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Understanding point of diminishing return

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As many retailers continue to expand the presence of store brand products because of the high retailer margin percent these products offer, it is important to pause and consider what is the optimal balance of national brands and store brand that will drive overall business results for the retailer.

Drug Store News has partnered with Competitive Promotion Report and IRI to create a series of exclusive reports. This edition focuses on “National Brands and Store Brand Optimization: Point of Diminishing Return.” While there is a role for both national brands and store brands, retailers will be well served to seek to understand the right balance between the two. Too much store brand on the retailer’s shelf may not provide the consumers with the range of options they desire. Retailers and manufacturers must work together using fact-based insights and analytics to identify the optimal mix of national brands and store brands that will maximize retailer margin dollars, category growth, market share and shopper satisfaction for the retailer.

This analysis looks at the major national brands and store brands in the drug channel for the cold/allergy/sinus liquid/powder category over the past two years. The following are just a few of the key findings from this analysis:

  • Year-over-year market share for store brand has declined each month since March 2013.
  • Reckitt Benckiser and Procter & Gamble market share year-over-year has increased every month since November 2012.
    − Reckitt Benckiser average market share change year-over-year was 1.25%.
    − Procter & Gamble average market share change year-over-year was 1.67%.
  • Reckitt Benckiser promotional spending (off-invoice and bill back allowances) was among the lowest of the national brands, thereby maximizing the effect of promotion spending relative to market share.
  • Despite relatively high levels of spending on promotions year-over-year by store brand, it has not translated to proportionate increases in sales and market share, reaching a point of diminishing return.
  • Despite a 65% increase in hospitalization rates for flu (influenza A and B) and a more active flu season during 2013 as compared to 2012, according to CDC data, unit volumes have declined for drug stores.
  • The Tylenol brand provided retailers in this category with the highest retailer margin (39.76%), followed closely by Mucinex (37.32%), Benadryl (36.89%), Dimetapp (34.8%) and Vicks (30.81%).
  • The Vicks brand has the highest promotional spending and provides retailers with the lowest retailer margin percent of the five leading national brands.
    − However, the Vicks brand generates the highest retailer margin dollars.
    − Vicks, Mucinex and Benadryl have shown margin dollar growth year-over-year.

A flawed promotional strategy combined with an improperly balanced portfolio of national brands and store brands can result in a significant loss of retailer margin and stifle category growth and market share gains. There is a definite point of diminishing return where too many store-brand SKUs may actually hurt overall business performance.

The CPR National Brands and Store Brand Optimization analysis is a tool that can help manufacturers and retailers find answers to important business questions and help retailers drive overall business performance.

To view the charts, click here.

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