brands vs private label a6

Brand vs. Private Labels:

Fighting to Win

WALMART LABEL- Great value

What's the biggest fast moving consumer goods (FMCG) brand in America?

Private labels are brands that are not owned by a manufacturer or producer but by a retailer or supplier who gets its goods made by a contract manufacturer under its own label

PRIVATE LABEL

These brands are a win-win solution for retailers and customers in the current retail market structure

PRIVATE LABEL

NATIONAL BRAND PRIVATE BRANDV/S

Differential Advantage

Selling & Promotional Expenses

Traffic Flow

Store Image

Restrictions

Store Loyalty

National PrivateIMPACT ON STORES

Designed, produced, and marketed by a vendor and sold by many retailers

Developed by retailer and only sold in retailer’s outlets

• Currently estimated at Rs 13 billion & constitute around 10-12% of the organized retail product market in India

• Share in the modern retail in India is about 7%, but it is as high as 40% in European countries, and as low as less than 1% in China

• The growth of private labels is likely to continue in the current financial environment as "cash-strapped consumers” perception of the products as a 'cheaper option'

PRIVATE LABEL MARKET

• Higher margins

• Cheaper price

• Better bargaining power for the retailers

PRIVATE LABEL – GROWTH DRIVERS

EVOLUTION OF PRIVATE LABELS

‘60s and ‘70s – cheaper & generic products

1970’s - form of black and white labelled products

Major improvement in packaging – 1st step to Success

Initial focus on low end price point

Multiple price points including a premium line

Popularity of private label - additional challenge to name brand

MAJOR PLAYERS IN INDIADEGREE OF PRIVATE LABEL

PENETRATION

90%

30%22%38%

80%

75%

PRIVATE LABEL THREAT

• Improved Quality of Private Label Product

• Premium private label brands

• Emergence of new channels

• Creation of new categories

PRIVATE LABEL THREAT

PRIVATE LABEL THREAT

• Purchase process favors brand-name products – lack of time etc.

• TATA Tea over a private label tea

• Brand-name goods have a solid foundation on which to build current advantage

• E.g.. - Sony DVD players over Croma DVD players (perception of quality)

BRAND STRENGTH

• Brand Strength parallels the strength of the economy

• National brands have value for retailers• E.g.. Retailer cannot afford absence of

Maggi noodles (before it was banned)

• Excessive emphasis on private labels dilutes their strength

BRAND STRENGTH

• Conduct a private label audit

• Calculate private-label profitability on full-cost and marginal cost basis

• Examine the impact of private labels on market shares of your national brands

• Close excess capacity

EVALUATING PRIVATE LABEL

• Consumers today believe that store brands and national brands are essentially made of the same ingredients

• 80% believe the statement “most store brands are manufactured by the national brands”

HOW PRIVATE LABELS ARE KILLING IT!!

HOW PRIVATE LABELS ARE KILLING IT!!

• Invest in brand equities

• Innovate wisely

• Too many line extensions confuse customers

• Use fighting brands conservatively

• Build trade relationships

WINNING STRATEGIESE.g..: P&G has 70 improvements to

Tide since its 1956 launch

E.g..: P&G phased out white cloud tissue

• Build trade relationships

• Know your brand’s price elasticity

• Exploit sales promotion tactics

• Take private labels seriously

• Manage each category separately based on private label penetration and price-quality gap

WINNING STRATEGIES

E.g..: Cola vs Coca Cola

How Brands are winning??

1. They manage overall broad category covering segments in terms of demographics, usage, occasion, benefits etc.

2. They create brand advantage by investing in genuinely superior product performance- continuous stream of innovation, marketing support and right pricing

3. They create business system advantage over retailer brand by leveraging global supply chain scale to provide SKUs at lower unit cost

WINNING STRATEGIES

• Keep the margins that retailers extract from you

• You get access to mass consumer data in real timeE.g. When P&G bought a stake in online retailer Ocado, it was the opportunity to access this kind of data that motivated the investment

• Direct access to consumers also enables a company to build a stronger brand

• The people, the setting, the atmosphere, the products, the in-store promotions, the experience

HOW BRANDS BENEFIT FROM BEING RETAILERS

• http://www.brandingstrategyinsider.com/private-label• Google images• http://business.time.com/2012/11/01/brand-names-just-dont-mean-

as-much-anymore/• http://www.slideshare.net/ProfessorMathur/kotler-chap-15-4-what-

are-private-label-brands?related=1• https://hbr.org/1996/01/brands-versus-private-labels-fighting-to-win

References

THANK YOU !!

These slides have been created by Fern Sharma, Divya Jaiswal, Gautam Bansal, Anindo Chatterjee and

Mehandi Goel from IIM Lucknow, as part of a MBA course “Brand Management"  (www.MBASkills.IN)  

taught by Prof. Sameer Mathur.