A phenomenon at discounters for decades, but now increasingly seen in the premium segment too. Why should a retailer introduce their own, unique private label?
Competing with top brands
How to define a private label? In short: it is the concept of a product manufactured by another company under the retailer’s own brand name. Products like these are not only cheaper alternatives for leading household name brands, but can now often compete on quality.
In the global food sector, Europe is leading the way in this premium segment for private labels. It is an ongoing trend, with further growth expected in the coming five years. Despite the wide variety of products available, consumers are increasingly choosing to buy retailers’ own brands. And confidence in these private label products is still growing.
Private label products are usually cheaper than premium brands due to the lower marketing costs and no payments to a premium brand manufacturer. Also, while the retail price of a premium brand is set by the manufacturer, a retailer can determine both the pricing and margins for their own brands. That makes private labels real margin makers.
Creating their own product name, or even their own range, gives a retailer the opportunity to stand out from other brands and competitors with brand perception, packaging and personality. A premium brand is widely available, but a unique private label product is only sold by the retailer themselves. They can therefore give added value to this own brand and respond rapidly to emerging trends. Consider, for example, the important role of packaging for communicating sustainability.
A private label increases retail brand awareness and can help strengthen the retailer’s image. The product must, of course, deliver on its promise. Being able to proactively respond to customer needs also has a positive effect, as it enables the retailer to really nurture their customers.
Consumer loyalty to private labels is on the rise. Understandably, considering the hugely improved quality of retailer brands. The basic white label products from the 1970s are long gone. In particular, consumers are increasingly showing loyalty to products in segments where they feel they do not want to take any risks. Customers identify with a private label and become loyal buyers, and repeat purchases generate in-store traffic. Own brands that deliver on their promise also contribute to positive word-of-mouth recommendations, and therefore to an increase in customer numbers.
Product range strategy
Private labels can be manufactured in different quality levels: discount, value added and premium. Decisions on a private label approach are taken during the development of a total product range strategy. Important aspects of this are the range’s depth (number of product varieties) and breadth (number of different kinds of products a retailer sells).
The retailer’s positioning is also a factor to be considered. Studies show that selling private labels in two different qualities leads to a differentiation in the consumer’s quality perception; one of the private labels tends to be seen as a premium product.
Detailed analysis of the customer profile (current and targeted) is essential for success. Company experts in this field can give you all the information you need for a private label strategy.