The products that are manufactured by the same company that sells them (usually a well established retailer) are called Private label brands. These products are made by small manufacturers with smaller batches specifically for a particular retailer. These products sell exclusively only at the retailer’s stores. Retailers sell these products along with other brands of same or similar products that are stocked in their stores. Private label products offer several advantages for the retailer. Here are some of the advantages.
- Exclusivity: Private label products are made only for a particular retailer on order. As they are unique to the retailer, they do not compete with national brands. The target segment for these products consists of customers who are already loyal to the retailer knowing they will get similar quality with products of retailer’s brand.
- Retailer deals directly with supplier and sources: National brands have multiple channels, routing their products. The supply chain is long. With Retailer’s own brand, he is dealing with his suppliers and sources directly. he can feed back the marketing intelligence, trends, customer preferences etc, directly to the suppliers and sources and quickly get update the products. The product updates are much quicker, to the liking of the customers.
- Own unique image of retailer. Strong customer recognition: The customers are already aware of retailer’s brand. They associate his brand and his service level with certain quality. With the product of retailer’s own brand, they know exactly what level of quality to expect. The purchase decisions are made quickly, resulting in quick turnaround of inventory. Retailer can further build his image from the quality of his private label products as well.
- Product and packaging tailored to meet retailer’s requirement: Most of the big brands will have standard product specification at least nationally, if not globally. But as every retailer knows, those specifications are not suitable for every location. For example, the population in a particular retailer’s catchment area may be more comfortable with larger waist jeans, rather than skinny narrow waist jeans, which is main target for most well known denim brands. Further the type of packaging may not be appealing to the customers in retailer’s catchment area. Not only that the packaging may not meet his requirements, as a retailer, to store the product, it may also not be suitable to deliver to retailer’s customers. With private label, retailer controls the design, specification, material and other aspects of the product. Retailer can also customize the packaging as per his unique needs.
- More control over pricing, marketing, sales and distribution: As it is his own brand and own product, the retailer can decide what marketing strategy will work best for his target customer segment and adopt that. He can decide the price at which he wants to sell his products. He can change the price as he sees fit. He can launch his own promotions and campaigns to increase the sales. This kind of flexibility is usually not available with national level brands.
- More profitability: The supply chain for private label is smaller than national level brands. Products come directly from manufacturer to retailer’s store or warehouse. All the margin after manufacturing costs goes to the retailer as against a smaller percentage that is usually fixed by the company for national brands. Since the retailer can change the price, he also controls the margin and turnover, thus retaining greater flexibility on the profitability of the product.
- Faster update to products: Customers can be finicky. Their taste change quickly. They get bored of the same product over time. With larger brands the feedback loop, development of new product and rollout of new product takes time. However, since with private label the chain is smaller, the new trends can be quickly analyzed. New products are developed with faster speed and quickly brought to the market. The private labels can be more responsive to changing customer needs as compared to national brands. Since the market for private label is smaller, the production run are also smaller, leading to lesser unsold inventory, in case the product does not sell. That’s a win win for the retailer.
- Virtual monopoly: This is a unique advantage for the retailer. His own branded products will be available only at his store. If they take fancy of the customer, the retailer is guaranteed that customers will come back to his store for more, as they are available on at his store. This not only creates a virtual monopoly but also creates an opportunity to sell other products that are stocked in the store. Private label products can indirectly leads to increase in sales of other products and of overall store.
- Value extraction of the brand value: If the retailer’s brand is well known and well recognized for the quality of the products and the service it provides, it should be easier for him to sell his own branded product. This is the hidden strength of the brand. The promotion of product, by simply labeling it as his own product, is great way to exploit a retailer’s well established brand value. However, great care needs to be taken that the new product being labeled is of equal or higher quality, for which the retailer’s brand is known for. If not, then the product may actually push the customers away, leading to brand value erosion.
- Harder for competition to match the specification and price of product: With full control of the product, retailer get the direct feedback from customer and incorporate those into his product. Same goes for all aspects of pricing, packaging, marketing, quality etc. The final product is a unique fit for his target customer base. There will be very little in the way of differentiation that retailer’s competition can offer, to pull the customer away from the retailer. A good private label product is a great way to lock customers to retailer’s brand.
Private label branding offers many more advantages. In a nutshell, private label branding helps retailer address the requirements of his customers with his own product offering which is tailored to their specific requirement and increases his profits. If the label (the brand) succeeds, it may even grow to a national brand.