Oily Rag - Others Follow Where Oily Raggers Walk

 Read more Oily Rag articles by Frank and Muriel Newman

We have known for years that oily raggers are leading the way for others to follow. About 18 months ago the oily rag research team carried out a nationwide survey to answer some key questions about the price of milk. Over 600 oily rag readers took part and as a result some very important conclusions were drawn about the price of milk, where to get the best deals, and how the industry extracts premium prices through branding.

It was therefore pleasing to see TV3’s Campbell Live recently caught up with the issue. Although their report appeared to have their guns pointed at what they implied were villainous price gouging retailers, it did extract a confession out of a Fonterra Branding boss who confirmed the milk in a $2.90 2ltr bottle of Dairy Dale is exactly the same as that that goes into a $4.90 bottle of Anchor. We have placed a link to their report on our Living Off the Smell of an Oily Rag website at www.oilyrag.co.nz.

When we pointed out the fact that it was the same milk retailing at different price points some 18 months ago, few believed our claim. Even well respected media commentators were sceptical, “surely not” they said. We knew it was true because a number of people in the dairy industry had told us so (on the condition that we never mentioned their name!) and no one in the industry had ever challenged us about our claim.

Although it is popular to blame retailers for higher milk prices, we did not find that to be the real issue. The real reason is branding.

This is what we said in our report. “Branding plays a key role in the pricing of milk. The purpose of the brands would appear to be to enable retailers to present milk (essentially the same product) at various price points, and therefore maximise the retail spend from less price conscious consumers, while at the same time gaining a share of the price conscious market. This is evident in the branding strategies of Fonterra and  NZ Dairy Foods who both have premium brands (in Anchor and Meadow Fresh respectively) which retail at around $4.50 and also discount brands (in Dairy Dale and Dairy Fresh) which compete directly against the independent brands and retail at around $2.90.” To see our Oily Rag Milk Report visit our website at www.oilyrag.co.nz.

Let’s put this simply. Milk is milk. To make the same milk “different” it is branded differently to give the impression of quality. Anchor has a nice colourful sticker on a fancy looking bottle. Dairy Dale has a plain label on a plain bottle. Anchor sells for $4.90. Dairy Dale sells for $2.90. Consumers looking at the two bottles are likely to think Anchor is a better quality product – it’s not, it’s better quality packaging. That impression enables Fonterra to charge more for Anchor than its does Dairy Dale and retailers add their mark-up so it retails for more. Fonterra and some retailers limit the availability of Dairy Dale because they want consumers to buy the higher priced bottles that offer better profit margins.

Presumably the reason Fonterra has the Dairy Dale brand at all is because there are savvy oily rag consumers who understand the branding game and don’t want to pay for fancy packaging and image. It also means certain retailers (like speciality food outlets) can discount the price of milk to attract foot traffic without damaging a premium Fonterra brand. In other words, Fonterra would prefer retailers to discount Dairy Dale rather than their premium Anchor brand which has lots of other associated products like cheese and butter.

This branding strategy is not unique to milk. It’s actually common for the same product to be placed in different packaging and retail those packages at various price points. It’s also very common for one manufacturer to have multiple brands at multiple price points to crowd out their competitors.

Pointing the finger at retailers is not the answer. It’s up to consumers to wise-up to these practices and become a savvy shopper.

If you have a favourite tip share it with others by visiting the oily rag website or write to Living off the Smell of an Oily Rag, PO Box 984, Whangarei. The book Living off the Smell of an Oily Rag by Frank & Muriel Newman is available from all good bookstores or online at www.oilyrag.co.nz.

* Frank and Muriel Newman are the authors of Living Off the Smell of an Oily Rag in NZ. Readers can submit their oily rag tips on-line at www.oilyrag.co.nz. The book is available from bookstores and online at www.oilyrag.co.nz.
 

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