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Boosting revenues and responsiveness through effective promotion
Private label offerings are on the rise, now competing head-to-head with national brands instead of being relegated to commodity products. This is because retailers have made their in-store brands more relevant to shoppers while offering comparable quality at significantly lower cost. More and more, private labels are becoming a strategic imperative for retailers—and a fundamental source of competitive strength. But only if retailers get private label promotion right.
In a world of limited budgets and virtually limitless marketing channels, retailers need to gain the ability to stimulate private label sales by dialing up or scaling back tactics in three key channels: mass media, direct media and in-store marketing. To do this, retailers must first rethink the way they currently view each area, creating a much more transparent, holistic approach to understanding how each impacts the others and how all are affected by various internal and external factors. Discover why those retailers that can effectively gauge promotions are well positioned to gain a powerful business approach for meeting today’s complex marketplace demands.
While retailers recognize the emergence of private label offerings as important revenue generators, most are not maximizing this potential. An Accenture survey reveals that, in the next five years, two-thirds of retail executives surveyed projected that private label would contribute a full 20 percent of their net revenue. Yet despite this increasing strategic importance, only a few survey participants reported spending more than 10 percent of their overall marketing budgets on retail private label brands. To some extent, retailers have caught up with national brands and are able to tweak promotions on name-brand and private label items to react to changing demand patterns. Yet private label products still remain under-served when it comes to measurement.
One issue is that some retailers may lack both the knowhow and the tools to effectively measure the efficacy of what little they do spend on private label campaigns. National brands can invest up to 20 percent or more of sales in their marketing investments, particularly when it comes to supporting new product launches. In comparison, retailers often limit their support of private labels to the costs associated with coupon liability and internal in-store marketing costs.
Learn more about Accenture’s brand management study.
To make the most of private label promotion, companies need to change how they leverage marketing channels to support these offerings. They must:
Focus equally on in-store marketing, direct media and mass media channels in terms of marketing investments and analysis.
Go beyond SKU rationalization analyses, which only scratch the surface of how analytics can be applied to private label to boost performance.
Collect product sales at a weekly level and conduct analyses to determine the underlying controllable and non-controllable drivers of product sales. Once the impact of non-controllable factors is isolated, the analysis provides retailers with greater transparency into internal, controllable factors such as price cuts, in-store marketing and media.
Calculate the relationships between the amount of ad time purchased and the effect of diminishing return on sales for each media vehicle within a campaign—and adjust the campaign accordingly. The end result: a clear picture of incremental private label sales attributable to specific campaigns and marketing channels. These insights can be used to assess historical efficiency of the marketing efforts around private label as well as optimize and guide future investments.
How can private label analysis impact sales? Take the examples of two companies:
North American retailer. This major player sought to understand how to boost revenues around multiple private label lines. Historically the company tended to leverage coupons, receipt marketing and direct mail with some limited mass media exposure.
The first step involved pulling weekly sales data from the central, corporate system separated by category. Next, in-store marketing data was collected to provide further understanding of which categories received what support. The retailer then ran econometric models to decompose sales into distinct drivers: controllable versus non-controllable variables. These models yielded clear and compelling insight into the return on investment of each marketing lever by category. Armed with these insights, the retailer was able to re-mix investments accordingly and maximize sales.
World-leading food and general merchandise retailer. The company sought to understand how adjusting private label pricing could increase profit. Through the application of an industrialized analytical approach, the company was able to truly understand the price response at an individual product level and then challenge and optimize existing pricing rules to drive sales and margin.
One consistent pattern: In categories dominated by branded products, average price sensitivity tended to be higher than on private label products. However, this pattern was reversed in categories dominated by private label or unbranded products, e.g. fresh produce. As a result, the analysis uncovered an opportunity to raise margins significantly in private label premium quality product groups.
Traditionally, marketing and media support can drive up to 20 percent of a brand’s overall sales whether it’s private label or national products. Correcting for inefficiencies within the promotion of private label products can increase this percentage and overall sales without investing an additional dollar—an especially interesting proposition in these days of constrained consumer spending and marketing budget cuts.
But to get more bang for the buck, retailers need to re-think the way they promote private label, weighing channels like mass media more equally with traditional in-store marketing. And they need to change the way they analyze results. Those who harness the power of their private label offerings through the enhanced measurement of promotions stand to gain revenue that contributes directly to the bottom line.
July 24, 2012
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