Private label products are what you would purchase from your local small business. You might find them on local chain store shelves, but you could also find them at your local farmer’s market. It’s an alternative to the chain brands that many national or international retailers are offering, but is also something that the national chains have brands have created products for sale within. Here are the key points to consider when evaluating the pros and cons of private label brands.
What Are the Pros of Private Label Brands?
1. Private label brands are usually cheaper than other branded products.
This is because customers don’t have to pay for mass marketing campaigns and the other costs national brand items may face. Local products coming from local producers also typically have lower transportation costs. This doesn’t mean every private label brand is cheaper, but many of them are. Even when they are more expensive, the value proposition of the private label brand is usually better.
2. Many private label brands work together to establish a product mix.
Customers today want choices. This means they want generic products that compete solely on price and they want premium products which compete on quality. Some days they might be able to afford the premium item. Other days the generic product might be a stretch. By working together, these brands can work their way onto store shelves to give customers the variety they want.
3. Europe is seeing huge successes with premium private labels.
In the US, supermarkets get about 10-15% of their sales from private labels. In Europe, that figure is 4x higher. The market structure in Europe is a little different than in the US, but the figures don’t lie. If stores can incorporate more private labels into their sales, then there is a good chance they can increase their sales and pretax profits. Considering how much economic uncertainty there tends to be at local levels around the world these days, now seems to be a great time to take a second look at private labels.
4. New channels are beginning to emerge.
In the past, warehouse clubs and other distribution channels were rarely opened to private label brands. Today is a very different story. Mass merchandisers are picking up these brands because they are seeing the potential they have. This has led the creation of new product categories, new general trends, and more overall product diversity for the consumer. As part of this chain reaction, there are now better quality assurance monitoring efforts in place as well, giving consumers more overall product security than ever before.
5. Each brand marketing effort helps the efforts of other private labels.
It is true that multiple private labels will dilute the market for the consumer. It gives each product less overall weight to the customer. This can also become an advantage when brand marketing efforts are strongly promoted. Each marketing effort will help other efforts from other private labels. This limits the costs each label must spend to start getting noticed, which only helps the budgets of consumers who are looking to the private label for a little help.
6. Many private labels are beginning to reach national brand status.
A great example of this is the private label “President’s Choice.” In North America, this brand sells over 1,500 different products. They also have the #1 spot in sales in Canada when it comes to chocolate chip cookies. With success stories like this, it becomes easy to see why more and more small businesses are considering a jump into the private label market.
What Are the Cons of Private Label Brands?
1. Retailers don’t have any control over a private label brand.
This can make it difficult for a retailer should a private label brand not evolve as their customer preferences evolve. If a market changes and the brand is slow to adapt, then everyone loses money because the customer goes elsewhere to have their needs met.
2. Most private label brands aren’t trying to innovate.
Private label brands tend to “piggy back” onto the marketing campaigns that the national branded products have already established. This means that the products being created are simply a different form of what people are already expecting. Instead of making a product improvement, the only point of emphasis tends to be competitive in nature.
3. You’ll typically get what you’re willing to pay for with these products.
If you aren’t willing to pay much for a private label brand, then you’re not going to get much value. National brands have national sourcing which private label brands don’t always have available to them. National brands also tend to move more products, which means they don’t need a profit margin that is as high. This makes life as a private label brand quite difficult.
4. Economic conditions tend to dictate how these brands interact with the market.
The strength of a private label brand tends to b e linked to difficult economic conditions. This means as people make less money, the market share grows stronger. Recessions are great business for these brands. Although they are a competitive threat in all economies, being the go-to product when people lose money is a tough sell to make sometimes.
5. There isn’t the same assurance of quality.
There are very reliable private label brand products on shelves today. The only problem is that there isn’t the same assurance of quality in each product as there would be with a national brand. Most consumers will always prefer the security, comfort, and value of a national brand even if they must pay more to receive it. National brands reduce shopping clutter as well, which is something a private label brand can rarely compete with on a long-term basis.
6. Private labels don’t have the same head start.
Strong national brands have spent decades developing their consumer loyalty. People have used these brands over multiple generations and it becomes part of their daily life. If you look at national surveys of the top brands in any country, the top brands rarely move from their positioning. Private labels have to start from scratch, which means their value proposition must be over-the-top to gain any attention. If they can’t meet that value promise, then back to the national brand goes the customer.
More products mean more competition for shelf space. This unfortunately means that some brands are driven out of stores. Others may have the amount of retail space given to them greatly reduced. In the end, the pros and cons of private label brands show that it is the consumer who always wins. Retailers and brand providers also have a great opportunity, but only if they manage their risks wisely.