Is There Such a Thing as "Too Cheap"?

Yes - especially in Private Brands.

This was much more of a problem years ago with Walmart and the Dollar Channel pushing traditional grocers to try and race to the bottom - often using Private Brands. That being said, I still see too many issues as I make my way through stores today.

Consumers - especially necessity consumers - are a quirky bunch. Rarely do you see Las Vegas visitors striving to pinch pennies for something they do not need yet people will drive miles out of their way to save $0.25 on a roll of paper towels. This mentality carries over as consumers compare pricing - both in-store and across stores.

Too many retailers think that in-store consumer actions translate to across store actions - and this is not really true. They also think that using price as a differentiator for Private Brands is the best use - and this is not always true either.

Consumers are much more focused on value than price - and when it comes to Private Brands the concept of Relative Value comes into play. For new customers to your Private Brand, they may not see stand alone value at first as they are missing context (they are not familiar with everything you have done to build your brand based on quality). They need to be introduced to the Relative Value of your products to the brands they are used to buying.

This is where pricing makes or breaks the first impression. If you are priced too cheaply, the consumer expectation of quality is fundamentally reduced. In their minds, if your Private Brand is too cheap then it can't be as good as what they are used to (the gap is ~10% cheaper on most products - sort of depends on the category). This creates sales headwinds while also putting pressure on both margin and dollar profitability.

By understanding consumer expectations around Relative Value, you will be able to maximize sales (units as well as dollars) and maximize profit potential for not just that one product but your entire program.

So, how can you use Private Brands as a price image weapon? Be strategic - select items very carefully that represent everyday value for your customers and test different price points that help build total traffic. Consider using an Entry Level Price Point line - this can help drive price image while protecting the value and profit capabilities of your mid-tier (and other higher tiers). Watch the quality levels you select in sensitive categories that sway opinions - everyday items that, if they fail, can cast a cloud over your entire line or pieces of it.

Finally, your best path is to be an active participant in the merchandising game. Use the analytics available to monitor your progress and play around with retails until you find your sweet spot - where traffic across the store increase, Private Brand share increases and total store margin is trending to overachieve your targets.

Do you want to build a more sustainable private brand business (and perhaps enhance your total merchandising approach to PB) where you can outpace both the competition and who you were yesterday? Schedule a 30-minute session to explore the possibilities:?https://calendly.com/craigespelien/30-minute-meet_greet