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Using Private Label to Improve Price Image; A New Organizational Structure That Puts Customers First

By December 9, 2019January 27th, 2021No Comments

Ken Ouimet of Engage3 and Wesley Bean of Catalina Marketing talk about providing customers more value not only by carrying healthier-for-you products, but also helping them navigate through store assortments by highlighting product attributes that are specific to their health requirements. They also discussed how retailers should think about their Price Image in terms of their private label offerings. Wes mentions how other retailers can learn from the success of Kroger’s Simple Truth, now a $2B organic health and wellness brand. Ken brings up the rise of attribute loyalty vs. brand loyalty and Wes discusses a new approach to organizational structure from the typical product/category system to a customer-solution orientation.

The following is a transcript of their conversation:

Nothing more personal than health

Ken: What I get excited about in thinking about the personalized health and pricing is there’s nothing more personal than health. And so I see that as a way to be for retailers to have more loyalty by helping their customers achieve their personal objectives for health and nutrition, and then the other end to create a race to the top where you have higher margin because you provide more value. 

Wes: Well, and it gets interesting especially when you start looking at some of these innovative brands that are pushing us into new spaces of food innovation where a lot of times a young brand has a hard time getting facetime to a customer. The merchants are doing their job by putting it on the shelf, being adaptive, finding the way to get it into their range and assortment strategy. But then a lot of the work is left up to the customer to navigate up and down all the aisles of center store to go find that gluten-free option, where now it becomes much more–with personalization–in terms of your communication across channels, whether it’s email marketing or targeted offers that are being delivered at shelf edge. But taking the customer on that treasure hunt into what’s truly appropriate for them and helping them navigate their way through that complexity to say this is my lifestyle choice that I’m making and this is what’s in the best interest of my family. 

Developing relationships with brands

Wes: Exactly. That’s where over the last year and a half at Catalina we put a tremendous focus on developing relationships with these emerging brands and helping them both use our customer research to see where are the trends across the retails, but also help through our targeted marketing. Help them find the right audience and the right customer that’s looking for that. So it’s back to that data fusion. When you bring in the attributes and you link the attributes with purchase data and begin to develop those unique shopper personalities and even store personalities where you’re seeing that index very significantly, then you can be much more effective in your marketing spin, reduce waste, reduce efficiency if you get directly to those customers to entice, delight, trial, repeat, and then hopefully build loyalty over time, at a quicker, faster pace. 

Ken: Yeah, I think that’s a huge problem, how do you get these new products into the markets so consumers can be aware of them? You know like the Kind Bar, it started in bike shops because it couldn’t start in a traditional grocery store.

Ken: Yeah. I wanted to talk to you about Price Image. How do most retailers think about Price Image today? 

Wes: You know, I think it’s very much an inflection point where you’re still looking at a stratification across the industry where the EDLP operators, the high-low operators, and then the hybrid in the middle of that’s looking for how do I get image right across a set of KVIs and take that in terms of the value proposition with the customer? Where it’s getting extremely complex though is if we look at the growth of private label and how that’s now penetrating into the U S market. So, as recently over in London, we spent some time with Sainsbury where their penetration is over 60% private label all and including the perishable sides all the way through, and you see that in a marketplace like the U.K. Here in the U.S., many U.S. retailers have started down that path of treating their “our brands” programs like a brand and investing heavily into that. So now you’re having this complexity between, when we think of Price Image, what role does private label play in addition to that high-low promotional cadence and strategy? So it’s getting a bit messy right now to figure out what’s the overall architecture for a customer to really walk in a store and know they got value every day, but also see something that surprises and delights them of value from a promotional standpoint. 

Private label can democratize wellness

Ken: It’s interesting what you said about the store brands. Do you see the store brands priced higher than the national brands ever? 

Wes: In some cases, yes. And what’s exciting to see is store brands with many mature retailers are really coming into their own where they’re not a store brand. They are truly a brand. I love what I see with Kroger and Simple Truth, $2 billion health and wellness, organic and natural brands. Twenty years ago, we would not have ever thought of something like that and the innovation that continues to explode across categories gets me personally very excited because that’s a lifestyle brand I feel akin to, but also the customer choice that you get is–it’s democratizing health and wellness in a sense. Now you’re finding a way where 10 years ago, organic and natural was a premium that I had to make a life choice and pay for, where now it’s accessible because of how store brands are moving into spaces like that and operating as a brand.

Ken: Would you be concerned if you’re a national brand? 

Wes: I think it’s challenging right now to find the balance between, but as a national brand no, I think innovation begets innovation. And so what I’m seeing is with many national brands now they’re beginning to look at where are innovative companies coming along and how can they also partner with them or infuse capital or potential acquisition that helps provide a startup brand scale that they can take across the marketplace that at  a faster approach than you may be able to see through traditional distribution channels. So I think it’s a good counterpoint that we’ll see that will enable more efficiency for the customer.

Turning brand loyalty into attribute loyalty

Ken: As we go digital and the digital is embedded with the in-store experience, because people are able to search for what they want, do you see that brand loyalty might turn into more attribute loyalty? 

Wes: Very much so, and it’s real interesting. We’re spending a lot of time at Catalina looking at that life cycle and path to purchase from when you’re planning your shop, when you’re in the store and the experience that you see–be it via digital or information-based that you could do through an app on your phone–to post shop. What stimulates that repeat trial to come back there? And you’re beginning to see storytelling become part of that retail experience and also curation. That personalization of, across all the different promotions that you want to talk to me about as opportunity, how do you curate the right story for me as a unique shopper and then reward me with value both from the assortment you have and the price that you’re offering me to make it a very relevant and loyal trip to come back to? 

An organizational structure that puts customers first

Ken: What do you see as the retailers’ biggest obstacles to getting there, to be able to provide that experience? 

Wes: I think there’s a lot of work to do in a couple of different areas. One, the partnerships between retailers and brands, and that’s where I look at data science really helping bring both sides to the table together to find where’s that efficiency? The customer is telling us what they want by how they vote every day with their wallet. They’re making the choices whether to shop one retailer versus another to move out-of-channel to move into quick serve restaurants, et cetera, convenience options that they’re wanting. And so as we begin to mine that data, listen to that data, it becomes a great opportunity for greater joint business planning and collaboration across the value stream, one. Then secondarily, where I think an interesting piece of innovation will come in the future is through a very unlikely partner inside retailers. And that’s the HR side of the equation. Within retailers, you’re typically set up across P&L lines and structures. They drive the core of the business. But I see a point in time where org (organization) design will come to the forefront of where innovation is needed and you begin to look much more Caption: Customer solution-oriented teams) customer facing from teams that are solution oriented and our merchandising, pricing and inventorying across a customer need state, rather than our traditional center store, HPC lines that we’ve had for a hundred years. 

Ken: That’s an interesting concept. Are you seeing any retailers do that? 

Wes: I heard a presentation earlier this week, from Loblaws that was tipping into that very theme. But quite frankly, this is part of what comes when you’re married to an org psychology professional who constantly gives you a 360 at the dinner table every night. So it’s really looking into how, as we begin to use data to change the technology, the communication with the customer, how do we then look at our organizational structure? Because ultimately structure and metrics are what drive our behavior. So that will be an interesting piece of innovation that will unlock a different type of relevancy in my mind for the customer as we move forward. 

Managing around the customer

Ken: I think it’s going to be critical as you go into personalization that there’s going to be a reorg, we can’t be continuing to manage around products, we want to manage around the customer, right?

Wes: To me, the data is now getting to a point and the solutions in the marketplace, many of which we see here, begin to make that enablement really become a reality.

Ken: Well Wes, I want to thank you for being here. I always learn a lot talking to you, and I look forward to seeing you again. 

Wes: Wonderful, well, thanks Ken, it’s great to see you again and I enjoyed the conversation.

=== End

In the first part of this 2-part video series, Ken and Wes discuss how companies can use data science to know the customer better, and how to balance competitiveness with price. You can watch Part 1 here. For more information on how 10 items drive 50% of Price Image, you can watch Ken’s interview with Nielsen’s Marcia Webb here.