How to strategize against private label in digital commerce

Developing private label brands as a retailer has been a tried and true strategy for decades. Private label brands allow retailers to own the product lifecycle from start to finish while offering consumers value-driven products that can only be found within a retailer’s store or site.

Private-label brands often present name brands with competitive challenges such as low pricing and limited shelf space - but how does this battle play out on the “endless” digital shelf?

Private-label brands online

Similar to the competition in-store, name brands are faced with challenges in regards to private-label being able to outprice them. In the next section, we will dig into combative strategies, but it’s important to also analyze where and when private label products are showing up on the search results page. We often call the digital shelf “endless,” but we all know that consumers aren’t endlessly scrolling and the high-visibility placements are the ones that matter.

Every retailer approaches their digital private label strategy differently - from product placements to overall levels of investment in the different brands.

Amazon

In the case of Amazon, we watched the retailer double down early on private label brands across a variety of categories but have recently seen plans to cut down their private label offering to less than 20 brands. We saw heavy investment in the private label brand Happy Belly back in the days of Prime Pantry and have observed Amazon testing out placements for the 365 brand from Whole Foods - but Amazon’s outlook on private label brands looks to be cautious and now more focused in the wake of lawsuits from name brands for copying product designs and Amazon’s focus on profitability and its advertising business.

On site, Amazon has been known to “hardcode” their private label products in placements that are highly visible to the consumer - think at the top of search, under the buy box on a PDP, etc., and these placements are even more pronounced on mobile. When products are hardcoded into a placement, no amount of investment from a non-private label brand can override this placement, which means that highly valuable real estate on site is taken away from name brands trying to increase their sales and share. Amazon also has the freedom to place their private label products on the home page, at the top of category-specific pages, and beyond, all while having the advantage of low pricing from owning the product development and manufacturing process.

Walmart

When we look at Walmart’s private label strategy, Walmart’s brands hold an advantage in that they are established and trusted by consumers based on their longstanding in-store presence and exposure. For instance, Great Value was launched in the early 90s and is still going strong. Walmart also holds an advantage when launching new private label brands because merchandising displays can be built in-store to build awareness that can then tie back to online merch campaigns in highly visible placements.

We hear that pricing is the most significant challenge for name brands to compete with, but we’re also closely watching how Walmart chooses to prioritize private label products in its taxonomy structure - often favoring private label products on certain top shelves, which again takes highly visible placements away from non-private label brands who cannot change their primary shelf to a different category (comparable to changing the browse node your product is in on Amazon) because of where search query frequency is the highest.

Research shows that consumers are most likely to buy private label products in a category like grocery, which goes hand in hand with attracting a Walmart consumer and building brand loyalty.

Target

Target is known for its trendy and cleverly designed private label brands and continues to invest in new, value-driven brands that inspire loyal customers both in-store and online. With Target’s newest private label brand, dealworthy, we have seen the possible pinning of dealworthy products in top organic placements. For example, dealworthy cotton balls and cotton swabs ranked organically in slots 2 and 3 immediately upon the launch of the brand, which would have been nearly impossible without being pinned in these placements.

So, what is a name brand to do?

How to hold your ground

Sure, competing on price is an option and could attract consumers - especially during inflationary times - but a long-term battle for the lowest price is not a sustainable option for name brands (however, we do recommend a competitive Subscribe & Save or virtual bundling strategy to build customer loyalty and discourage price comparisons). Here are three areas to look into to strategically compete with private label online:

Content

Many private label brands do not invest heavily in digital content due to their reliance on value pricing, which provides an opportunity for name brands to win PDP conversions with their best-in-class content. Utilizing unique packaging and callouts on your hero images allows your products to stand out against private label, and when allowed, comparison language should be used across other elements of content such as bullets, descriptions, additional images/comparison tables, creative brand stores/shops etc.

Media

Even if the retailer hardcodes or pins their private label products in the top placements in the search grid or on the PDP, there are still strategic moves to be made.

• If you’re observing an increase in search volume for private label-branded terms, increase your investment into placing in strategic positions via Sponsored Products or Sponsored Brands on these terms
  • Sponsored Brands offer an additional way to attract consumers from private label products appearing at the top of search as Sponsored Brands showcase multiple products with custom imagery and language - tying back to best-in-class content as a strategic play against private label competition
• Beyond search, it’s worth investing in product attribute targeting to appear on private label ASIN detail pages on Amazon or investing in buy box placements on private label product pages on Walmart or Target - this helps to guarantee that the product shown to a customer underneath the buy box is your product
  • If a private label brand is hardcoded on a term that has a very high SFR, this is an efficient way to ride its coattails assuming that many consumers are clicking on that product 
• In non-branded search, the prevention of share erosion will require careful monitoring of efficiently targeted SP placements. It can be frustrating to have to compete with products that are hardcoded or pinned to the top of search, but decreasing investment here means your products lose critical visibility from consumers that are needed to compete in the congestion of non-branded search queries

Documentation

The last strategy we recommend diving into is documenting the activity of private label brands in your category for your Vendor Manager, Merchant, or Buyer's visibility. If the retailer is hardcoding or pinning products on your key terms, this is worth bringing attention to as this prevents your brand’s media investments from being as efficient as possible. If you can calculate the lost opportunity due to these private label placements for your retailer contact to see the impact, this can be brought back internally to the retailer for further consideration. At the end of the day, the retailer needs to consider what’s more profitable - hardcoding their low-priced item into a highly valuable placement or allowing non-private label brands to bid up for that placement.

If you're interested in discussing your competitive strategy against private label brands, reach out to Flywheel today!