Speaking to BrandLine on the private label challenge that has become a growing threat to established brands in developed economies, he said academic studies and anecdotal evidence support the fact that as the number of new product l aunches in an industry increase, the share of private labels in the category declines.

“The recent burst of new products by manufacturer brands in toothbrushes and yoghurt saw private label shares dip in both these categories,” he added.

On the relevance of the challenge to a growing market like India, which is attracting several major players on the retail front, he said that the share of private labels is not a question of emerging versus developed economies.

“It is, instead, related to the level of retailer sophistication and concentration in the country. In emerging economies where retail is more consolidated, like Brazil, Eastern Europe and Mexico, private label shares are higher.

The less developed private label markets, like Japan and the emerging economies, are anticipated to grow even faster in terms of private label share, albeit from a low baseline.”

He added: “Indian readers and observers and brand manufacturers are often sceptical that private labels will be big in India. The only prediction I can make with full confidence is that the private labels’ share will grow in the next 10 years dramatically. How much, we can debate, but not if.”

Big-box retailers such as Wal-Mart are now eyeing India because the Western markets are seen to be saturating as far as growth is concerned. But Prof Kumar believes the limits are yet to be reached.

“Wal-Mart is worth hundreds of billions, Tesco has 30 per cent market share in the UK, Migros has 40 per cent in Switzerland – and they are all growing. In India we have a very long way to go before we can even think about whether there is a limit to the reach.”

He pointed out that even Wal-Mart, the largest retailer in the world, has less than one per cent global market share, while manufacturer leaders often have 10-20 per cent.

On the question of whether direct marketing posed another challenge to established brands, he said that direct marketing was only an approach.

“Customers come in physically to the store and retailers, with their loyalty cards, can have detailed data – across multiple categories – on customers, which brand manufacturers can only dream of. While direct marketing may help manufacturers get some additional insights, I do not see manufacturers beating retailers in this space.”

Does this mean big companies should spend more on R&D to create products in niche segments? Prof Kumar disagrees.

“Big companies that want to grow cannot concentrate on niche segments as they will not generate enough sales; so, this strategy will not work. Unless the strategy is premium niche brands, most niche brands are squeezed out in mature private label markets and rarely make any money.”

Can better advertising help counter the threat? “It is true that categories with higher advertising intensity have lower private label shares. So, yes – a good creative will always increase share but the problem is: how do you get good creative every time? It’s a bit of a hit-and-miss game.”

He also said that advertising alone is not enough, as advertising is more effective when it supports new products and/or functional quality edge.

“And if a new product is supported by heavy advertising, as opposed to limited advertising, it is 70 per cent more likely to be bought by consumers. Lastly, advertising for a new product introduced by a well-known brand name increases the effectiveness of the ad spend, as the consumer can draw on existing associations with the brand.”

According to Prof Kumar, advertising content matters, especially in categories where functional performance plays a role. “The ads using distinctive functional benefits generate stronger sales. It is worrying to see the trend of de-emphasising distinctive functional benefits in many categories. Such ads may be more enjoyable, but generally turn out to be less effective.”

The Internet has become a mainstream trading platform, but Prof Kumar believes that it is not a viable option in the consumer packaged goods industry, due to the delivery costs.

“Of course, the exception is those who offer large assortments – the retailers. For more expensive products with relatively low delivery costs, it is one way to reduce retailer power. But still, India has a long way to go before e-tailing becomes a significant option.”

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