Private labels are often positioned as lower cost alternatives to more widely known regional, national or International “Named” brands. Private labels are also known as, Store brands, Home brands or Own brands. They cost less compared to the more established Name-brands, since the retailers can save on Marketing, Advertisement and development of the products. Private labels relate to the loyal customer base of a retail chain where the retailer can adapt their product offerings based on the demographic and socio-economic variables of their customer base. This offers a huge flexibility for the retailers in terms of catering to the niche demands of a specific segment of consumers.
Significance of Private Labels
The reason why Private labels have grown are:
- Pressure on Sales Margin due to Competition
- Product Store Differentiators – Customers get newer and varied choices like Organic labels
- Brand Manufacturers are not willing to part with additional margins
- Brand Manufacturers trying to balance out retailers so deals become selective
- Pressure from Malls for higher rentals
- Price benefits during Recession especially by Discount retailers
- Ease of Out-Sourcing from third parties and from countries like China and Taiwan
- At the end of the day if Brands die, Retailer still needs to Survive.
In a 2014 global survey of 30,000 online consumers in 60 countries, Nielson found that 71% of respondents noticed private label brands had improved.
Advantages of Private Labels
Private labels are increasingly seen as value brands with the objective to have quality equivalent to manufacturer brands but at a much more competitive lower pricing. Private labels provide the retailers with significant advantages compared to the Name-brands.
- Building a Retailer Brand image rather than a Manufacturer Brand Image.
- Lower product price which drives higher profit margin for the retailer
- Exclusivity of the products
- It gives Stores more control over pricing, marketing, sales and distribution
- Sales of store brand are often more profitable than those of national brands because private label items are (usually) cheaper to manufacture
- Private labels make it harder for competitors to match and price check similar products
- Attract footfalls and increase conversions in a store
- The better the store brand usage, the better the direct effect of store brand value for money on store brand loyalty.
Future of Private Labels
- Private Labels have a big growth subject to the fact that the quality, Price, Positioning and innovations are not compromised
- With the pressures on retailer margins going higher, it is expected to contribute to close to 25-30% of the shelf spaces.
- The Ecommerce retail ushers in a completely new outlook in terms of establishing its own Brand identity through products
- The trends of Private Labels have moved from being a price and promotional concept to a direct competitor to the brand due to quality of product and packaging at the same time giving the value of the same brand at a lower price. This trend is happening in Europe and USA.