Yes, there’s even generic motor fuel. From garbage bags to gasoline, brand names aren’t what they used to be. In a world where consumers have more choices than ever-and where big retailers, not manufacturers, make the crucial decisions about what is sold and how it is marketed -making a well-known product is no guarantee of getting a premium price. Last week, after Philip Morris Companies’ announcement of dramatic price cuts for its Marlboro line to counter the popularity of cheap, no-name cigarettes, frail brand loyalty became Wall Street’s Worry of the Week. Companies whose profits depend on persuading consumers to pay more for a famous name-among them retailer The Gap and shoemaker StrideRite-saw their shares skid to the lowest levels in a year. The change, proclaims Oppenheimer & Co. analyst Gabriel Lowy, “is resounding through the halls of consumer-products companies everywhere.”
But don’t bet your last bottle of Chivas on Wall Street’s latest fad. Trashing brands may be in fashion, but names like Heinz and Hallmark still have plenty of staying power. Somehow, the makers of branded merchandise always manage to convince customers that brand names stand for quality. Often enough, that claim is true. Diminished brand loyalty is the trend of the moment; whether it will be the trend the next time the robins return only the trendiest of trend spotters dares guess.
No question: there are changes out there in Consumerland. Most families’ incomes haven’t been keeping up with inflation, and that makes shoppers ponder whether Campbell’s soup is really worth, say, a nickel more than the store brand. Besides, in the understated ’90s it’s no longer fashionable to flaunt that Louis Vuitton suitcase and that $125 Hermes tie. A highly price-conscious environment makes it tougher for name brands to maintain the price premium they enjoyed in the 1980s, and the plethora of new, narrowly focused media outlets, from Vegetarian Times to the HowTo Channel, enable competing products to break in without spending millions to sell to people who are not likely customers. Retailing has changed, too, as mass marketers have supplanted small chains and mom-and-pop operations. Kroger’s private labels have grown to account for 18 percent of its sales, up from 15 percent three years ago. Outfits like Home Depot, the nation’s largest seller of building materials, do extensive product testing, so shoppers figure that any brand it sells will do all right, whether or not it’s a famous name. WalMart, the largest U.S. retailer, is playing on that deep consumer trust to introduce its own Great Value label later this month, a move that will probably knock some branded goods off its shelves. You can see the potential at the Wal-Mart in Shallotte, N.C., where Pepsi looks like a bargain at 35 cents a can-until customers see the machine selling house brand Sam’s Choice for 15 cents less.
As branded products’ profit margins decline, manufacturers are crying foul. In the paper-diaper industry, where competition has kept price hikes below the rate of inflation, leading makers are now threatening off-brand competitors with patent-infringement suits. “Not one single innovation in the diaper business has come from the private labels,” complains Bruce Kirk of investment bank S.G. Warburg. Maybe not, but customers don’t seem to care who’s first. “Most of our effort is directed at emulating the brands as quickly as we can when they come out with something that people like,” says Mal Bellafronto of Pope & Talbot, an Oregon- company whose 200 different labels have helped generics grab 23 percent of the diaper market.
That doesn’t mean that well-managed brands are losing their franchises. For every name like Mercedes-Benz, which was slow to see that its high prices were driving car buyers away, there’s a BMW, which spotted the trend soon enough to develop lower-priced models before market share eroded. The challenge facing marketers, in fact, isn’t all that different from the one facing manufacturers. Just as rapid changes in technology and customer expectations force factories to constantly improve their products, sudden shifts in consumer tastes require continuous finetuning of marketing strategies. For the nimble, that’s no problem. Since 1982, when Coca-Cola Co. chairman Roberto Goizueta warned that competitors would target narrow groups of customers tired of the traditional Coca-Cola brand, the company has introduced dozens of new drinks, from iced coffee to diet cherry Coke, to fend off assaults on its market. “A key to consumer loyalty is product innovation,” says Colgate-Palmolive chairman Reuben Mark.
The real problem is that many companies wait too long to react while their name brands decline. For instance, Warner-Lambert’s Listerine had been stagnant for years, but the company was reluctant to tamper with the nation’s best-selling mouthwash. “Customers are buying more than just a liquid in a bottle,” says brand manager Kathleen Koch. “They’re buying a promise of quality and value.” Not until 1992 did the company come up with a blue Cool Mint version to take on the competition. In personal computers, IBM and Compaq experienced a similar paralysis. Although customers began defecting to cheaper mail-order clones in the late 1980s, it took until 1992 before IBM and Compaq finally took a cleaver to production costs and combined low prices with the latest technology. Clone makers that competed on price alone, like Librex Computers, have been forced from the business.
Where consumers think brands offer higher quality or better value, they still flock to them. Toys “R” Us, which reels in one of every five dollars Americans spend on playthings, stocks only namebrand toys. The reason, explains executive VP Michael Goldstein, is that kids know exactly what they want-and it isn’t a house brand. Things are very different in the diaper department. Parents watch prices and kids don’t care, so Toys “R” Us has become a big purveyor of generic diapers. “If other retailers carry private labels, we’ve got to offer them to our customers as well,” Goldstein says.
Overseas, America’s famous names have lost none of their cachet. If consumer incomes stage a rebound, many of today’s much-maligned brands will shine again here as well. Brands, after all, appeal more to the psyche than to the billfold, and consumers everywhere want to believe they’ve earned the right to move up to something better. As the marketers have long since discovered, nothing is more of a passing fancy than austerity.
