How private labels are lulling us into higher prices

There has been quite a bit of press lately about the rise of private labels (house brands) in Australian supermarkets like Coles and Woolworths, and speculation about what this means for brand manufacturers.  An IBISWorld prediction cited in The Age has house brands growing from 23 to 30 per cent share of the $70 billion grocery market in the next five years, and companies like Heinz, De Bortoli and Goodman Fielder are publicly lamenting the dominance of house brands.  As most of us visit a supermarket every week, I thought it was worth examining private labels from a behavioural perspective to understand why we are shifting our consumption to house brands. 

How do private labels work from a behavioural perspective?
Private labels are behaviourally persuasive for a few reasons;

• Rules of thumb - in order to deal with the level of stimulation and choices available to us, we operate on auto pilot a lot of the time, using rules of thumb to guide our decision making. Private labels simplify our shopping experience because they create one simple rule - "buy this brand because it is good value".
• Self-herding - private label branding stretches across multiple product categories. The effect is that if I purchase and am satisfied with one category, I will be more prone to repeat my decision for that and extended categories rather than having to trial an alternative brand.  It's worth noting the risk for the private labels here - a poor experience of one category can poison all others. 
• Relativity - to understand whether something is good value, we compare it with similar items.  Our tendency is to stay away from the extremities - too expensive or too cheap - and settle for something that is somewhere closer to the middle.  Amongst others Woolworths have "Woolworths Select" and "Homebrand" and Coles have "Coles" and "Smartbuy"house brands.  This enables them to use one of their brands as their loss leader, leave the supplier's brand as the most expensive and their second brand as the attractive option in the middle. 

How our behaviour is changing the supermarket industry
By influencing individuals, private labels are changing the market in a couple of ways;

• Short-term bias - we are strongly swayed by the immediate rather than long term, and this has significant consequences for the supermarket industry and why brand suppliers are so worried.  We shoppers are buying for now - selecting items that meet our requirements in terms of utility and budget, and house brands are more than ever meeting this brief.  The risk with this behaviour is that through our actions, in this case buying house brands, we are slowly driving brand suppliers out of the market.  We are being lulled into a future of diminished choice, diminished competition and ultimately, higher prices.
• Drop in the bucket effect - along with our short-term bias, it is hard for us to contemplate how our individual purchase decisions can impact the whole supermarket industry.  We think that our actions are simply drops in the bucket that cannot have a broader implication, and this plays right into the hands of the supermarkets who know that engaging an individual is their path to engaging the mass.  

Lessons for other businesses
The rise of private labels clearly shows that shopper behaviour can be changed and new habits formed.  House brands have gone from being a dirty little secret in your pantry to a sign of 'smart' buying.  For all businesses it means that there are opportunities for growth by understanding how to influence consumer behaviour, and what better rule book than the field of behavioural economics to change the game?  See you at the check out.


(Image from http://www.foodmag.com.au/news/demand-for-private-labels-set-to-double-in-2025--r)

Normalising ethical shopping with elephants and underpants

I have only recently become aware of Ethical Clothing Australia (ECA), an organisation charged with encouraging production and consumption of ethical clothing and footwear in Australia.  This new information raised a number of things in my mind about shopping, and how ECA can go about building on the great work they already do to gain broader traction in the consumer market through behavioural change. 

1. Close the gap between Behaviour and Intent
Yes of course I want to shop ethically, don't we all? In fact colleagues laugh at my rationalised outrage about the proliferation of pirated DVDs.  But take me into a shop, fit me in a dress that is perfection (refer last blog!) and my unconscious sees me reaching for the Visa.  You may have seen this play out after BP's oil spill - a conscious decision to boycott BP was undone by sheer convenience of their bowsers.

As I've mentioned in other articles, Dan and Chip Heath call this the "Elephant and Rider" problem. The unconscious - the elephant - is so large and mindful that the conscious - the Rider sitting a top the beast - struggles to get behaviour to be consistent with intent.  A familiar example is the desire to get healthy - we may consciously decide to go to the gym and eat more vegetables, but gee the couch feels good right now so let me start tomorrow!

So what can ECA do about the divide between intent and behaviour?

• Find the Bright spots - identify and promote influential people who are shopping ethically
• Point to the Destination - paint the picture of what an Australia with ethical consumption looks like
• Script the Critical Moves - tell me what I need to do as a shopper. The calling card ECA make available are a great idea to influence retailers.
• Find the Feeling - capitalise on the positive feeling that comes from shopping ethically, make me feel miserable about imagining one of my loved ones being treated unethically in an Australian sweat shop
• Tweak the environment - bring the ECA brand forward - stitch it into the garment as a point of pride. Which brings me to...

2. Use the peacock principle - Personal identity on display
Clothing is one of the most important signals we give about ourselves, and ECA has an opportunity to use its logo as a way for people to identify themselves as ethical (and who doesn't want that?).  Would people really want to carry the logo on their clothing?  Well...

• Calvin Klein smashed a previously entrenched behaviour - underwear is for under-wear - by tapping into the low slung jeans/boxer above the rim trend and branding the banding. From that point on, large sections of the population adopted branded undies as a form of personal status.
• Louis Vuitton bags market their craftsmanship as justification for premium pricing, but what people really buy into is the opportunity to display the branded fabric and logo - otherwise any other bag would do.
• Powerbands became a common wrist accessory across professional and amateur sporting fields. A weird plastic bracelet - who would go for that? People who wanted to be, and be seen to be, high performance. 
• University t-shirts are a classic example which project the message that, whilst I may not have gone to Harvard, I am smart enough to know it's full of smart people with whom I want to associate my brand. 

3. Focus on small behaviours not big behaviours
By this I mean that ECA can't change the big behaviour of going to the shops, but can change the small behaviour of what goods are consumed. This is where their educational and labelling efforts can really make a difference. Reusable enviro bags you see in supermarkets are an example of this strategy. My big behaviour - shopping for groceries - was not interrupted but the small behaviour, how to carry them, was.  And when you think of it, remembering your bags, carrying them empty and storing them is a much more burdensome task than selecting from an ethically produced range of clothes and footwear.

4. Strip the issue of anonymity
The principle here is that responding to an abstract concept like 'ethical treatment of people involved in the manufacture of goods' can be hard for people to grasp let alone act upon.  Likewise the scale of the problem can be overwhelming.  In Mother Teresa's case, she tackled poverty by acting for one. If you can help one person, you can help many. World Vision accomplish this by sponsorship of individual and identifiable people - they give a face to the people that need help.  ECA could follow suit by bringing forward the faces of those involved in the ethical manufacture of clothing and footwear, making shoppers feel personally engaged in resolving the issue.

 Many more strategies can be employed by Ethical Clothing Australia in tackling exploitation in the Australian textile clothing and footwear industry. One thing is clear, this will be a battle for the heart of Australian consumers not the mind.  For more information I encourage you to visit the ECA site http://www.ethicalclothingaustralia.org.au/  to find out how you can take action.