October 21, 2009

Recession, inovation and private labels

"Consumer goods were once believed to be as recession-proof as any industry can be. Shoppers might not be able to afford Rolex watches and champagne during a downturn, the theory ran, but everyone still needs staples such as soap and toilet paper. Yet sales have fallen in this downturn, thanks largely to growing competition from stores’ own brands, or “private labels”.

"P&G, which has one of the most high-end brand portfolios of any of the packaged-goods firms, has tried to attract customers by launching “basic” versions of its popular brands. It recently released Tide Basic, which costs around a fifth less than its more upmarket cousin. But taking an existing brand downmarket in this way can be dangerous, analysts say. Consumers are unlikely to revert to the more expensive version if they are offered a similar product for less."

"Another strategy would be to sidestep retailers completely and sell directly to consumers through the internet. P&G’s new boss, Bob McDonald, has alluded to this sort of plan. It could be exactly the type of “game-changer” his company desperately needs."

[Source: "The game has changed", Economist]

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