Brands Versus Private

Labels: Fighting To WinGROUP 1

Introduction

• Sometime in the 1970s, things began to change, slowly, as retailers started to develop nationalchains. Ex. Sears, Costco, Tesco and Wal-Mart, plunged eagerly into global markets over the lasttwo decades of the previous millennium.

• The twentieth century was the century of manufacturer brands. Consumers moved from no-nameproducts of inconsistent quality produced by local factories in the nineteenth century to brandedproducts from global manufacturers led by Coca-Cola, Disney, Johnson & Johnson’s , Levis ,Procter & Gamble, Nestle and Unilever.

• Initially consumers bought manufacturer endorsed brands as symbols of quality, trust, affluence.These brands were consumed as symbols of aspirations, images and lifestyles.

• Manufacturer brands reached consumers through distributors and retailers.

• For most of the twentieth century, retailers were relatively small, compared with their largestsuppliers. This allowed branded manufacturers to ride a wave of quality products, innovation, andmass advertising to establish their power over distribution channels. Manufacturers exploited thispower over retailers by becoming branded bulldozers, forcing retailers to accept.

BRANDED LABELS

• A brand is a distinguishing name and/or symbol (such as a logo, trademark, or package design)intended to identify the goods or services of either one seller or a group of sellers, and todifferentiate those goods or services from those of competitors.

• Brands are trustworthy, delivering quality, consistency and innovation at fair price. A product issomething that is made in a factory; a brand is something that is bought by a customer.

• A product can be copied by a competitor, a brand is unique. A product can be quickly outdated, asuccessful brand is timeless. Branding is about building a unique identity which can be protectedand sustained against competition.

• We often come across two products which when compared on ingredients are identical, whencompared on the packaging are identical and when tested in consumer blind tests are consideredidentical. Still, the consumers are willing to pay considerably more for the version with the knownbrand. A product can be “copied” but a real brand cannot.

In addition to taking advantage of the outstanding growth opportunities, the following

drives the increasing interest in taking brands global:

• Lower marketing costs

• Laying the groundwork for future extensions worldwide

• Maintaining consistent brand imagery

• Quicker identification and integration of innovations (discovered worldwide)

• Preempting international competitors from entering domestic markets or locking you

out of other geographic markets.

• Increasing international media reach (especially with the explosion of the Internet) is

an enabler.

• Increases in international business and tourism are also enablers.

Benefits of Branding

PRIVATE LABELS

• The term private label can be defined as products marketed by retailers and other members of thedistribution chain. Private Label is any brand that is owned by the retailer or the distributor and issold only in its own outlets. They are also called in-store brands.

• Strong Private Labels have been exported by one retailer to another, typically based on anexclusive agreement. That brand be the retailer’s own name or a name created exclusively by thatretailer.

• From apparel, healthcare products and furnishings to consumer items, private labels are makingtheir presence felt in a variety of retail items in the country. In the dogfight world of retail, theprivate label is emerging as a new business model. Most retail chains in the country areincreasingly relying on private labels to bridge the gap in their product mix and are targetingspecific needs of consumers.

• Though, private labels at present constitute about 5% of the organized retail business, experts feelthey can grow up to 30% once retail brands develop in the country. Retailers like Pantaloons,Shopper’s Stop, More, Reliance, Tesco, Lulu and Carrefour are expanding their range of privatelabel products from cosmetics and food to clothing to improve the profit margins of their stores.

Some Private Label are as follows

P’S Of Private label

Product: quality is equal to brand.

Partnership: work in extra mile in terms of support, marketing, merchandising.

Pricing: provides the high perceived value to customer without leaving profit.

Position: position mark the one that you want to compete directly against

Personnel: as per requirement

Promotion: by display and through features to gain customer attention.

Pride: take pride in your brand, treat it and market it with the respect it deserves

TYPES OF PRIVATE LABEL

Store brands - The retailer's name is very evident on the packaging.

Store sub-brands - Products where the retailer's name is low-key on the

packaging.

Umbrella branding - A generic brand, independent from the name of the retailer.

The Private Label Threat

The improved quality of private label products : The gap between Private

label and brand name products have been narrowed in the last ten years.

The development of premium private label brands : Innovative retailers have also come up with premium based private label brands that delivers

quality superior to that of national brands.

European supermarkets success with private labels : European

supermarkets have higher private label sales as compared to U.S

supermarket also pretax profits.

Contnd….

The emergence of new channels : Mass merchandisers, warehouse clubs,

and other channels account for growing percentages of sales of dry

groceries , household cleaning products and health and beauty aids.

The creation of new categories : They are continually expanding into new

and diverse categories and also following some general trends and have

developed private label market for products beyond traditional staples.

What drives private label shares ?

Product category characteristics

New product activity

Private label characteristics

Price and promotion factors

Retail characteristics

Brand strength

The purchase process favors brand name products : Customers still requires

an assurance of quality during their point of purchase and sale rather than

not having the opportunity to inspect the alternatives.

Brand name goods have a solid foundation : Build through delivery of

consistent quality and strong customer equities over decades of

advertising.

Brand strengths the economy : 48% of the packaged goods buyers knew what brands they wanted before entering the store up from 44 % in 1991

Cntnd…

National brands have value for retailers: Retailers much not only stock but

also promote the national brands

Excessive emphasis on private labels dilutes their strength: Excessive emphasis on private labels led to consumer's perceptions that the retailers

assortment was incomplete resulting in low profits and reduced store

traffic.

If You Don’t , Don’t start

Brand name manufacturers make private label goods only to use

occasional excess production capacity .

Excess stock can be sold in a private label.

The manufacturer may start taking orders for the private label where the

market share of its own brand is weak.

The company’s strategy may be confused.

2.Private Label production can lead in

additional costs

Manufacturing costs

Distribution complexities

Packages and labels have to be changed for each private label customer

Inventory holding costs also increase

Private label offerings end up in a manufacturer’s strongest accounts

It is hard for the company to focus on both brands.

Demand for private labels from the retailers.

4.Private-label manufacturing cannot be

contained, and inevitably it may cannibalize

national-brand sales.

Advantages and Disadvantages of

Private label

Advantages

• Lower Prices

• Better Margins

• Offer consumer greater value

• Bargaining power to the retailer

Disadvantages• Conflict with other brands in the category.

• Higher R&D expense

• Higher marketing expense

• If product fails, will create negative image

• Inventory risk

Why do retailers get involved in Private

Labels?

Retail consolidation has had a strong influence on Private Label. Store brands have become a way for retailers to differentiate themselves from their competitors and to create loyalty to their stores in an evermore tightly concentrated marketplace.

From the retailer perspective, there are clear advantages in developing its own Private Labels. Few reasons are:

1. Simple financial evaluation (maximizing turnover and margins).

2. Offering a price driven assortment towards consumers and hereby opening this consumer segment while fighting the competition.

3. Building loyalty and image to the chain.

4. Creating an alternative to brands and getting more manufacturing cost insights. Hereby increasing the negotiation power.

5. Covering special segments which could otherwise not be offered.

Strategies

Invest in brand equities: Brand name is the most important asset for a

company.

Innovate wisely: Desperate to increase sales presence can harm their gain

and market share.

Use fighting brand sparingly: to prevent the huge loss that would occur if a leading national brand tried to drop price.

Build trade relationships: to build trade relationships with retailers and

wholesalers. Conduct business and satisfaction survey with customers and

retailers too.

Manage the price Spread: brand manufacture must monitor the price gap

between each national brand and other brands including private label.

Strategies

Exploit sales promotion techniques: to stop retailers by displaying national

brand and private label on the same platform or to make signs of

compare and save.

Manage each category: low private label penetration in order to sustain

the barriers to sustain the entry.

Use category profit pools as a performance measure: to measure performance by understanding market share and volume of products as a

primary measurement tool.