With competition between the leading supermarkets as fierce as ever, brand owners face an interesting dilemma: how do they maintain value in their categories when their retail customers are forcing down prices? Customisation could be an answer, says Steve Hemsley
The strategy clearly worked for Stella. The brand comfortably retained its spot as the nation’s top tipple last Christmas and, more important, Interbrew saw the average price of a 330ml bottle rise by 20% compared with the previous year (The Grocer, January 29, p32).
MacFarlane is one of those that sees customisation in the round: “We are continually working with supermarkets to find ways to boost profitability for both parties. A low-price strategy cannot exist in isolation, and for a brand such as Stella it is just as important to get the offer, promotions, packaging and advertising right.”
But there are downsides for brand owners thinking of embarking on a customisation strategy. Even the simplest strategy can add complexity and, therefore, cost to a business - which all need to be weighed up against any perceived benefits. Brand owners must also resist the temptation to introduce variants that are engineered to hit unrealistic price points; if the quality of the customised variant is not up to scratch, then it’s the mother brand that will suffer.
As Corporate Edge’s Shaw says: “Companies that are low-cost producers and innovators are the ones likely to gain the most from the customisation trend because they can offer consumers something different and interesting as well as being competitive on price.”
Customisation can be risky. But in the current competitive environment, with the supermarkets’ focus on price forcing brand owners to be ever more creative, what other choice do you have?
Psst...have you heard the one about the brand owner who found his price point was being trashed and his premium positioning being undermined by the fallout from the vicious price war between Asda and Tesco? As one retailer took the product price down, the other responded, and so it went on until the brand owner knew he had to find a way of protect valuable brand equity. His response? Simple: he created a completely new variant of his brand exclusively for Asda, which allowed the EDLP specialist to hit a really low retail price-point - while maintaining decent margins - leaving buyers at Tesco, and the other multiples, free to negotiate the best deals for their businesses without having to worry about what game the gang in Leeds were playing.
Welcome to the brave new world of customisation. In our little scenario - based on a true story, by the way - both retailers and the supplier were happy with the outcome.
Not everybody is being forced to embrace this way of thinking as a last-ditch solution to specific trading issues. Smart brand owners have realised for some time that customised solutions are a great way to add value in today’s competitive trading climate. But whereas customisation used to be about clever marketing, it is now about something more fundamental: the product itself.
Everywhere you look, it seems, customisation of one form or another is taking place - although brand owners are reluctant to discuss the issue. For many, customisation is about delivering tailor-made pack sizes. Only offered to certain retailers, the idea is to nip damaging price comparisons in the bud. Similarly, supplying variants of a brand to one retailer on an exclusive basis not only makes price comparisons with rivals meaningless, it also allows that particular retailer to bring something new to the fixture and excite shoppers.
But is it really the answer? As far as customers are concerned, it could well be, suggests Peter Shaw, director at branding consultancy Corporate Edge, whose clients include Cadbury Schweppes, Reckitt Benckiser, Diageo and Tesco. He says: “Brand owners do get frustrated by EDLP but they have to be realistic. All brands must work harder to remain competitive, and customisation is one way to maintain value in consumers’ eyes.”
Kettle Foods clearly agrees. Last year, it kicked off a trial to supply Asda with a new crinkle cut range of crisps. It has now developed exclusive seasonings to meet other retailers’ needs such as Sea Salt, Lemon and Dill for Tesco, and Roquefort and French Onion for Sainsbury. Andrea Riddell, sales director at Kettle Foods, says: “We work closely with retailers to keep the Kettle Chips portfolio fresh, offering them something new and exciting for their customers. We are confident that the introduction of the Kettle Crinkle Cut range offers Asda the perfect chip for their customer, and that we will continue to see increased sales as a result.”
Her MD Jeremy Bradley adds: “One can view EDLP as a problem or as an emerging creative force that will stimulate everyone involved to think harder about what really builds value. It is about learning how to deliver value better than anyone else, how to make the most of the values a brand already has and how to find ways to remain distinctively relevant in a more competitive environment.”
He explains: “If there is unique value in the brand and product, or indeed in the way it is brought to market, there will continue to be a premium. Bags, new flavours and potato varieties all have a place in the battle to maintain premium category interest.”
But for many products - premium lager brand Stella Artois, for instance - inventing exclusive product flavours or developing range extensions is simply not an option. Yet brands like Stella also face challenges when it comes to pricing. Their response to the customisation conundrum? Introduce new pack sizes.
Over the Christmas period, brand owner Interbrew UK launched a 20-pack alternative to the industry standard 24-pack which had been hammered on price in previous years. Interbrew’s off-trade managing director Stuart MacFarlane says retailers supported its customisation strategy because it improved margins for everyone: “Stella has traditionally been used as a brand to help build retail traffic at Christmas but we have an agenda to protect the value of the brand. There are some key price points in the take-home beer market and we needed a pack size that would help retailers at the £10 level but would also mean they, and we, still had a profitable Christmas.”
The strategy clearly worked for Stella. The brand comfortably retained its spot as the nation’s top tipple last Christmas and, more important, Interbrew saw the average price of a 330ml bottle rise by 20% compared with the previous year (The Grocer, January 29, p32).
MacFarlane is one of those that sees customisation in the round: “We are continually working with supermarkets to find ways to boost profitability for both parties. A low-price strategy cannot exist in isolation, and for a brand such as Stella it is just as important to get the offer, promotions, packaging and advertising right.”
But there are downsides for brand owners thinking of embarking on a customisation strategy. Even the simplest strategy can add complexity and, therefore, cost to a business - which all need to be weighed up against any perceived benefits. Brand owners must also resist the temptation to introduce variants that are engineered to hit unrealistic price points; if the quality of the customised variant is not up to scratch, then it’s the mother brand that will suffer.
As Corporate Edge’s Shaw says: “Companies that are low-cost producers and innovators are the ones likely to gain the most from the customisation trend because they can offer consumers something different and interesting as well as being competitive on price.”
Customisation can be risky. But in the current competitive environment, with the supermarkets’ focus on price forcing brand owners to be ever more creative, what other choice do you have?
Psst...have you heard the one about the brand owner who found his price point was being trashed and his premium positioning being undermined by the fallout from the vicious price war between Asda and Tesco? As one retailer took the product price down, the other responded, and so it went on until the brand owner knew he had to find a way of protect valuable brand equity. His response? Simple: he created a completely new variant of his brand exclusively for Asda, which allowed the EDLP specialist to hit a really low retail price-point - while maintaining decent margins - leaving buyers at Tesco, and the other multiples, free to negotiate the best deals for their businesses without having to worry about what game the gang in Leeds were playing.
Welcome to the brave new world of customisation. In our little scenario - based on a true story, by the way - both retailers and the supplier were happy with the outcome.
Not everybody is being forced to embrace this way of thinking as a last-ditch solution to specific trading issues. Smart brand owners have realised for some time that customised solutions are a great way to add value in today’s competitive trading climate. But whereas customisation used to be about clever marketing, it is now about something more fundamental: the product itself.
Everywhere you look, it seems, customisation of one form or another is taking place - although brand owners are reluctant to discuss the issue. For many, customisation is about delivering tailor-made pack sizes. Only offered to certain retailers, the idea is to nip damaging price comparisons in the bud. Similarly, supplying variants of a brand to one retailer on an exclusive basis not only makes price comparisons with rivals meaningless, it also allows that particular retailer to bring something new to the fixture and excite shoppers.
But is it really the answer? As far as customers are concerned, it could well be, suggests Peter Shaw, director at branding consultancy Corporate Edge, whose clients include Cadbury Schweppes, Reckitt Benckiser, Diageo and Tesco. He says: “Brand owners do get frustrated by EDLP but they have to be realistic. All brands must work harder to remain competitive, and customisation is one way to maintain value in consumers’ eyes.”
Kettle Foods clearly agrees. Last year, it kicked off a trial to supply Asda with a new crinkle cut range of crisps. It has now developed exclusive seasonings to meet other retailers’ needs such as Sea Salt, Lemon and Dill for Tesco, and Roquefort and French Onion for Sainsbury. Andrea Riddell, sales director at Kettle Foods, says: “We work closely with retailers to keep the Kettle Chips portfolio fresh, offering them something new and exciting for their customers. We are confident that the introduction of the Kettle Crinkle Cut range offers Asda the perfect chip for their customer, and that we will continue to see increased sales as a result.”
Her MD Jeremy Bradley adds: “One can view EDLP as a problem or as an emerging creative force that will stimulate everyone involved to think harder about what really builds value. It is about learning how to deliver value better than anyone else, how to make the most of the values a brand already has and how to find ways to remain distinctively relevant in a more competitive environment.”
He explains: “If there is unique value in the brand and product, or indeed in the way it is brought to market, there will continue to be a premium. Bags, new flavours and potato varieties all have a place in the battle to maintain premium category interest.”
But for many products - premium lager brand Stella Artois, for instance - inventing exclusive product flavours or developing range extensions is simply not an option. Yet brands like Stella also face challenges when it comes to pricing. Their response to the customisation conundrum? Introduce new pack sizes.
Over the Christmas period, brand owner Interbrew UK launched a 20-pack alternative to the industry standard 24-pack which had been hammered on price in previous years. Interbrew’s off-trade managing director Stuart MacFarlane says retailers supported its customisation strategy because it improved margins for everyone: “Stella has traditionally been used as a brand to help build retail traffic at Christmas but we have an agenda to protect the value of the brand. There are some key price points in the take-home beer market and we needed a pack size that would help retailers at the £10 level but would also mean they, and we, still had a profitable Christmas.”
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