Private Brand Study

PRIVATE BRAND STUDY

Increasing Private-Brand Sales Among Private-Brand Loyalists, Switchers and National-Brand Loyalists

Analytics by: Buxton Report by: 210 Analytics, LLC

Sponsored by: Food Marketing Institute

Buxton – Private Brand Study – Page 2

Loyal private

brand shoppers

Switchers

Loyal national

brand shoppers

…how can food retailers move more of the switchers to become loyal private-brand shoppers? And how can they convert loyal national-brand shoppers to start purchasing more own-brand items?

Introduction

The Private Brand Revolution In the past few years, the food retailing industry has seen tremendous change surrounding private brands. With price and value taking on a key role in the midst of recessionary pressures, purchasing private brands has become one of the most popular money-saving measures among grocery shoppers. Food retailers have been reporting double-digit growth in private-brand sales and SKUs for several years now, with industry-wide sales for the total category of more than $56 billion.

Along with growing consumer interest, grocery retailers and private-brand manufacturers have increased their selection and variety. Retailers are aggressively building their capabilities as developers and marketers of private brands. Rather than product emulation of national brands, they have moved to product innovation of their own, particularly in the areas of center store, health and wellness and even prepared foods. Many retailers are also developing several tiers of private brands — ranging in price, quality and item properties such as organic and locally-sourced. In addition to meeting the value-focused needs of the shopper, private brands offer a unique point of differentiation to the retailer. A store brand is one product that shoppers won’t find on competitors’ shelves. In the ever so competitive food retailing environment, a strong private-brand offering can help foster store loyalty and help grow margins, sales and profits.

The recent growth in private-brand sales stems both from increased purchases among current users and attracting new shoppers to the category. This has resulted in three distinct groupings of shoppers: those who prefer and purchase private-label items whenever possible, those who switch back and forth between private and national brands and those who almost exclusively fill up their carts with nationally-branded products. With private-brands offering higher margins and a point of differentiation for retailers, the growing interest in private brands begs a number of important questions: who are private-brand purchasers? How can food retailers move more of the switchers to become loyal private-brand shoppers? And thirdly, how can they convert loyal national-brand shoppers to start purchasing more own-brand items? It is these exact questions that the Buxton Private Brand Study 2011 aimed to answer. The study focuses on the Switchers in particular — the battleground consumers whom private-brand and national-brand manufacturers are competing for.


Customer profile + location = Private-brand customer potential

Demo-graphics

Household data

Panel data

profile

How Do We Identify The Three Groups? To help identify each of the three groups, but especially the Switchers, this study used a comprehensive segmentation system that allows us to compare shoppers based on many

variables and data sources. Variables included both demographics (income, age, family structure, etc) and psychographics (hobbies, attitudes, media consumption, purchasing behaviors, etc). Data sources used for the segmentation analysis include transaction data, panel data, lists, primary research and so on. Once all the information had been compiled, we placed consumers into distinct groups with predictable behaviors, or “segments.” Many segmentation models look at neighborhoods or so-called block group analysis. This assumes everyone in that neighborhood has the same buying patterns and tendencies — which is often not the case. Therefore, we went one step further and studied shoppers at the household level. This allows for the greatest level of insight in order to effectively identify consumers who are loyal private-label buyers or those who switch

between private brands and national brands. The last element that goes into the identification of our target customer is location. In many ways, location determines the value of the consumer: the closer shoppers are to a store, the more valuable they are to that outlet. To illustrate, let’s compare two locations (A and B). At first glance, location B may appear more favorable given the number of households in the 10-minute trade area. However, when factoring in the lifestyle segmentation, location A has far more likely private-brand shoppers and Switchers than B, in addition to closer proximity to the store.

Location A Number of households: 41,091

Location B Number of households: 99,169

Core private-brand shoppers Total households


In many ways, location determines the value of the customer…

Since this is household level analysis, we have the potential to develop a contact list with names and addresses and contact these customers with targeted promotions. Our learning’s from location B are far from lost either. Given the lower private-brand interest level, the store could respond with other merchandising changes, such as organic lines or premium tier private-brand offerings that would resonate more strongly with these consumers.

Conclusion: As we allocate marketing, merchandising and other resources to grow private-brand sales, we need to consider the sheer number of likely own-brand shoppers in the 10-minute trade area, but also the distance to the store.

How Do We Use the Data to Achieve the Greatest ROI? By knowing where to allocate marketing, advertising, merchandising and other resources for the greatest return-on-investment (ROI), retailers can more effectively compete with national brands and their ample budgets. Once the segmentation and location analysis has been completed for each of the stores, we can rank the outlets by the combined value of the number of private-brand consumers in the trade area and the distance to the store. That reveals four quadrants: Optimize, Plan, Compete and Grow. 1. Optimize. Stores with low

growth potential for private-brand and national-brand products. These stores provide no significant ROI potential.

2. Plan. Stores with a high potential for national brands, but little immediate potential to grow private-label sales. Long term, the right type of product development could help convert these national-brand loyalists to purchase some private brands, but no immediate ROI potential.

3. Compete. Stores featuring high national and private-brand potential. While a great potential ROI, national brands will highly contest any private-brand growth. This is where the Switchers live. These consumers can be relatively easily influenced to purchase private labels, but national brands will also be investing heavily to promote their products.

4. Grow. These stores are the bread and butter of private brands. With much lower customer interest in national brands, these outlets provide the best opportunity to nurture the relationship with repeat customers and grow sales among new users.

Conclusion: Household-level analysis allows us to understand the tendencies of consumers and what they are likely to purchase. Instead of one-size-fits-all promotions, the best ROI will come from targeting those specific consumers who are open to purchasing more private brands. In the past, private brands often simply copied national brands in executing their marketing programs. Today, private brands can create greater efficiency by marketing in very defined niches to very defined targets, resulting in higher ROI, sales and profits.


The Meijer Case Study

Introduction To put the household-level segmentation strategy relative to private-brand conversion to the test, Buxton worked with Meijer, Inc., a Grand Rapids, Michigan-based grocery chain. Meijer is a regional American hypermarket chain that operates about 200 stores, predominantly in Michigan. Meijer currently sells store brands under the Meijer, Markets of Meijer, Meijer Organics and Meijer Naturals labels. They recently introduced a value-priced private-label line targeting shoppers making selections based solely on price. Meijer agreed to household-level segmentation to identify high-potential customers, run test promotions and share the study results for this white paper.

Campaign Objectives To test the effectiveness of the private-brand modeling, Meijer worked with John B. Sanfilippo & Sons, Inc. — one of the world’s largest processors, manufacturers, packagers and distributors of nuts. Various promotional offers were tested for both snack and baking nuts. The study objectives were two-fold:

1. Test the effectiveness of promotional strategies across multiple customer groups based on: a. The combination of the Buxton customer scoring methodology and Meijer customer

data. b. The use of purchase data-based offer variations.

2. Test the effectiveness across three strategies: a. Acquisition: drawing current non-category buyers into the private-brand nut

category. b. Switching: converting current national-brand nut buyers to purchase private brand. c. Buy rate: Increase private-brand sales among current private-brand nut purchasers.

Identify Customer Profiles and Quantify Customers at Store Level As a first step, Buxton built analytical models to identify customers’ likelihood of buying private-brand nuts. By running the household-level segmentation analysis as described in the introduction, each customer received a score based on demographics and psychographics that help identify their propensity to purchase private brands. That score was then translated into a rank on a scale 1 through 14, where 1 is the highest level of private-brand loyalty. An example of this customer potential identifying process is shown below. ID First Last Address City State Zip Score Rank Store 1 Lori Zarbok 1770 Majestic Trail Albertville MN 55301-9721 1137 1 50 2 Brian Hill 10235 Kali Ave NE Andover MN 55304-9835 726 4 146 336,336 Laura Drube 19671 Oxboro Cir

N Maplewood MN 55109-4243 24 14 213


336,337 Thomas Dykhoff 3402 Elm Creek Dr Medina MN 55340-9614 102 9 206 The ranks were translated into the following groups:

Ranks 1 through 4: Loyal private-brand shoppers Ranks 5 and 6: Switchers Ranks 7 through 14: Loyal national-brand shoppers

Loyal private-brand customer Loyal national-brand customer

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Designing the Campaign Next, we matched Meijer customer store data to the Buxton lifestyle analysis data. As customers with a ranking of one or two are already very loyal private-brand purchasers, little sales gain can be generated among these groups. Likewise, it would be very difficult to convert extremely loyal national-brand customers to purchase more private-label items. Therefore, we decided to target the following groups with various promotional offerings surrounding snack and baking nuts:

Groups 3 and 4: Test the potential for an increase in buy rate among the more “lean” private-brand buyers.

Groups 5 and 6: Test the potential to convert Switchers to purchase private-brand nuts. For the baking nut category, national-brand purchasers were the largest group targeted. The same is true for the snack nut category, however, the numbers of current private-brand users and Switchers are much higher.

Once a customer from our target pool visited a Meijer outlet, they received a Catalina printed coupon in various amounts starting at $1.00 for baking nuts and $1.50 for snack nuts. The values were based on the current engagement with the category. Groups three and four, and five and six, received the same offers. If the customer redeemed the offer on a subsequent visit, the customer received a bounce back printed coupon for a second nut purchase at a discounted price. The campaign ran between June 27, 2011 and August 28, 2011. Throughout the campaign, we also

Baking nut target customer counts: - Acquisition: 615,000 - Switching: 20,000 - Buy rate: 120,000

Baking nut offer range: - Acquisition: $1.00-$2.50 - Switching: $1.50-$2.50 - Buy rate: $1.50-$2.50

Snack nut target customer counts: - Acquisition: 465,000 - Switching: 85,000 - Buy rate: 204,000

Snack nut offer range: - Acquisition: $1.00-$2.50 - Switching: $1.50-$2.50 - Buy rate: $1.50-$2.50


1.2% Acquisition

redemption rate

2.5% Switchers

redemption rate

3.3% Buy rate

redemption rate

2.9% Acquisition

redemption rate

5.1% Switchers

redemption rate

6.2% Buy rate

redemption rate

31.0%

10.6%

24.4%

16.7%

Baking nuts Snack nuts

Sales lift among prior non-category buyers

Private-brand loyalists Switchers

tracked a group of control customers for the promoted products to demonstrate changes in purchasing behavior. For reporting purposes in this case study, we’ll refer to:

Groups 3 and 4 as Private-Brand Loyalists Groups 5 and 6 as Switchers

Redemption Rates Overall, redemption rates for snack nuts were much higher than that of baking nuts. Snack nuts tend to have a much higher rate of purchase than baking nuts, which was a factor in the higher redemption rates. Redemption rates Baking nuts Snack nuts Private-brand loyalists

1.5% 4.0%

Switchers 2.0% 4.5% Bounce-back redemption rates for both categories were very similar at 39.4 percent of first-coupon redeemers for baking nuts and 40.4 percent for snack nuts. When regarding the redemption rate of the three categories, coupon pick-up was the highest among current private-brand users at 3.3 percent and 6.2 percent, respectively. Switchers have the second highest redemption rate.

Measuring Results in Sales Lift By comparing the sales among the target groups and that of the control group, we can ascertain the increase in sales achieved by the targeted baking and snack nut promotion. In short, the results were positive across the board. The dollar sales for target customers were significantly higher for both baking and snack nuts during the campaign time period. Our segmentation is paying off! Below are the results for each of the three campaigns: acquisition, switching and increasing the buy rate.

Acquisition Strategy Sales Lift The sales lift among people who had never purchased baking or snacking nuts at Meijer outlets at all was substantial. Pickup was especially strong for the baking nuts category at 31.0 percent among private-brand loyalists and 24.4 percent among Switchers.


Target customers who redeemed initial offer and bounce-back offer: Overall: 0.54% Private-brand loyalists: 0.52% Switchers: 0.61%


The targeted promotion did not work as well for the snack nut category, but still generated incremental sales. Overall, the campaign drove 1.2 trips per redeeming customer during the campaign period. With the initial redemption rate among this user group at 1.2 percent for baking nuts and 2.9 percent for snack nuts, some customers went back for more: 0.6 percent of targeted Switchers ended up redeeming both the initial and second money-off coupon.

Switching Strategy Sales Lift Among shoppers who have bought baking and snack nuts at Meijer before, the campaign aimed to convert buyers of national brands to private-brand nuts. The graph illustrates the sales lift generated by shoppers who had previously purchased national brand baking and snack nuts and participated in the sales promotion. It is clear that that the test was a hit among Switchers with a sales lift of 56.2 percent over the control group in the baking segment and 25.4 percent for snack nuts. Shoppers who had only purchased national-brand nuts before ended up spending $4.79 on private-brand nuts during the campaign. Private-brand loyalists who do buy national-brand nuts did not convert at the same rate, but still sales rose substantially in both nut categories.

Current category buyers also showed a higher likelihood of redeeming

both the first and the second dollars-off coupons. Overall, 1.40 percent took advantage of both coupons, with Switchers once again showing a higher propensity at 1.46 percent of the targeted Switchers redeeming both.

Buy Rate Strategy Sales Lift Lastly, the campaign tested whether the targeted coupons could increase the frequency of purchase among current buyers of private-brand baking and snack nuts.

28.3% 20.6%

56.2%

25.4%


Sales lift among current national-brand buyers switching to private brands


23.5%

4.2%

30.9%

8.6%


Sales lift among current private-brand buyers purchasing more




With a $0.33 increase in spend per trip, current private-brand nut purchasers showed the greatest lift in sales of the three groups. Once again, the Switchers were the most easily persuaded by the dollars-off promotions and generated an increase in sales of 30.9 percent for baking nuts and 8.6 percent in the snack-nut category over the control group during the campaign time frame. Interest in the second money-off coupon was high among current private-brand users also. Throughout the two-month campaign, 1.41 percent of private-brand buyers redeemed both the first and the second coupon. This share is higher among Switchers, as seen among non-category buyers and current national-brand buyers, at 1.43 percent.

Key Findings Without a doubt, the campaign performed well across all three target groups. In each, the sales lift not only exceeded that of the control group, but also exceeded the expectations set prior to the study. Let’s have a look by objective.

Objective 1: Effectiveness of Buxton Ranking Combined with Meijer Customer Data Identifying Switchers and Loyalists paid off big. With the exception of non-category buyers in baked nuts, shoppers who had been identified at Switchers by the combined segmentation and customer data had a higher offer redemption rate and a higher-than-average sales lift across campaign strategies. Clearly, these are savvy shoppers engaged with money-saving measures and open to trying something new. Secondly, the use of purchase data-based variations in offers generated positive results as well. Almost every offer for baking and snack nuts drove incremental sales. Additionally, higher coupon values always resulted in higher redemption rates across the three segments.

Conclusion: Move from scan data to household analytics. For years, retailers made marketing decisions using scan data, which tells us what was purchased yesterday. The new household-level segmentation analysis combined with customer data makes it possible to predict what they will purchase tomorrow — allowing retailers to allocate their resources to those shoppers most likely to purchase private brands. Conclusion: Take advantage of greater shopper willingness to try new items. Driving by recessionary pressures and various technological aids, many shoppers have changed from habit shoppers loyal to national brands to savvy consumers making informed decisions between brands, items and stores. This pre-trip and in-store research creates a greater willingness to try different products — allowing food retailers to aggressively push the sales of better-priced, private-brand items.


Objective 2: Test the Effectiveness of the Campaign Against the Three Strategies As seen in the results section, the campaign was effective in all three segments when compared to the control group.

Acquisition: Moving customers from non-nut buyers to purchasing private-brand baking and snack nuts at Meijer turned out to be the hardest challenge. Both the initial redemption rate and the combined first and second offer redemption rate were much lower than that of the other two strategies, as was the lift in sales. However, converting non-buyers into buyers does provide a great level of pay-off. Overall, redeemers averaged 1.2 category trips and increased sales by between 10 percent and 31 percent over the control group, depending on the category.

Switching: Shoppers who buy some national and some private-brand items proved the most susceptible to a good deal. In this case, the campaign targeted customers who already purchase baking and/or snack nuts at Meijer to purchase private-brand baking and snack nuts, specifically. The dollars-off coupons (in various values) were redeemed at a very high rate and shoppers who to date had always chosen for national-brand nuts ended up spending $4.79 on private-brand nuts during the campaign. The most striking find was a 56 percent lift in sales of baking nuts among Switchers over the control group.

Buy Rate: While customers in this target group already purchase private-brand nuts, the campaign still managed to increase sales and achieve high coupon redemption rates. Granted, the target group included the more “lean” private-brand purchasers with ranks of three and four only – excluding those who nearly exclusively purchase private-brand products.

Conclusion: Change promotions from one-size-fits-all to targeting high-value customers. The best ROI comes from targeting those specific customers who are most likely to switch between private and national brands. A second high-value exercise is converting current “lean” private-brand buyers to purchase even more house-label items. The Meijer campaign demonstrates that the purchasing behavior of these two groups, and especially the Switchers, is the most easily changed. That means the most bang for your buck in promotional and other activities. Experimenting with various coupon values can help with redemption rates and drawing people to the category.


Take-Aways Household level lifestyle segmentation can be an excellent way for food retailers to effectively compete with national brand marketing and advertising efforts. The Meijer case study showed that targeted promotions significantly increases spending among current and new users of private-brand products — much more so than one-size-fits all marketing efforts. So, how can you apply the learnings of this study to your company? 1. Collect data In order to spend resources more effectively, it is important to learn about who shops at your store. Even more important than collecting the data, is putting the knowledge to work. For effective segmentation, you will need: Store-level sales data, preferably by category or product. Transaction data, reflecting actual purchasing behavior. Household data from loyalty or other programs.

2. Form a partnership with private-label manufacturers Moving from a transactional relationship to a partnership with private-label manufacturers will help both parties to compete effectively and efficiently for consumer preferences and loyalty. Private-label manufactures may have insights from other retail accounts they can share and may be willing to partner on a segmentation case study that can kick off targeted lifestyle segmentation-based campaigns for your company. 3. Find a customer analytics partner In order to mine the data, and append household demographic and psychographic information, most retailers will need to partner with a research company specializing in customer analytics. This company draws from its individual- and household-level data to determine lifestyles and buying habits to clearly identify your best private-brand customers and find more like them in your trade area. 4. Understand the upfront cost and time investment for the long-term payoff. While a two-month, multi-segment study may look like a large investment from a time and money point of view, the long-term benefit of consumer segmentation and targeted marketing to your private-brand sales can be staggering. There are many important advantages: Increased sales. Better margins and higher profits. Potential reduction in overall marketing spending, with at a minimum greater ROI on

spending. Greater store loyalty given that private brands are not offered by your competition. Greater willingness to test other private-brand items.


Definitions and Acknowledgements Control group coupon study: A test case in which the sales and coupon redemption

performance of one or more target groups is measured against a control group that did not receive the same coupons or no coupons at all.

Acquisition: Converting non-buyers into purchasers. Acquisition can be at the store, category

or product levels. For the purpose of this study, acquisition reflects any sales of private-brand nuts among customers who have never purchased baking or snack nuts at Meijer before.

Switchers: Converting buyers of certain items or certain brands to other items or brands. In

our case study, Switchers were already purchasing some nuts at Meijer, but converted from national brands to private-brand baking and snack nuts.

Buy rate: The buy rate strategy refers to increasing the frequency of purchase among current

users. This can apply at the store, category and item levels. In this case, the buy rate campaign focused on increasing purchases among private-label baking and snack nut buyers.

Sales lift: The increase or decrease in sales versus a different group, time or category. In this

case, we measured the sales lift of targeted customer groups against a control group to measure the effectiveness of the campaign.

Consumer segmentation: The process of classifying people into groups that have some set of similar characteristics, resulting in the ability to be studied and targeted.

Buxton household-level lifestyle segmentation: Consumer segmentation down to the household versus block level based on both demographic and psychographic information. Demographics include factors such as age, income, family structure and education. Psychographics refer to personality, values, attitudes, interests and behaviors. This level of segmentation can cover 98 percent of all U.S. households.

Buxton would like to thank the following companies and individuals for their participation in this study: Meijer, Inc. John B, Sanfilippo & Son, Inc. About Buxton Buxton is the leader in the use of customer analytics to develop successful growth and business strategies. Its focus includes retailers and restaurants, healthcare organizations, and consumer packaged goods manufacturers. Buxton draws from its individual- and household-level data to determine lifestyles and buying habits to clearly identify an organization's best customers and find more like them anywhere in the U.S. Among its 1,900 clients are retailers Applebee's, Taco Bueno, New Balance Shoes, GNC, and Sally Beauty Supply. For more information, visit www.buxtonco.com.

http://www.buxtonco.com/

Date post:	01-Nov-2014
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