Where next for Aldi, Lidl and private label in the upturn?

Brand owners taking comfort in the belief that the swing to private label and the discounters’ surrogate brands (i.e. Smith’s coffee made exclusively for Aldi) is a temporary aberration due for correction in the current ‘upturn’, might lose a little sleep following the publication of new research on how consumer knowledge affects the choice of private label over national brands.

Mark Ritson gives a great summary of the paper and its implications in Marketing Week, where he notes
- Category knowledge (and the resulting confidence) is a key predictive driver in choosing private label
- ...if people are buying private labels not because they are trading quality for lower prices but because they know these products are as good as the manufacturer brands (Aldi, Lidl and private label will not lose share in the upturn).

Mark’s Marketing Week article is much more accessible, but it can also pay to go back to the original research paper for more details on OTC medicines and Pantry Staples. The paper also gives anecdotal insights such as … the welfare claims we make (for medicines) depend on the assumption that information per se does not affect the utility a consumer receives from a product. If, for example, believing that national-brand aspirin works better actually makes national-brand aspirin more effective at reducing headaches, then informing consumers could actually make them worse off…

The original paper concludes:

• Across a range of products we find strong evidence that more informed shoppers buy more store brands and fewer national brands.
• Consumer information plays a large quantitative role in health categories, where our estimates imply that expenditures and market shares would change significantly if all households behaved like expert shoppers.
• By contrast, the role of consumer information is smaller in food and drink categories, where our estimates suggest much smaller gaps between expert and non-expert shopping behaviour...
  i.e. a moderately savvy consumer is likely to have more confidence in opting for private label food and drink, than medicines…

NB. The researchers emphasise that the study was limited to examining the effects of information on quantities and prices. If consumers were to become more informed, markets would adjust on other bases as well. In particular, a more informed population of consumers might change whether and how much firms choose to advertise their products, as well as which products are introduced to the market. 

NAM Implications:
For many years we have been educating the consumer to be more savvy in their choice of our brand, and have been helping them place the brand within a functionally-based category context…

Have we been inadvertently driving them at the private label/surrogate brand in the process?

Thanks to Guy Cuthbert for the pointer…