumer price sensitivity is increasing, retailers are fighting for their price image. Good and cheap purchasing prices are a prerequisite for these retailers. So, what are the key tasks for private label manufacturers?
- Analyze your customer base
The easiest and fastest way to grow is to penetrate the existing customer base with your offering. Proactively analyze your key customers’ assortments, extract actionable insights, and propose new business opportunities. - Level up your category management
Identify consumer trends and flag the (sub)categories that will drive future growth. Expand your offering beyond pure “me-too” products to position yourself as a trusted advisor for the retailer. - Leverage the volatile and inflationary climate
Rather than consider the and inflationary climate as hurdles, see them as steppingstones to fortify value and capture market share. With the “value for money” dimension gaining traction in the target segment, private label manufacturers must seek ways to improve monetization – while continuing their strong cost management.
Solutions for branded manufacturers
In recent years, several branded manufacturers gained market share and were able to improve their profits – often triggered by price adjustments. While the profitability picture still looks fine for many, the volume situation is dissatisfying. And with private label gaining volume share, branded manufacturers need to carefully revisit their strategy. So how should they react?
- Understand the different consumer segments
While several consumers have changed their purchasing habits, there is often still a significant, loyal consumer base in place. Intuitively, many companies like to focus on the consumers they lost – but it’s at least equally important to understand those that remain, why they purchase a certain product (occasion) and then take the right actions. - Identify the relevant consumer budgets
With reduced disposable income, price is a key driver that needs to be properly understood. What are the relevant consumer budgets and what are the resulting price points that should be covered with a product offering? In this context – both regular shelf and promotional prices need to be assessed. - Define a new, resilient product-price architecture
With these insights, you can refine your portfolio by striking a balance between rationalization and new additions. A resilient, product-price architecture (PPA) guides the trade-off between potential price adjustments of existing products vs. coverage of new price points with new products, helping to limit cannibalization. In addition, the PPA also provides a sound basis for the story to trade and thus facilitates implementation.
Solutions for retailers
Consumer price sensitivity is increasing and retailers need to focus even more on their price image. With shop visits being one key aspect of a retailer’s overall profit equation, retailers must ensure they offer a proper shopping experience. This includes the products and prices offered – on branded and their own brands.
- Adjust range planning and assortment structure towards price entry products
Strategically reevaluate your product offerings, placing a stronger emphasis on introducing and promoting competitively priced items to cater to cost-conscious consumers. By expanding the selection of affordable options, you can enhance your price image and attract a broader customer base. - Change your merchandise
To improve the shopping experience, highlight your most appealingly priced products through effective in-store marketing tactics. This involves increasing the visibility of budget-friendly items with more prominent shelf placements, eye-catching displays, and in-store advertisements. These efforts can capture shoppers’ attention and encourage them to explore value-driven options. - Manage actively own brands
Optimize your own brand or product portfolio by adjusting pack sizes to align with customers’ budget preferences during their shopping trips. Offering varying pack sizes ensures customers can find options that fit their overall budget, enhancing the perception of affordability and value associated with your own brands.
How we can help
At Simon-Kucher, we understand the nuances of market dynamics and the imperative of staying ahead.
Our industry-focused insights and proven methodologies empower businesses to thrive in times of change. From crafting robust market scenarios and innovative product strategies to refining price architectures and dynamic pricing, our tailored approach addresses the unique challenges posed by inflation and shifting consumer behaviors.
Let us be your partners in transforming challenges into opportunities, ensuring sustainable growth in an ever-changing landscape. Learn more about our expertise and how we can collaborate by reaching out to Bjoern Dahmen or Francesco Fiorese today!
