Reference no: EM133945875

Assignment:

OWN BRAND: INTERESTED OR MISSING OUT?

These are hard times for everybody, with unemployment, layoffs, and price hikes across major consumer goods, and Turkey is no exception. Like many other consumers around the world, Turkish families have been affected by the global financial crisis. Today there is one buzz word in consumer vocabulary. Savings. From trying cheaper shampoos and detergents, to drinking more reasonably priced soda, Turkish consumers are changing their spending habits to save money. Two major developments go hand in hand in emerging markets such as Turkey. On the one hand, as a result of the changing retail environment that has experienced rapid privatisation, burgeoning national brands, and the availability of global product options, consumers are becoming more sophisticated, selective, and brand conscious. On the other hand, in response to the recent global recession, they are reminded that they are not immune to financial problems and are part of a global economy. In a way, the recent crisis provided an opportunity for Turkish consumers to reconsider the rationality of their buying behaviour.

As shoppers look for new ways to satisfy their desire for high-quality goods at reasonable prices, retailers work hard to overcome any perceived inferiority of their private labels (store brands). Private labels are brands owned and sold exclusively by individual retailers. Most retailers utilise their private labels as cheaper alternatives to popular and more expensive national or global brands. Private labels often imitate well-known brands, show little or no creativity, and basically display a copycat brand image.

Therefore, these generic products have generally been viewed as poorer quality goods. This negative image is generally linked to uncertainty and lack of knowledge about store brands. Consumers are generally not well informed about the quality of these brands and are not sure if they will be fully satisfied with a private label purchase. When shoppers are doubtful, they may opt for popular brands that have used consistent marketing communications. Considering the concerns about switching costs and inconvenience that a generic brand may elicit, consumers may want to play it safe.

Migros is one of the largest retail chains in Turkey. Consider Migros shopper Serkan, for example. Serkan's shopping cart is filled with private label items: Migros milk, Migros rice, Migros tea, Migros hand soap, and laundry detergent. "It seems that Migros has its own products in almost every category," Serkan says. "I tested most of these products, and the Migros brand passed my tests...I had to persuade my wife to try the Migros brand, though. It took me a while to convince her...now I think I am saving at least 25 percent on groceries!" Price consciousness is not the only motive for store brand preference, at least not in major Western countries. Awareness of and preference for store brands have significantly increased in the last ten years.

Nowadays, most retailers around the world have improved their private labels, positioning them as strong alternatives to manufacturer brands while trying to turn the "generic" items into stronger brands. Today, these retailers offer not only a variety of options to consumers but also higher quality and considerably refined choices. By teaching consumers about their products and positioning their store brands wisely, companies challenge the preconceived notions about private labels. Through an effective and integrated marketing programme, companies strive to change consumers' attitudes toward risk, quality, and price. As a result, most consumers have come to realize that the private labels are not that different from their national or global counterparts, and they even have developed a strong preference for private labels.

This marketing strategy offers several benefits to the retailer. Strong private labels not only enhance store traffic, loyalty, and profitability but also give retailers more power in negotiating with manufacturers of national brands. Today manufacturer brands must consider private labels as serious competitors, and for that reason they must consider making concessions (such as adjustments in prices) as needed. In developed countries, private labels penetration is on the rise. Private labels now comprise one of every five goods sold every day in the United States, and the market share in Western Europe is even bigger. In the last few decades, the number of international as well as national retail chains has increased rapidly. Tansas, with 270 stores across Turkey, has been one of the most successful companies in the retail sector. It is also one of the oldest chains, having opened its first store in 1973. The merger of Migros and Tansas in 2006 is regarded as a milestone in the Turkish retail sector in terms of geographical dominance and customer volume.

In 2008, Migros appeared in the annual Global Powers of Retail report by Deloitte, making Migros the first company from Turkey to be named among the global retail powers. As of 2010, the Migros organisation has a total of 1,890 stores, consisting of 331 Migros stores, 280 Tansas stores, and 1,233 sok discount stores. Migros, Tansas, and sok have their own private labels across various product categories, including food and non-food items. These goods are generally produced by local firms, and regular quality checks are run by Migros at every stage of the production process. Today Migros' private brands account for 40 percent of its sales. It is clear that store brands in Turkey have noticeably advanced their brand portfolio by introducing many categories and offering greater selections. However, private labelling in Turkey is still in its infancy. Store brands are not yet innovative; they simply imitate leading brands and offer low-end generic products. Price-conscious consumers may prefer private labels. However, this does not hold across all product categories. That is, even frugal consumers may be hesitant to purchase store brands when it comes to certain items.

It is evident that Turkish consumers still see store brands as low-priced, lower-quality, and less sophisticated alternatives to popular brands. Marketers have long noticed that interpersonal influence can be vital in consumer behaviour with highly visible brands. Considering the collectivist nature of Turkish people, consumer unwillingness to consume "less stylish" store brands in public is understandable. Due to their collectivist identities, Turkish consumers purchase products that conform to social expectations and tend to use those items as status enhancers. One cause of Turkish consumers' hesitance to purchase store brands is that they do not have premier private label options. Unlike many retailers around the world, Turkish retailers do not carry higher-end private brands that may attract consumers who value quality and variety. Most store brands target frugal consumers who seek to satisfy their basic needs.

Basically, consumers who do not want to look "cheap" have no choice but to buy a store brand. Another reason for consumer reluctance to try store brands in Turkey is the public's lack of consumer rights. Protection of consumer rights through strict law and regulations is a relatively new issue for Turkish consumers. For many years, Turkish consumers had problems returning their defective products, finding appropriate outlets for their complaints, and reporting unfair business practices, fraud, and product misrepresentations. Turkish consumers do not want to try store brands and fail, with no solid repercussions for the retailer. This general scepticism about dispute resolution and consumer protection mechanisms have resulted in increased commitment to national and global brands that can guarantee a certain level of satisfaction. Turkish retailers have a lot more to do to improve this negative image. It is apparent from consumer comments that too much focus on "affordability" may backfire, especially for the emerging wealthy consumers.

Although keeping prices low may attract price-conscious consumers, that strategy alone cannot be regarded as a viable approach in the long run. Customer retention, commitment, and loyalty cannot be achieved solely through discounts. To enhance the store image as well as to increase revenues, stores with private labels must promote the value they offer. With an integrated marketing programme, store brands may reposition themselves as reasonably priced yet high-quality alternatives. Although there is still much room to improve private labelling in Turkey, Turkish retail chain Migros, with its innovative, reliable, and customer-focused approach, seems to be on the right track. To demonstrate that its private labels are no different from popular national brands, Migros claims that to gain their customers' appreciation for a single kind of fruit juice (Migros brand fruit juice), they handpick the best flavour and aroma among alternatives.

Given the opportunities for higher profit margins on private labels, higher leverage in manufacturer negotiations, and higher consumer retention and store loyalty, private labelling seems to be a promising positioning strategy for Turkish retailers.

(Kotler & Armstrong 2012, Principles of Marketing)

QUESTIONS

1. Define private labels, and discuss whether the use of private labels is advantageous to Migros.

2. Today Migros' private brands account for 40 percent of its sales. Explain the FIVE (5) ways in which they have been able to achieve this.

3. Certain countries have formed free trade zones. Name ANY FOUR (4) of these free trade zones.

4. In the confrontation between manufacturers' and private label brands, retailers have many advantages and increasing market power. Discuss the factors that help store brands like Migros to grow.

5. Discuss using THREE (3) points, what leading brand marketers should do to maintain their power.

6. Discuss why intermediaries sponsor their own brands.

7. Sales promotion is a key ingredient in marketing campaigns. As the marketing manager of a clothing shop, develop the sales promotion decisions the company must establish before using sales promotions tools to stimulate quicker or greater purchase of the products by consumers.

8. Discuss, using appropriate examples what a private label is, and why retailers and wholesalers prefer them. Also explain why experts believe that 50 per cent is the natural limit for carrying private brands.

9. Compare and contrast manufacturers' and private label brands, using appropriate examples.

10. The market has various types of buyers. Advise Gateway Shopping mall management on these types of buyers and how the mall can engage with such buyers.

11. Advise the manager of Cell C on the various components he/she should consider when developing compensation package for his/her sales force.

12. Firms have become truly global organisations. Discuss the THREE (3) organisational strategies that they use.

13. There are five risks that a company must weigh before making a decision to go abroad.

14. Micro models of marketing communications assume that the buyer passes through specific stages. Discuss these stages in the correct order.