Marketing from the Grocery Aisles: Value Brands

When I worked for Dell from 2003 to 2007, many of their desktop systems were considered “value” PCs, selling for less than $400, advertised on the back of Parade magazine and in newspapers, touted on TV (“Dude, you’re getting a Dell”), and promoting across the Internet.

We’d jest they were made from cardboard, chewing gum, and duct tape. Dell’s strategy was to gain market share, not produce high quality, reliable products. While they sold an extraordinary number of PCs, and quashed the competition, they also suffered when service calls escalated, and customers were directed to help desk professional for whom English wasn’t their first language.

A marketing manager for Dell professional, enterprise, and consumer services, I was at the frontline of consumers’ complaints, and was aware that even though customers were calling a US or Canadian service center there was no guarantee they’d reach someone with perfect English… or even free from a regional accent.

A few years later, Dell changed their strategy, focusing more on quality and product customization, rather than the lowest possible price. As a result, they’ve grown nearly 15% year-over-year.

I’m intrigued by how “value” brands prosper and evolve.

One of the most iconic value brands on grocery shelves is Malt-O-Meal (recently renamed MOM Brands). Since 1919, it has been offering knock-offs of popular cereals in inexpensive plastic bags, instead of traditional cereal boxes. Not only does their packaging significantly lower the cost of their cereals by 20% – 25%, but they spend less than 1% of their sales on advertising. General Mills and Kellogg, in comparison, spend as much as 8%.

While Malt-O-Meal cereals look and taste different than name-brand cereals, they don’t skimp on ingredients. Their cereals are equally flavorful, nutritious, and satisfying. In fact, in national taste tests, they claim three of their cereals are preferred to Post Fruity Pebbles, Cocoa Pebbles, and Honey Bunches of Oats with Almonds.

Action PadMany value and off-brands, however, are perceived as second-rate, especially when the ingredients and proportion of ingredients significantly differ from those in name brands. Nevertheless, these brands remain on the store shelves year-after-year.

Some year ago, a Taiwan company introduced the “Action Pad,” featuring a man dressed like Steve Jobs in a black turtleneck sweater and jeans. Researcher Renee Gosline, with the Massachusetts Institute of Technology, studied the purchase correlations between the Action Pad and the Apple iPad. What she found was the purchase of the counterfeit version, resulted in people eventually purchasing an iPad.

Gosline research on other products found there’s a high probability someone that purchases a knock-off will purchase the genuine item once they can afford it. For instance, she discovered 40% of people that buy purchase a counterfeit handbag will ultimately purchase the real thing.

What’s the lesson?

From a marketing point-of-view it’s probably best to create products that differ rather than mimic those offered by competitors. While you can generate sales for a knock-off by offering it at a lower price, you’ll probably need to skimp on quality and features. As a result, your product could be view in a negative light.

Consider the perception between a latte from Starbucks, and one from Dunkin Donuts or McDonalds. While in a blind taste test they might taste similar, it’s difficult to accept one that cost half the price could be just as good.

In addition, as research has shown, once consumers have the money, they upgrade to the genuine item, abandoning the knock-off product or brand.

Although, in some instance, a brand is so strong and desirable that its low price isn’t a factor. There’s a reason why inexpensive, nutritionally-devoid Kraft Macaroni & Cheese flies off the shelves while lesser known or more expensive brands quietly wait for more discerning shoppers.

Annie’s, as an example, offers a expensive macaroni and cheese “alternative.” It boldly touts its organic and natural ingredients, including cheese from grass feed cows. Their product significantly differs from Kraft’s, appealing to niche audiences, which are willing to pay more for higher quality ingredients.

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