Pricing private-label products is becoming a tricky game in supermarket health and beauty care aisles.
Depending on the strategy, whether it's to compete with Wal-Mart, make a good profit or establish a price-value relationship in the consumer's mind, retailers are scrutinizing their private-label pricing as well as their packaging and promotions.
Andy McPheeters, nonfood buyer and merchandiser at the 16-unit Stanley Stores, Bay City, Texas, complains that mass merchandisers sell branded items below what it costs the supermarket chain to buy them.
"The only good way to compete is to offer private label very reasonably priced," he said, adding that it's private label that provides the gross profit for the HBC department and not the branded items.
Ray St. Laurent, grocery, HBC and general merchandise buyer at Jons Markets, Los Angeles, said competitive pricing sells private label. "Give the consumer some reason to choose it. When you go into a pharmacy, if the generic
drug is only 15 cents lower in price compared with the name brand, why switch? The consumer needs to have a reason to switch," he said.
But retailers like Shari Steinbach, director of consumer affairs at Spartan Stores, Grand Rapids, Mich., warns of the effect that prices that are too low can have on consumers' perception of the quality of the product. Spartan closely monitors the price spreads between its private-label HBC items and the national brands, she said.
"If the price spread is too large, the consumer may question the quality. We constantly look at that value relationship," Steinbach said.
This sentiment has led some chains to experiment with higher retails on their HBC private label to better position store brands with national brands.
A nonfood director for a major Southeastern chain said his company increased prices on its HBC private label to 33% under comparable national brand prices.
"It is very important not to have the price too low. Other than aspirin and commodity-type items, people will suspect the product is not any good if it is priced too much lower than comparable branded items. You need a good spread of about 30%. That is enough for the customer to say it is a good product, but still close enough in price where they won't worry it might be substandard quality," the nonfood director said.
Sales on three commodity segments were negatively affected by the price increase, including aspirin, said the nonfood director. However, these comprised only about 10 stockkeeping units, he noted.
This explains why private label in a commodity segment like shampoo produces the weakest sales in HBC private label for a chain like Big Y Foods, Springfield, Mass. It can be traced to the low retails on some of the branded shampoos, said Jan Winn, director of HBC and general merchandise.
Stanley Stores also raised prices to a 30% spread between the national brands and its HBC private label, said McPheeters.
"We felt if you sell a private-label item too cheap compared with the national brand, your customers will have doubts about the item's quality or whether the item is good. We went up on margin a little," McPheeters said.
Retailers surveyed by SN also said they are focusing more on packaging and promotions to enhance HBC private label's image.
"Quality packaging is essential to improve the image of private-label HBC," said Steinbach of Spartan Stores.
Spartan's HBC package design is consistent with its other private-label categories. "We feel that the positive value and image of Spartan brand products is carried over to HBC," she said. Spartan Stores' private-label HBC packaging includes quality inner seals and safety seals on appropriate products. This is another way of reassuring consumers about the quality of its private-label HBC, Steinbach said.
Spartan also provides a 100% satisfaction guarantee, and does extensive advertising of its private-label HBC to counteract any negative consumer perceptions about the quality of those items, she said.
The Southeastern chain redesigned its HBC private label about 18 months ago, said the nonfood director. "The best way to improve the image of private-label HBC is to repackage it. We took a whole new fresh image to our HBC," he said.
"We are on a national-brand equivalent design program, but we took another look at the national brands and enhanced our colors and added brighter graphics. We used to have some dull packaging. Brighter colors should make it stand out on the shelf," he said.
Winn of Big Y believes the best way to improve private label is to treat it like a brand. "Merchandise it, promote it, demo or sample it," she said.
"Private label is the lifeblood of the category. We advertise it weekly. We have permanent private-label endcaps. We do demos and sampling," Winn added.
Stanley Stores expects to implement a display and sign program shortly that is being developed by its wholesaler, McPheeters said.
"It is kind of a shelf extender that will bring the private-label product a couple of inches out on the shelf, and it also has a price comparison sign. If the customer is looking for a particular national-brand nonaspirin product, for example, she will see our private-label version extended out on the shelf. It will kind of jump out at the customer," he said.
Also, Stanley Stores has begun positioning all its private-label products next to comparable branded items, he said.
Spartan Stores is enhancing private-label sales with a charitable effort, Spartan Cash for Labels, in which Spartan labels are collected to benefit nonprofit organizations, Steinbach said. Any nonprofit organization receives $20 for every 1,000 Spartan brand Universal Product Codes submitted, she said.
"Spartan HBC items are included in this program. It has generated a lot of brand loyalty. We are also making efforts to educate the pharmacists in member stores with pharmacies about private label. Research indicates that 86% of consumers will always or sometimes buy the product recommended by the pharmacist," Steinbach said.
