Why Fmcg product users prefer and enjoy to buy only new brands today?

First, private-label strength generally varies with economic conditions. That is, private-label market share generally goes up when the economy is suffering and down in stronger economic periods. Over the past 20 years, private-label market share has averaged 14% of U.S. dollar supermarket sales. In the depth of the 1981–1982 recession, it peaked at 17% of sales; in 1994, when private labels received great media attention, it was more than two percentage points lower at 14.8%. Second, manufacturers of brand-name products can temper the challenge posed by private-label goods. In fact, in large part, they can control it: More than 50% of U.S. manufacturers of branded consumer packaged goods make private-label goods as well.Reactions to private-label success can have major repercussions. 

 

The Private-Label Threat

Several factors suggest that the private-label threat in the 1990’s is serious and may stay that way regardless of economic conditions.

The Improved Quality of Private-Label Products.

Ten years ago, there was a distinct gap in the level of quality between private-label and brand-name products. Today that gap has narrowed; private-label quality levels are much higher than ever before, and they are more consistent, especially in categories historically characterized by little product innovation. The distributors that contract for private-label production have improved their procurement processes and are more careful about monitoring quality.

Of course, the reasons for the strength of private labels in Europe are partly structural. First, regulated television markets mean that cumulative advertising for name brands has never approached U.S. levels. Second, national chains dominate grocery retailing in most west European countries, so retailers’ power in relation to manufacturers’ is greater than it is in the United States.

The Creation of New Categories.

Private labels are continually expanding into new and diverse categories. Their growth follows some general trends. (See the table “What Drives Private-Label Shares?”) In supermarkets, for example, private labels have developed well beyond the traditional staples such as milk and canned peas to include health and beauty aids, paper products such as diapers, and soft drinks. Private-label sales have also increased in categories such as clothing and beer. With that expansion comes increased acceptance by consumers. The more quality private-label products on the market, the more readily will consumers choose a private label over a higher-priced name brand. Gone are the days when there was a stigma attached to buying private labels.

Brand Strength

Taken together, these trends may seem daunting to manufacturers of brand-name products. But they tell only half the story. The increased strength of private labels does not mean that we should write an obituary for national brands. Indeed, the brand is alive and reasonably healthy. It requires only dedicated management to thrive. Consider the following points.

The purchase process favors brand-name products.

Brand names exist because consumers still require an assurance of quality when they do not have the time, opportunity, or ability to inspect alternatives at the point of sale. Brand names simplify the selection process in cluttered product categories; in the time-pressured dual income households of the 1990s, brands are needed more than ever. In fact, a 1994 DDB Needham survey indicates that 60% of consumers still agree that they prefer the comfort, security, and value of a national brand over a private label. Although this percentage is lower than the 75% figure common in the 1970s, it has remained fairly constant during the last ten years.

Brand-name goods have a solid foundation on which to build current advantage.

Put simply, brands have a running start. The strongest national brands have built their consumer equities over decades of advertising and through delivery of consistent quality. From year to year, there is little change in consumers’ rankings of the strongest national brands. 

Brand strength parallels the strength of the economy.

As the United States has emerged from recession, manufacturers of national brands have increased advertising and won back some consumers who had turned to private labels. Sales of premium-quality, premium-priced brands are on the rise. A 1993 Roper Starch Worldwide survey found that 48% of packaged-goods buyers knew what brands they wanted before entering the store, up from 44% in 1991.

National brands have value for retailers.

Retailers cannot afford to cast off national brands that consumers expect to find widely distributed; when a store does not carry a popular brand, consumers are put off and may switch stores. Retailers must not only stock but also promote, often at a loss, those popular national brands—such as Lay’s chips, Heinz ketchup and Knor’s soup—that consumers use to gauge overall store prices. Even if, in theory, retailers can make more profit per unit on private-label products, those products  just do not have the traffic-building power of brand-name goods.

Excessive emphasis on private labels dilutes their strength.