Sunday, January 11, 2009

Is Private Labeling Key to Retailing

Private label products or services are typically those manufactured or provided by one company for offer under another company's brand. Private label are often positioned as lower cost alternatives to regional, national or international brands, although recently some private label brands have been positioned as "premium" brands to compete with existing "name" brands. In India, the largest retail chain today has around 300-400 stores. The share of private labels in any country depends on how consolidated the retail chains are. Developing a good quality brand has a high development and innovation cost attached to it. To be able to absorb such costs, Indian retail chains will need to scale up. Retail chains in developed nations on the other hand have around 3,000-5,000 stores each. So it will start with retailers reverse engineering manufacturers’ brands, and as organised retailers grow larger, their labels, too, will move up the value chain. The biggest change in the last decade or so has been the entry of premium private labels. They are no longer saying “buy us because we are cheap”, instead today, they are saying “buy us because we are the best”. By offering high quality products, many private labels have started charging more than regular manufacturers. Consumers globally are in agreement when it comes to Private Label quality and value for money, with a global average of 69 per cent agreeing that they were extremely good value for money and 62 per cent considering their quality to be at least as good as the big brands.

Different types of private labels are Store Brands which are on retailer's name and are very evident on the packaging. Store sub-brands are products where the retailer's name is low-key on the packaging. . Individual brands which is a name used in one category, this is only used to promote a "real" discount product line. Exclusive brands which is a name used in one category, but to promote "added value" products within the category. Distributor brands which are large wholesale grocers and foodservice purveyors often have private labels, for example the Parade brand of Federated Foodservice and the wide array of private brands of the large food service supplier. Copycat private labels brands owned by a retailer which use similar trade dress, i.e. packaging as a leading national brand. Private labels help in building exclusivity and differentiation, bring customer loyalty, better margin, better control in deliveries ,brand equity, freedom in pricing strategy and increasing bargaining power with both national brands and private label factories. However there are some cons like inventory risk, higher R&D expense ,higher marketing expense ,no markdown or return allowance from branded suppliers , if product fails, will create negative image and quality control, complex production & import issues.

Some private label strategies which are being followed by various promoters of private label companies fall in one of the following category: Generic –very promotional, very low margin some examples are Conway, Walgreen . Fast Value Fashion – knock-off brands, Zara and H &M . Premium Store Brands – Retailer’s own brand offers same or better quality at better price. Retailers believe private brands are their strategy to differentiate, to gain and maintain consumer loyalty, to achieve higher gross margin , to compete with national brands , to change mind set and realize that Private Labels are competing brands to stay focused on target audience . Future of private label include that it will continue to play an important part of the assortment to their growth strategy ,becoming national premium lifestyle brands: INC, Alfani, Arizona, UMM, Bare, Jealous 21, branching out to create specialty chain business: George apparel stores, Wal-Mart, UK, increasing depth of multi dimensional merchandising product mix (Tony Hawk mens, boys, footwear and etc) ,cannibalize weaker private label brands and deploying a multi-layer strategy in brand, price and quality. Private retailers will occupy 50 per cent of the market the world over. At 50 per cent, they begin to saturate. If they try to occupy more than this, then consumers feel that there aren’t enough choices. In countries such as Switzerland and the UK, private labels have reached this limit and these markets have saturated. But they will continue grow in the other countries till they reach the same level and this will happen very soon in India, too.

Contributed by: Hitesh Gaur

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