August 19, 2013

Time is now for pharmacies to ramp up private label

By Todd Maute
Competition has always been heavy in retail. But, for a variety of reason, it has turned into a veritable slugfest over the past few years. Amid such trends as consolidation, Internet retailing and product commoditization, retailers have just a few ways in which to set themselves apart. Virtually all of these differentiators hinge on one thing: brand.

This is why pharmacies have been working so hard to make progress in brand development and private label branding in particular. The goal is twofold: First, drug chains aim to strengthen consumer impressions in ways that have more to do with emotions and psychology than mechanistic, tactical approaches along the lines of, “Can we have the lowest price on the street?” Second, they want to capture incremental share from other trade classes, and even health services companies.

And so, certain chains are now being far more precise about private label branding in the pharmacy context. Walmart, for one, uses its catchall Equate brand for generalized, over-the counter products such as medicine, vitamins and personal care items. But the discounter doesn’t just segment by category: Its ReliOn brand speaks to a specific customer segment -people with diabetes.

Other chains have created multiple tiers of attractive, high-quality brands, from value all the way up to premium. In June, for example, CVS/ pharmacy announced that it had added a premium tier to its redesign Gold Emblem consumables brand. The company also offers more than 100 beauty products via Nuance Salma Hayek. Duane Reade’s DeLish is another example of a private label brand carefully tiered to the preferences and needs of specific consumers.

All of this is taking place, of course, amid a revolution in private label that has evolved over the past 20 years or so. Thanks to this revolution, the product and packaging quality of private label brands has risen dramatically.
Little wonder the consumer perception of these products is so favorable. Studies have shown that most shoppers now believe private label brands are every bit as good as the nationals. Research also shows that companies with the strongest private label brands also tend to have the highest customer loyalty. And isn’t that what everyone is shooting for?

In general, though, pharmacies still have a way to go on private label. Some chains are weak in certain categories and strong in others, but the improvements in private label image have to do with the bigger picture.

All too often, pharmacies rely on what might be described as product-led strategies. In a product-led approach, somebody else develops the product and it’s the retailer’s job to determine what brand it might fit in (often driven purely by the quality level of the product itself) and then roll out the line. In a brand-led strategy, by contrast, the pharmacy relies on market and customer research to develop a long-term branding initiative specifically matched to its core customers, the consumers it wants to woo moving forward, as well as the overall brand image it wants to promote.

When Walgreens wanted to cultivate health and wellness as a platform, for example, it looked first at research demonstrating the big population of health conscious and environmentally aware people who shopped the store. Only after creating and developing Ology, its green-and healthy private brand, did Walgreens go looking for products.

Such brand-led strategies can yield a host of benefits. A few years ago, A&P started a health-and-wellness program called Live Better! It was more a marketing platform than a true brand, but Live Better! proved a big hit with shoppers. This persuaded A&P to transform it into a private label brand by bringing Live Better! to the 0-T-C drug arena. And so now, instead of generic aspirin, consumers shop for Live Better! Aspirin. They have grown accustomed to a lifestyle brand that speaks to their needs. A&P has continued this initiative by expanding Live Better! to the perimeter fresh department and even perish able produce items. And why not? Eating fresh fruits and vegetables is part and parcel of a healthier lifestyle, and that makes it a natural extension of Live Better!

Another example is Duane Reade’s Good & DeLish. Created in partnership with CBX, this brand demonstrates how customer insights and desired positioning can drive brand development. Here, the New York City chain took a close look at its affluent customer base and saw an opportunity to sell more premium food. Duane Reade had a deep understanding of its customers and their preferences. DeLish as a brand name offers a touch of urban slang that you would hear in the city. For Duane Reade, this positioning is all about the tag line “New York living made easy.” By offering a premium brand of food that New Yorkers could relate to, Duane Reade saw a surefire way to connect with its core customers. With each product addition to this brand – premium cookies, candies, pastas – Duane Reade has been able to make this brand’s story come to life in its customers’ minds.

This is an approach to private label in which brands are literally regarded as assets. A few short years ago Duane Reade was a different chain. Its New York City stores were located on some fantastic corners, but the experience inside them was anything but inspiring. Then its owners made a serious investment in customer-facing improvements geared toward reinvigorating the stores. A key part of this strategy was a brand-led approach to private label.

In creating DeLish, Duane Reade knew it had a target customer who would buy premium- type products. It then sourced products for the brand rather than going the other way around. When Walgreens acquired Duane Reade in 2010, CEO Greg Wasson lauded this brand-led strategy, citing Duane Reade’s “recent initiatives in urban retailing, customer loyalty and private brand products.” The Duane Reade nameplate had been transformed into an asset, and private label had a lot to do with it.

By thinking about private label a bit differently – namely, as a marketing tool versus a margin enhancer- pharmacies can set themselves apart, bolster shopper loyalty, improve price perception and, at the same time, boost their bottom lines through the higher gross margins private label products deliver. But they can’t do this alone. Operationally, it is critical to partner with the right set of manufacturers and to rely on best-in-class consumer metrics. The best pharmacies think of their private label vendors as partners, not as mere procurement sources. They work together to create a reason for customers to believe in a brand. They also merchandise with pride, and promote their brands as though they were national leaders – not lower-tier alternatives.

In reality, the statistics for private label are positive, but should retail pharmacies be satisfied with the considerable progress they have made thus far? Clearly there is more work to be done. By taking a step back and working with brand-led approaches, pharmacies can push private label to the next level.

Chain Drug Review, August 19th 2013