What is a private label?
Private labels, more colloquially known as “store brands,” are the lines of products retailers create to sell in-house, often at a lower price point than well-known competitor brands. While the production itself is executed by an external manufacturer, all elements of the marketing are managed by the retailer.
One of the most important branding decisions that has to be made is with regard to packaging. Some private label products appear nearly identical to their top alternatives, while others purposefully project either a higher or lower quality feel. Each strategy corresponds with the intended purpose of the private label within the business’ financial structure.
An example of a private label item
A common example of a private label item is a chain supermarket’s in-house brand, like Whole Foods’ 365 Everyday Value®. When they walk into the store, shoppers can expect to find familiar lines of granola, like Bear Naked and Cascadian Farms, sitting next to boxes of 365 Everyday Value® cereal on the shelf. The private label promises: “Our 365 Everyday Value® products can fill your pantry without emptying your pocketbook.” Private labeling is one way for Whole Foods - and retailers like it - to generate profit and develop brand loyalty.
What makes a good private label product?
A successful private label product offers consumers something different than what is currently available on the market. It may come at a lower price point, be marketed differently, come in a different quantity or size than what the national brands sell, or be distributed through a different channel. Ideally, it meets more than one of these criteria, and enjoys low competition from other private label items.
Common private label items include:
Household cleaning items
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Rise of private labels
Recent years have seen large retailers investing more in private label brands. And for good reason. A 2018 Nielsen Company report demonstrated the across-the-board increase of private label shares worldwide. They also found that, in the United States alone, private label growth grew at a higher rate than manufacturer-branded items between 2016 and 2017.
There are a few possible explanations for these trends:
More consumer choices. Particularly fueled by eCommerce, shoppers find themselves with more options than ever before.
Decline in brand loyalty. Buyers - especially millennial ones - often feel less wedded to one single brand name.
Premium brand emergence. There’s growing enthusiasm amongst consumers for brands that reflect certain values, like protecting the environment or natural health.
Each of these factors is responsible for widening the “playing field” of the market, letting retailers respond to unfulfilled niches with their own branding.
The benefits of private label items for retailers
The benefits of private labeling for companies include:
Control over all stages of the supply chain: Even though the manufacturing happens externally, the factory is answerable to the retailer’s requests. Therefore, the company holds the power to set the terms, from production all the way to the price sticker on the shelf.
Profitability: Because the retailer has complete authority over production and sales, they can set the optimally profitable price for their store and target market. They also have the flexibility to offer large discounts on private label items, thus enticing more shoppers to buy their wares.
Branding: These product scan become a vehicle for a large retailer that sells many products to insert its own ‘voice’ into the mix. Distinctive packaging or clearly-defined guiding values can increase brand recognition and loyalty amongst customers.
There can also be drawbacks to starting a private label. For instance, smaller businesses might find that they still have to dedicate a significant budget to marketing their brand. Or a working relationship with a manufacturer can become tense and threaten the efficiency of the production process.