The Brandless strategy: did going brand-less kill Brandless?

Brandless sold everyday basics for just $3 by cutting out the "unnecessary expense" of branding - but the concept failed. Here's what was wrong with the Brandless strategy.

Brandless, the budget direct-to-consumer FMCG company, has announced its closure. Despite an investment of nearly $300 million, it lasted just two and a half years. In 2018, Brandless revenue was $20.2 million, while it made losses of $48.8 million.

What was wrong with the Brandless strategy, and what happened to the Brandless products?

It began with a lofty ambition; to supply a large range of attractive generic goods at a flat price of $3 by doing away with the “unnecessary expense” of branding. It sounds like a win for the consumer, so why did the concept fail? Was it because it rejected branding or were there other factors at play in Brandless’s demise? Let’s take a look…

Wasn’t Brandless a brand in its own right, anyway?

There’s more to brand than a name and a logo. It’s about having a distinct look and feel and this is something Brandless actually had. Its goods weren’t sold in plain paper bags. Brandless products were designed for the Instagram generation, in an array of pretty colours, and they were recognisable ‘on the shelf’. 

The Brandless brand name was even trademarked, so it’s clear to see that the company set out to be a brand from the beginning. What it wanted to do was destabilise other manufacturers’ established and successful brands by being a retailer that only sold its own brand. 

The premise was, by cutting out the middleman, Brandless could save its customers money. But, while value might be attractive, few people go to a supermarket to solely shop for own-brand basics. It’s like Tesco only selling its Everyday Value range or Sainsbury’s exclusively selling Sainsbury’s Basics. They’d never do it. So perhaps it was the Brandless business model that was the issue?

The Brandless strategy gives people something they didn’t want

Brandless launched with 110 products – from tinned soup and coffee to toilet tissue and hand cream – all priced at $3. The brandless strategy aimed to make things simple with a flat price but there’s a reason most retailers don’t do this…and it comes down to basic psychology. 

The amount an item costs infers things about its value. There are many psychological pricing strategies, from prestige pricing to discounting, and they all serve a purpose in attracting different types of shoppers. Someone who seeks quality may opt to buy the more expensive of two similar items, for example. Meanwhile, a bargain hunter might be more attracted to an item that’s on sale than to something that’s permanently low priced – it’s all about perception.

It’s why brands carry out pricing sensitivity testing; something that Brandless may well have failed to do. It opted for a dollar store model but pumped up the price to provide more sustainable products and target a younger, more ethically-minded audience. It believed there was a segment of young consumers who cared more about price than they did brand but wanted an experience elevated beyond the dollar store.

Did this audience exist? We don’t know if Brandless did much pre-launch market research or segmentation but if it had, surely it would have found out a bit more about how people shop for basics?

They don’t tend to do it in isolation; they’ll pick up these items as part of a wider shop where they also purchase other items with intrinsic brand value – be it their favourite chocolate bar or a tried and trusted face wash.

People who shop at dollar stores, don’t just shop at dollar stores – and they don’t go to them purely to get everyday consumables. Dollar stores offer the element of surprise because you don’t know exactly what’s going to be in stock that week. You might get a really great bargain. 

On the other hand, the Brandless strategy saw products tailored to the price. So you would get $3-worth of pasta, or a $3-sized bottle of shampoo. It didn’t feel like you were getting more than you should have for the price. 

When low prices start adding up  

The fact is, you might not always want to buy just one $3-sized bottle of shampoo. You might be buying for your family. Other retailers provide value to these consumers by running buy-one-get-one-free offers and selling bulk packages at a lower cost. They don’t just multiply the price per every extra 100g, which starts to look like bad value. So why would you buy from Brandless when you can get a better deal on everyday essentials at your local Walmart?

And while there may be some shoppers who appreciate the simplicity that comes with a singular price point, Brandless undermined this segment by introducing a $9 range. The company’s Chief Merchant Rachael Vegas herself acknowledged that there was a problem with the Brandless pricing strategy: “Nobody wants $3 worth of diapers; it’s not practical.”

Another sign that Brandless wasn’t sure what it wanted to be was its announcement last year that it aimed to be stocked in bricks and mortar stores. Brandless had also experimented with the subscription model. It hoped to build loyalty by allowing shoppers to receive selected products on a regular timeline of their choosing, with a $36 yearly membership fee for free shipping.

But in reality, the Brandless strategy just wasn’t working and repeat custom was frighteningly low. Edison Trends took a look at Brandless over a period between 2017 and 2018 and found that only 20% of customers who bought something in late 2017 came back the next quarter for a purchase, and only 13% came back the quarter after that.

Why the Brandless strategy wasn’t ‘sticky’

The mistake the Brandless strategy made was assuming that traditional brands are a bad thing because they spend money on things like marketing and retailer margins, pushing up RRPs. CEO Tina Sharkey called this a “brand tax” that consumers shouldn’t have to pay. 

But that infrastructure is there for a reason; branding and marketing help shoppers to make decisions. It enables people to decide if a product is for them – especially if the actual products are otherwise virtually indistinguishable from one another. As humans, we buy into ideas, into an image, and it gives us an important sense of control. 

Brand equity is a real thing – and it’s built through marketing expenditure. It’s not just a pointless waste of money; it drives loyalty and keeps shoppers coming back for more. The reason household name brands are a bit more expensive is that they’ve taken the time to communicate the benefits of their products to their users. And they’ve made people aware of those products in a way that sticks in their minds. Brandless didn’t do that.

In the end, the Brandless product range had expanded to more than 400 products and the company relied on word-of-mouth marketing for them all. But here’s the kicker, the products weren’t good enough to get people talking. While they were produced to the company’s ethical and sustainable values, they were still just basic products. The main motivation of someone who buys basic products is probably keeping costs down, and that means you likely don’t care where you buy them from.

Let’s be honest, most people don’t feel brand loyalty to Tesco 20p baked beans but they might buy them if they’re tight on money that week. Other retailers stock basic products as loss-leaders because they understand they can use them to draw shoppers in and then sell them other, more profitable, items. The higher-margin purchases subsidise the low prices; it’s how Amazon can afford to offer its AmazonBasics range, for example. But the Brandless strategy was based on selling only low-margin consumables (the average Brandless order size was only $34 last quarter), so mathematically, it was always going to be hard to succeed.

The Lidl and Aldi brand strategy difference

Like Brandless, Lidl and Aldi (mostly) don’t stock brand name products either, but there are a few crucial differences in their models that are worth pointing out. Firstly, they spend a lot of money on advertising. Their national TV and newspaper campaigns highlighting the price difference of their own-label products compared to big brands are really impactful. They also spend a lot of time and money on communicating the quality of their products – and more often than not, they live up to the promise. 

Secondly, they sell their products through bricks and mortar stores so it’s much easier for people to browse, choose and try. This is important when you’re largely selling on the strength of the product itself, and not on the brand. And then, of course, these retailers also use the sneaky tactic of imitating well-known brands. Because of the way the packaging is designed, they feel familiar. Far from trying to be brandless, these retailers create a huge range of ‘brands’ for their products to denote quality, which consumers then associate with a brand.  

The other aspect we can’t forget is the higher-priced products these retailers sell. Walk down the centre aisle and you’ll find everything from power tools to flat pack furniture. It’s a clever brand growth strategy. This section provides high profits and is why the non-food products on offer change weekly, to keep customers coming back. The Brandless strategy lacked that ‘what’s-on-offer-this-week?’ element that could convince shoppers to splash out on unplanned purchases. 

What’s the lesson?

It’s great to look for a gap in the market, but before setting off, you have to be sure it’s big enough for a new company to fill. If there are no other businesses trying to serve this audience or operate with this business model, is there a reason why? And how can your company’s brand strategy actually solve the problem with your offering?

The Brandless strategy, including its pricing model and audience segmentation, was fundamentally flawed. But beyond this, Brandless’s problem was trying to sell too many different products, none of them good enough to drive a cult following. 

If you’ve got an average product, unfortunately, branding and marketing are the only things that will save you.

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Bel Booker

Senior Content Writer 

Bel has a background in newspaper and magazine journalism but loves to geek-out with Attest consumer data to write in-depth reports. Inherently nosy, she's endlessly excited to pose questions to Attest's audience of 125 million global consumers. She also likes cake.

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