Private label brand is produced and sold by a specific retailer. However, this feature gives the retailer a differentiation advantage to stay ahead. In one way, it helps in promoting sales and increasing profit margins. The other name for private label brands is store brands. The attributes and specifications for the products under private labels are developed by the category managers and these are manufactured through a third party. However, the entire responsibility of promoting those products lies with the retailer. The products under private label brands are usually available at discounts and are most suitable for those looking for keeping their spending as low as possible. The merchandise is cheaper by 15-20% than the national brands and constitute 40-50% of total sales for some However, there are some reasons due to which the major rule the market and prohibit the entry of new ones:
- They have established stronger barriers to enter the market through their sturdy channels of distribution.
- Product recall for older brand names is better and stronger as compared to the latest ones. Further, it is not easy for the new comers to establish such a good brand image due to underlying promotional expenses.
- The consumers now know the quality of imported products because of the removal of high import duties. Customer loyalty can be enjoyed by maintaining the quality of products as in case of leading brand names. The promotional costs are avoided by the private label brands and therefore, they can offer products at low prices. In fact, private label products are promoted by several supermarkets such as Shopper’s Stop, Pantaloons, Walmart, etc. The private label brands are promoted by retailer so that a specific brand can be associated with a store; hence these are also Store brands. It can prove to be more lucrative than the national brands. It has been shown through a research that store brands offer 35% gross margin whereas national brands offer 25.9% gross margin.
Characteristics of Private label brands
The key features of a private brand are as follows:
Includes all Products: It includes all the product sold by the retailer – from fashion apparel to shoes and soon.
Branding: The own name of the retailer can be the brand name or something he/she has chosen. Sometimes, the retailer may be a part of wholesale manufacturing group which owns the brands that are available just to a certain group members.
Other Characteristics of Private label brands
- Useful in understanding the position of the brand compared to the leader,
- Consumer sees it close to a well-known brand;
- Better visibility at retail level; and
- Stock Keeping Units (SKUs) are easier to maintain.
Advantages of Private label brands
Private brand offer the following advantages:
Product Pricing Control: Retailers exercise a control over various product factors (like design, distribution, production, package, size, pricing, etc.) through private labels.
Marketing Innovation: Private labels enable the retailers to innovate and execute their ideas to compete with bigger national brands. Retailers are also able to quickly implement changes in their products as per the changing tastes and preferences of the customers.
Personalisation: Owing to customisation, private labels are successfully able to generate better selling options for the end retailer. The minor detailing input in customisation of things like punch lines, logos etc., which have a local connect, goes a long way in personalising the buying experience of the customer. This also generates higher level of loyalty among customers For example; the Organic Harvest food by Future Group delivers healthy food at reduced prices to its customers. It also comes in a stylish packaging that competes with most of the brands of national level.
Retail Space at the Store: The customers’ store experience can be customised by private labels, which is not possible for national brands as they have to be uniform in terms of their aesthetics. Retailers can make their private labels more noticeable by making use of various shelf display techniques like end-cap display fixtures and brand blocking.
Convenient Choice during Downturns: Perhaps the biggest advantage that a store can have by keeping private labels is when the consumers switch to saving money during difficult financial times (personal or national downturns). This is because during such times, price becomes an important consideration for the customers that is where the private brands are a big hit.
Disadvantages of Private Label Brands
Following are some drawbacks of private brand:
Absence of Standardisation: At times, the private labels fail to live up to the standards of quality which may create discontentment among customers.
Low Prices: The products under private labels are considered to be substandard by some customers because their prices are lower than the national brands.
Similar Image Perseverance for all Products: In case the customers had a bad experience with a product, all the other products under the brand are considered to be the same. For example, if the customer is not satisfied with the quality of a tomato sauce, he will not select the jam manufactured by them.
Terms of Production: The manufacturer of a private label might carry out production as per his/her own terms and conditions. Therefore, such manufacturers might be biased in their process of production.
Requires Inventory Control: As the entire task from manufacturing to delivering on order is done by the retailer it needs a lot of organised efforts. Hence, it requires more inventory control when compared to a national brand.