Private Label Brands
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Private Label Brands
Private label brands are products that are manufactured by one company and sold under another company’s brand. Often positioned as lower cost alternatives to national brands, they have been increasing in popularity over the past several years. Store brands such as Wal-Mart’s Equate or Target’s Archer Farms are examples of private label brands.
According to a recent study by the Nielsen Company (Wong, 2008), 72% of respondents surveyed viewed private label brands as equivalent in quality to name brands. Rising commodity prices and consumer desire to get the best value for their money are driving the growth of private labels. As a result, some national brands have adopted a strategy of “if you can’t beat them, join them,” by making products for these private labels. For example, national brands such as Ralston-Purina, ConAgra, and Borden have all admitted to supplying products to various retailers to be used as private brands. Supporters of this strategy contend that it creates volume sales and profitability for national brands. Furthermore, businesses contend that if they do not supply retailers, someone else will, causing national brands to lose volume from private label sales and thereby jeopardizing a national brand company’s profit position.
Other marketing experts disagree. They argue that consumers may become confused about the quality of the national brands. Opponents suggest that consumers may decide that national and private brands are essentially the same and hence, over time, private label brands may become as powerful as national brands. These critics contend that the long-term prognosis for national brand companies is not good if those companies continue with this strategy of supplying private labels.
After reviewing the resources for this week, respond to the following:
• Do you think national brand companies should sell their products to private brands, or should national brands stay clear of the private brands and not get involved with the supply of products to these private labels?
• How does this play out in the international marketplace?
-What is the importance of national brands versus private labels internationally?
• Defend your answer with specific examples.
Resources
Articles
• Chinta, R. (2006). Retail marketing trends in USA and their effects on consumers and the global workforce. Business Renaissance Quarterly, 1(2), 65–80. Retrieved from ProQuest Central database.
This article identifies and describes current trends in the field of retail marketing, and sets them in the context of significant changes in the field in recent years.
Griffiths, G., & Howard, A. (2008). Balancing clicks and bricks – strategies for multichannel retailers. Journal of Global Business Issues, 2(1), 69–76. Retrieved from ProQuest Central database.
This article explores the difficulties of doing business both in stores and online and describes a model for establishing the correct balance between the two approaches. The authors also identify five themes that need to be considered by multichannel retailers.
• Francis, J. (2007). Internet retailing quality: One size does not fit all. Managing Service Quality, 17(3), 341–355. https://www.doi:10.1108/0960452071074433
In this article, the author studies four dimensions of quality that should be considered in Internet marketing: the transaction, the delivery, customer service, and security.
• Gregory, G., Karävdic, M., & Zou, S. (2007). The effects of e-commerce drivers on export marketing strategy. Journal of International Marketing, 15(2), 30–57. https://www.doi:10.1509/jimk.15.2.30
This study describes a theoretical model developed by the authors to determine the effect of e-commerce drivers on the development of export marketing strategy and the results of testing this model.
• Nelson, R., Cohen, R., & Rasmussen, F. (2007). An analysis of pricing strategy and price dispersion on the Internet. Eastern Economic Journal, 33(1), 95–110. doi:10.1057/eej.2007.6
Due to the accessability of information on the Internet, consumers can now research both the price and quality of products. In this article, the authors present the benefits of keeping pricing consistent across products and over time.
Wong, E. (2008). Nielsen: Private label deemed equal to name brands. [Electronic version]. Brandweek, November 17. Retrieved from
http://www.adweek.com/news/advertising-branding/nielsen-private-label-deemed-equal-name-brands-104824
This article discusses the findings of a Neilsen study dealing with the desirability of name brands compared to private labels.
SAMPLE ANSWER
Private Label Brands
Private label brands are products that are made by one company and sold under another company’s brand. They are associated to lower cost when compared to national brands. There has been a tremendous increase in popularity over the past several years in the use of these brands in American business setting (Lamb, Hair & McDaniel, 2012). The following discussion, therefore, indulge in discussing if national brand companies should sell their products to private brands, or should national brands stay clear of the private brands and not get involved with the supply of products to these private labels. In addition, the paper examines how the above activities play out in the international marketplace. Finally, it discusses the importance of national brands versus private labels internationally.
National brand companies should sell their products to private brands because private brands exclusively boost store loyalty. This is contrasted to ConAgra, to which it has many retailers in the market, thereby decreasing customer loyalties to a specific retailer (Pradhan & Pradhan, 2009). Private labels enhance the retailer’s image and draw in more customers. Another reason is that private label brands have relatively lower prices for consumers (Fan, 2009). This is compared to national brands such as ConAgra, where retailers engage in low competition that leads to higher prices for products. Private label brands are praised to their ability to have fewer restrictions on merchandise display, promotion, display or pricing (International Symposium on Advances in National Brands & Private Labels in Retailing & In Gázquez, 2014). National brands such as ConAgra dictate how their products are displayed while private label brand such as Wal-Mart’s Equate does not (Cant, 2006). Finally private label brands have potentially greater gross margin opportunities since vendors of national brands, such as Ralston-Purina, assume the expenses of designing, manufacturing, distribution as well as promoting the brand, therefore, retailers realize lower gross margins.
In international marketplace, national brands are selling their products to private brands inform of labeling strategies. The label only bears the brand name (such as Macy’s) of the particular store or any other party the store may choose for its private label program. This labeling strategy in international market increases the negotiation power of the retailers and gives better value to get the customer loyalties. Another way private brands are exhibiting in international is through pricing strategy (Aronczyk, 2009). Target’s Archer farms, for instance, is given authority to dictate the prices of its products. This pricing strategy enables the product to be competitive in the global market by either increasing or decreasing prices (Kurtz & Boone, 2014). Promoting strategies is another way in which private brands are taking over national brands in the international market. Macy’s, for instance, has marketing programs that aim to improve the image of the national brand so as to meet specific customer needs.
There are varied significances of national brands versus private label brands internationally. One of the significances is that product differentiation is derived. Price differentiation is observed by supermarkets offering more premiums and organic brands such as Safeway’s SELECT and Organics. This had effect on overall price and quality competition. Due to absorption of heavy promotion costs, product companies of both national and private brands are finding themselves providing discounts to their customers to market their products. Another importance is going local (Anandan, 2009). After realizing that private brands are giving national brands a hectic competition, national brands, such as ConAgra, are devising on how to identify products that have priorities at the local levels. This will make citizens of the home country get services first before being sold to another destination.
In summary, private and national brands will always remain in a vicious cycle of competition in an attempt to find which of them is the favorite route to reach customers. In international market arena, these two brands exhibit themselves through pricing, promotion and labeling strategies. At the end of the day, the competition will make sure that customers get quality services at cheaper prices.
References
Anandan, C. (2009). Product management. New Delhi: Tata McGraw-Hill Education.
Aronczyk, M. (2009). How to do things with brands: Uses of national identity. Canadian Journal of Communication, 34(2), 291–296.
Cant, M. C. (2006). Marketing management. Cape Town, South Africa: Juta.
Fan, Y. (2009). Branding the nation: Towards a better understanding. Brunel Business School Research Papers. Retrieved March 30, 2010, from: http://bura.brunel.ac.uk/handle/2438/3496
International Symposium on Advances in National Brands & Private Labels in Retailing, & In Gázquez, A. J. C. (2014). National brands and private labels in retailing: First International Symposium NB&PL, Barcelona, June 2014.
Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2012). Essentials of marketing. Mason, Ohio: South-Western Cengage Learning.
Kurtz, D. L., & Boone, L. E. (2014). Boone & Kurtz contemporary marketing. New Delphi:Tata McGraw-Hill Education.
Pradhan, S., & Pradhan, S. (2009). Retailing management: Text and cas
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