THE BLOG

Big Brands vs. Private Labels and the Recession

03/18/2010 05:12 am ET | Updated May 25, 2011

In the November 1, 2009 edition of the Los Angeles Times, I came across a small article suggesting that consumers are starting to switch from private labels back to big-brand names again -- you know, the brands supplied by companies such as Procter & Gamble, Colgate-Palmolive and Kellogg. In the article, store brands (also known as private labels) were positioned as inferior to big-brands. And the fact that consumers are willing to buy big-brands again was seen as a sign that consumers are opening their wallets, just a little bit wider.

The October issue of the Costco magazine contained an interesting article about private labels. When private labels started back in the early 1980s, they were also referred to as generics. The packaging was plain white, the lettering solid black and the product quality inferior. Back in the early 1980s when I was in College, inferior was just fine because the products were cheap and we were not proud: inferior breakfast cereal, inferior flour, inferior coffee, inferior soap, and inferior toilet paper were definitely better than no breakfast cereal, flour, coffee, etc. But, things have changed and private labels are now considered equal to or better than the national brands -- this is certainly the promise made by Dick DiCherchio, the COO of Costco.

The recession came at a good time for private labels. Positive attitudes towards private labels have increased and this has flowed through to demand as consumers have been forced to take a look at their household expenditure and trim costs. In fact, the October issue of the Consumer Report said that consumers could save 27% by buying private labels.

One advantage big-brands had in the past is that they often led the way with innovation -- think the Swifter for example. Even this advantage seems to be eroding as private-labels are striving to become innovators and trend-setters -- in fact, in the first half of 2009, private labels accounted for just over a quarter of all new product introductions.

The recession will come to an end. To compete in the post-recession world, marketers of big-brands will need to focus on excellent execution of the current brand strategy and, if they want to remain competitive, stay focused on innovation in order to stay ahead of private labels. For private labels to grow in significance, the new emphasis on innovation will need to be maintained and the retail stores themselves will need to pay more attention to their own retail brand because the strength of the private label lies, of course, in the strength of the retail brand.

Jenny Darroch is on the faculty at the Drucker School of Management. She is an expert on marketing strategies that generate growth. See www.MarketingThroughTurbulentTimes.com