BRAND EQUITY VS. TRADE EQUITY: WHO’S WINNING THE BATTLE?

Manufacturers are facing ever- increasing competition from retailers’ own branding
efforts. This is happening at the same time that the measurement of retailers’ activities is
becoming more difficult, and existing tools are inadequate.

There are 2 kinds of brands today: Manufacturer-sponsored brands, and Retailer-

sponsored brands. The term “private label” is obsolete. The two types could also be
called “National Brands”, and “Retailer Specific” Brands. National brands attempt to
obtain distribution across retailers. Retailers’ own brands do not. National brands
achieve success through brand positioning, product quality, and advertising. Retailers’
brands borrow from the National Brand’s positio ning, and then add a Value proposition.
The national brand buyer may fully expect to buy a national brand when entering the
store. But her hand may move to the retailer’s brand with a last second recognition that
the retailer has added Value to the brand equation.

In most categories, 10 to 12 National brands account for 80% or more of the purchases.
But a Retailer’s brand will be below the radar screen on a national share basis, since its
market share is automatically limited to those who shop within the retailers’ walls. (For
example, since Wal-Mart does not supply scanner date to Nielsen or IRI, some national
manufacturers may not be aware of the fact that Wal-Mart’s Equate brand is the #1 brand
of analgesics inside Wal-Mart, and accounts for approximately an 8% unit share
nationally.) 1

There can be dozens of brands in a given category, comprised of the 10 to 12 national

brands, plus the dozens of retailer-specific brands. The retailer can afford to charge lower
prices, since the Marketing expenses, associated with Advertising and Sales Promotion,
can be largely omitted from his brand’s Profit &Loss sheet.

As retailers have shifted their attention towards their own brand-building efforts, several
things have happened. As a retailer’s brand gains a foothold in a category, smaller
national brands can get squeezed out, through distribution or shelf space losses. Retailers
can also put pressure on manufacturers to keep prices down. As National Brand margins
are then squeezed, advertising or promotional budgets must be reduced. This is
happening at the same time that the media is simultaneously becoming more fragmented,
and efficient national media buys are becoming harder and harder to come by.

1
Based on 2004 Baldinger, Solomon & Associates online survey data.

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Retailers have begun to methodically address each of the 4 P’s:

4P’s Retailers’ Strategies for their Own Brands

Product Buy high-quality ingredients

Place Give their brands prominent positions/facings

Promotion Display their brands prominently in store, employ

high quality package graphics, and use specific
brand names

Price Price the brands below leading manufacturers

What are the Retailers’ Strategies?

As a result of these more-sophisticated efforts, some retailers have built their own brands
into positions of category leadership within the retailer. From category to category,
leading-edge retailers employ 3 basic strategies to enhance and build their brand
portfolios:

Retailers’ Key Equity Strategies:

#1: Focus on Profitable Categories
#2: Build Strong Store Brand Value Propositions
#3: Support Certain National Brands

Strategy #1: Focus on Profitable Categories

There are certain categories which have been selected for particular branding emphasis
by retailers, based on likely share growth, or profit potential. For example, Analgesics is
a category where brands and ingredients are strongly linked in consumers’ minds. In such
a category, some retailers may feel that they can build brands relatively easily, simply by
communicating the ingredient contained in their brands. Positioning may be less-
important as a purchase driver if all consumers want is the ingredient. For example, the
“average” retail brand is almost 10 times as large, on a unit share basis, in Analgesics
than in Bar Soaps.

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 Average Store Brand Shares,
Across Categories
Average Store's Own Brand Shares
20%

9%

2%

Analgesics Coffee Bar Soaps

(Note: The data shown is based on data collected by Baldinger, Solomon & Associates).

Strategy #2: Build a Strong Value Proposition

Retailers are likely to combine the best elements of selected national brands, with a lower
price. In other words, Value is often the central theme of many Retailer brands. And
some retailers have even introduced multiple brands into the same category, and they
often contain high-quality ingredients. But even when quality is high, the Retailer’s brand
is likely to be priced lower. There can be a strong and positive relationship between brand
value indices (i.e. the relationship between quality and price perceptions) and likely store
brand share growth.

For example, Analgesics has the highest Store Brand shares, relative to both Coffee, and
Bar Soaps, while it also generates the strongest Value Indices.

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 Store Brand Value Indices
126
104
94

Analgesics Coffee Bar Soaps

At the same time, Store Brand buyers can negatively affect the national brand’s Value
perception. All 3 of the national Analgesics brands shown here, suffered erosions in their
Value indices. Store Brand Buyers show consistently lower Value perceptions for many
national brands, relative to national averages.

Analgesics National Brands’ Value Indices,

Total U.S. vs. Store Brand Buyers

112
106
100 99
92 92

Brand 4 Brand 5 Brand 6

Total U.S. Store Brand Buyers

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Store Brand Strategy #3: Support National Brands:

In certain categories, and within certain retailers, national brands may receive strong
retail support, sometimes even supplanting support for the retailer’s own brands. (Note:
some retailers refer to this as support of the “category captain”). This may be because the
retailer cannot identify the right combination of product quality and price to justify a
strong Store Brand introduction in that category.

There are instances in which the Category Captain can generate a much higher market
share in a given retailer than nationally.

What can be done to protect and build the shares of national brands?
National packaged goods manufacturers have dedicated years of efforts and billions of
dollars of marketing programs, to refine and build the equities in their brands. The
aggressive efforts of today’s retailers are resulting in changes, not only in the purchase
behavior of consumers, but in the attitudes of consumers towards brands. Sometimes, the
strategies employed by retailers may enhance the success of nationally- marketed brands.
But, these changes in perception may weaken these carefully nurtured equities. Ignoring
the situation will do nothing but make the situation more difficult to repair in the future.
There are a variety of strategies that can be employed by the national brand manufacturer,
faced with the growing challenges posed by retailers:

Here’s a list of the Top 10 Strategies:

?? Measure your brand equity
?? Estimate your likely share growth or decline
?? Measure the equities of the retail brands in your category/categories
?? Determine which retailer brands present the greatest challenge
?? Measure your Value proposition, relative to retailers’ own brands
?? Determine your category’s key attitudinal drivers vs. the retail drivers
?? Identify your key target consumers
?? Determine which retail brands are competing based on product quality vs.
price alone
?? Measure the retailers’ impact on your overall brand equities
?? Create a brand/trade strategies matrix

Summary

Power has begun to shift rapidly in the direction of retailers’ branding efforts. The time
for manufacturers to improve the measurement of retailers’ efforts, and build new
strategies, is now. There is a well-known phrase in politics: “all politics is local.” In the
branding arena, there is a new and rapidly-emerging reality: “all branding is local.”

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Allan L. Baldinger

Al Baldinger is a principal in Baldinger, Solomon & Associates, LLC, a research

consultancy in Montclair, New Jersey. The data shown here derives from data gathered
by Baldinger Solomon & Associates, and uses their Equity Model. To contact Baldinger,
Solomon & Associates, contact either Al Baldinger or Doug Solomon. They can be
reached at:

abaldinger973@comcast.net or at (973) 783 6399

dsol0771@bellatlantic.net or at (973)-763-7445