The Lowest Price Is Not Always the Best Price

The Lowest Price Is Not Always the Best Price

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Todd Hale, SVP Consumer & Shopper Insights, The Nielsen Company

With insights from Adam Murphy, North American Shopper Practice Leader

SUMMARY: Store brands continue to outperform brands in most categories in the U.S. Retailers’ focus on cutting prices (for both brands and store brands) and increasing store brand assortment is positively impacting unit sales, but negatively impacting dollar sales. The most successful retailers are the ones who are collaborating with manufacturer partners to complement current pricing strategies with a strong commitment to other shopper needs and building a stronger platform for long-term success.

U.S.-based store brands are benefiting big time from the current economic downturn. As consumers continue to turn to better prices and value, retailers have clearly stepped up their game by enhancing their brands overall product quality and by adding strong marketing muscle behind store brand initiatives. But a Nielsen review of U.S. department-level price gaps between store brands and manufacturer brands shows that retailers may be hurting themselves in the long run—and missing out on opportunities to collaborate with manufacturer partners to drive stronger category sales.

Retailers may be hurting themselves in the long run…

Within food, drug and mass-merchandisers (including Walmart), Nielsen reports that the price gap between store brands and manufacturer brands is considerable—especially for non-edible departments such as health & beauty and general merchandise where gaps ranged from 74% and 63% respectively. Food departments have a smaller percentage gap—store brand prices in the deli department were 22% lower than branded and up to 50% lower in the dairy department. Since the same period in 2006, price gaps have widened in four of seven departments (deli, frozen foods, dry grocery, dairy, non-food, general merchandise, health & beauty).


Closing the Gap

Are retailers losing category dollars because of aggressive store brand pricing or greater focus on store brand versus brands? While it is recognized that that department-level price gaps can be driven by differences in category mix, brand and/or size mix (an examination of gaps on an individual category-by-category and product-by-product basis is recommended), these differences are significant and suggest that retailers are not maximizing category sales.

Consider this: an increase of just one cent in store brand prices translates to roughly $400 million dollars in sales across all departments measured by Nielsen. In departments and categories with extreme price gaps, the potential to enhance category sales can be significant. With the ongoing price compression in the industry causing declining category and same-store-sales, retailers would be wise to think about shifting focus on raising prices on some of their own brands.

Prices Alone Not Enough

Prices alone are not the key to shopper’s hearts. Price is top of mind for all retailers right now, but Nielsen’s annual Shopper Trends study reports that strong shopper relationships are built on at least four other factors that are equally important to driving commitment. When the purse-strings relax as the economy improves, those other factors will separate the strongest grocery retailers even further from the pack. Shopper Trends is an annual survey of Shopper Equity for the top retailers in the grocery channel*, conducted across more than 55 countries globally. The U.S. shopper survey included feedback from over 29,000 American shoppers across all 48 contiguous states.

The survey found that the most successful retailers are the ones who are complementing current pricing strategies with a strong commitment to other shopper needs and building a stronger platform for long-term success. The five over-arching areas that the study identified contributing relatively equally to shoppers’ emotive equity in the U.S. are:

  1. Store accessibility
  2. Store format and wide selection
  3. Pricing and value for money
  4. Stocking quality products
  5. Efficiency and loyalty program

The importance of these other factors also explains why every shopper is not doing their weekly grocery stock-up in a discount chain, despite the pressure of a recession. Consumers still want to have a pleasant experience and there is tremendous value in making that process convenient and easy for them.

Do’s and Don’ts

Manufacturers who think that store brand success will fade when the economy improves are likely in for a rude awakening. Best-in-class retailers and manufacturers are those who collaborate on category and total store assortment, pricing, promotion, and advertising decisions.


  • Don’t let price gaps get too large or risk declining category sales.
  • Don’t de-list high-penetration, high-frequency or strong niche brands or risk driving shoppers to retailers who do carry them.
  • Do promote store brands with brands where there is limited shopper overlap to drive category sales.
  • Do promote store brands along with non-competitive or complimentary branded offerings to build larger baskets.
  • Do select credible suppliers and hold them to high standards.


  • Do branded versus store brand pricing analytics and show retail partners which branded offerings make good promotional partners.
  • Do proactive assortment analytics to demonstrate why your brands align well with store brand assortment.
  • Do take a collaborative approach to how you assess branded versus store brand risks and opportunities – retailer focus has never been greater.
  • Do explore options for using excess capacity for store brand production.

*Retailer equity scores from the 2009 Shopper Trends study are available. Contact your Nielsen representative for details.