Discount Product Appeal May Linger After Economy Improves Graphic DISCOUNT PRODUCTS
NEW YORK (AP) _ How are you going to keep them buying Marlboros, Pampers and other national brands after they get to know lower-priced alternatives?
That is a problem a wide range of consumer products marketers face, and marketing experts are warning it may be tough to get old customers back.
A bruising recession, a slow recovery and huge job cuts that extended even to companies like IBM made many consumers pinch pennies in markets as diverse as cigarettes, disposable diapers and bottled water.
Market share gains by generic and private-label products such as store brands have driven powerhouses like Philip Morris USA and Procter & Gamble to cut prices for mainstays like Marlboro cigarettes and Pampers diapers.
Philip Morris attributed its price reduction to the rapid rise of discount brands, which it estimates accounts for about 36 percent of the cigarette business.
P&G said last week in cutting the prices of Pampers by 5 percent that it wanted to close a widening price gap between its premium brand and private- label diapers. It also cut the price on Luvs diapers by 16 percent.
Private-label diaper brands added a hefty 3.2 percentage points to their market share last year to finish with 14.5 percent, says Information Resources Inc., a marketing research concern.
Industry experts say more big-name brands could be forced to make similar concessions to blunt gains by low-priced rivals.
The bigger question is whether consumers will follow the old script and go back to national brands once they feel secure about the economy and their jobs.
A recent study by two marketing professors at the University of Chicago’s Graduate School of Business suggests the big-name brand losses are cyclical.
It found private-label brands in 180 supermarket categories averaged a 14 percent market share over the past 20 years. Shumeet Banerji, one of the authors, said the annual averages fluctuated between 12.6 percent and 16 percent, with private-label share rising in bad times and falling in good.
Information Resources indicates said that for the 52 weeks ended Jan. 3, private-label sales at supermarkets accounted for 13.8 percent of supermarket sales revenue compared with 13.1 percent a year earlier.
But some marketing consultants say consumers won’t automatically return to big brands as the economy improves this time.
″There are a lot of things going on that didn’t go on before,″ said Allen McCusker, head of Canaan-Parish Group, a Connecticut-based consultant.
This downturn has been marked by permanent job losses at industry leaders like International Business Machines Corp., Sears Roebuck and Co. and General Motors Corp. that have left many people worried about their own job security.
As consumers have sought everyday ways to cut costs, some have found private-label brands are just as good as pricier national brands.
″In the ’80s, higher costs meant higher value,″ said Jack Wolf, president of Targetbase Marketing, a Dallas-based marketing firm. ″But the consumer has woken up and said, ’Maybe not.‴
He said the difference in quality between national and generic or store brands ″is a lot less today than it used to be. A lot of consumers can’t rationalize the premium price″ for national brands.
Wolf said national brand makers have hurt themselves, paring manufacturing costs so much that consumers can’t distinguish their products from imitations.
McCusker said marketers are paying too much to retailers for shelf space, leaving less money for brand-building advertising aimed at consumers.
″There are differences in products, but consumers haven’t been convinced that the benefits are important enough to them,″ he said.
They recommended tailoring advertising to show consumers what makes their products different and avoiding production shortcuts that deprive brands of their distinctiveness.
Evian Waters of France has retained about 50 percent of the premium water market against an array of low-priced regional brands. It also has more than doubled ad spending over the past two years. Its latest ads sell the notion that pure water is essential for every stage of life.
″If this recessionary period is different, then for branded manufacturers it is more important than ever that your product remains highly relevant″ to customers, said Mark Rodriguez, chief executive of Evian, a Greenwich, Conn.- based subsidiary of BSN Group.
Another category leader, Minute Maid Orange Juice, recently launched a campaign to reinforce the Coca-Cola Foods division’s marketing theme of better juice, with the line ″We pour every ounce of ourselves into our juice.″
Dave Throckmorton, who oversees the brand for Coca-Cola Foods in Houston, said Minute Maid is the category leader with 23.7 percent of the market but private-label brands collectively have 37 percent.
″Consumers have to believe it is worth paying more for you,″ he said.