Welcome

Welcome, there are many websites and blogs that show great package design, in this blog I hope to express my views and discuss issues concerning branding and packaging design in more depth. You are very welcome to join in the conversation.

Please visit me at http://rhpkg.wordpress.com

Monday, February 8, 2010

Value: The old rules no longer apply

Have you noticed how our shopping habits are changing? : Consumers today are choosing to trade up towards the purchase of quality and luxury products, but at the same time these same consumers, are also accepting more and more to buy private label products and to shop at the hard discounters. It seems our definition of Value is changing, increasingly private labels are being seen as a quality alternative to major brands.

In the past decade hard discounters have created “value innovation”, moving a long way from the brown boxes and poor quality of the past, to offering the seductive combination of low prices matched with good quality products. The result is that we can see a growing polarisation of the market, with a growth in both luxury and value brands and a shrinking of the middle market.

Proof of this “value innovation”, can be seen in a recent UK taste test, where hard discounter’s products beat many major brand names, with the daily tabloid newspaper, “The Sun”, announcing that: “Aldi mince pies tasted nicer that Harrods’s mince pies!”

This format adopted by hard discounters like Aldi and Lidl, entails offering consumers “no-frills” products, 90% of which are their own private label brands. They reduce the number of products on offer, and achieve economies of scale, through streamlined operations, effective sourcing and better use of shelf space.

Their pioneering business models have also seen them creating long-term partnerships with their suppliers, with dedicated supply lines that bring a co-operative approach to product design and supply. All un-necessary costs have been eliminated allowing discounters to offer extremely low prices, matched with an increasingly higher quality. This means lower profit margins but this is easily offset with greater volume growth.

Today, hard discounters are a well-established part of our lives, with approximately 17% of us shopping with them across Europe. In Germany, the home of Aldi and Lidl, 80% of German consumers (most of who are white-collar workers), do their shopping at hard discounters, This desire for value has seen Aldi double its European presence, and lead to Lidl opening one new store every day in the last 15 years. It seems “value” is now a major purchase driver and quality is no longer seen as the exclusive domain of the major premium brands.

In times of recession like today, consumers tend to become protectionist and cocoon themselves from risk by eating more at home and pampering themselves with small luxuries. Thrift drives them to experiment with products from the hard discounters, and once they have experienced the quality on offer, many never return to their old shopping habits.

This new definition of value means that often consumers will trade up in emotional meaningful categories and down in essentials or less meaningful categories. They have become well informed and more conscious of what they buy, across all categories and segments. Today there is now no shame or embarrassment in being seen to be careful with money. Consumers are happy to mix and match both value and premium products, and take pride in being able to show they are selective and wise in their purchases.

The difference in price between major brands and private labels is no longer justified by the added value of a brand name, it has become a “brand tax” that many consumers are no longer willing to pay. J.N Kapferer said in 2004, “For consumers there are only two types of brand: those which justify their price premium and those that don’t”, this implies that brands who want to remain on consumer’s shopping lists will need to change. They will need to justify their price premium by investing in creativity, innovation and quality, they must embrace research and development and look to re-create relevant and important differences that give consumers a real reason to buy.

In so doing brands can add “tangible value”, but this alone is not enough, there must also be a drive to build “intangible values”, vision, personality and tone of voice that their consumer’s can associate with and will be relevant to their evolving lifestyles.

Already we can see major brands and mainstream supermarkets are introducing “value” sub-brands that offer major reductions on standard pricing, in an effort to attract consumers away from the hard discounters; For example, Unilever’s Iglo brand has launched an “Essentials” range and Proctor & Gamble’s Tide has launched its “Basic” range. Carrefour, finding itself under attack, has also recently redefined its private label strategy, launching its “Carrefour Discount” range to fight back at the threat from hard discounters.

With shopping habits changing, “value” has become an important criteria for consumers, polarisation of the market means that brands can no longer “bury their heads in the sand” and hope to return to old business models of the past when the recession ends. We believe the old rules will no longer apply!

So, what are the principals that brands can apply to a “Value” positioning:

1 Don’t fight a loosing battle: It is almost impossible to win a price battle against discounters and private labels – their cost structures are much lower, giving them much more pricing room to manoeuvre and win.

2 Think of value as much more than price: Rather, it is the relationship between price and benefit. “Value Innovation” is about “Value Plus” – value, plus benefit, design, service and variety… Studies show that reliance on heavy price promotions tends to put customers focus on price only. “This dilutes the perceived quality gap between competitors, makes consumers more price sensitive, lowers baseline sales and decreases the willingness to purchase brands over private labels” (Steenberg et al 2009).

3 Customer-centricity: Companies facing intense price pressure and a diminishing middle market need to focus on customer needs. Better segmentation approaches can result in renewed interest from consumers, as their needs are met. It’s essential to listen carefully to customers, and to make your value positioning a part of your overall segmentation strategy.

4 Consumers judge value according to tier: It is not necessary to be the lowest price, but to be the best combination of price and benefit in each psychological tier.

5 Ensure your value positioning contributes financially to your company. Brands will need to re-address their business model, finding ways to reduce costs, by improving productivity and looking for economies of scale in order to sell value brands at a profit.

6 Differentiation: Make sure your value positioning creates enough differentiation from your core range, to avoid cannibalisation.

7 Resources: Make sure you allocate enough resources to your value positioning.

Rowland Heming / Martyn Keus – Design Board - 2010©

No comments:

Post a Comment