TERM PAPER

ON

Private Label v/s Brand Label

Subject : Retail Marketing

By,

Kedar Arun Sathe(9221)

Krishna Sumanth(9004)

Gunish Singh (9216)

Manasa(9006)

Bharath Bhushan(9107)

Krishna V (9005)

Contents

INTRODUCTION:..........................................................................................................................................3

BRANDED LABELS:.......................................................................................................................................4

Benefits of Branding................................................................................................................................5

PRIVATE LABELS:..........................................................................................................................................7

TYPES OF PRIVATE LABEL.........................................................................................................................8

DIFFERENCE BETWEEN BRANDED LABEL VERSUS PRIVATE LABEL...............................................................9

ADVANTAGES OF PRIVATE LABEL..........................................................................................................10

DISADVANTAGES OF PRIVATE LABEL.....................................................................................................10

Why do retailers get involved in Private Labels?.......................................................................................10

Who Will Win The Battle Of The Shelf ? Branded or Private Label Products?...........................................14

BRANDED LABEL COUNTER STRATEGIES...................................................................................................15

CONCLUSION.............................................................................................................................................16

INTRODUCTION:

Sometime in the 1970s, things began to change, albeit slowly, as retailers started to develop

national chains. Some retailers, like Ahold, Carrefour, and Metro, even began to expand

internationally, and consolidation of the retail industry from mom-and-pop stores to global

players was well under way. Spurred by these pioneers, retailers of consumer packaged goods

(CPG), such as Aldi, Auchan, Costco, Lidl, Makro, Tesco, and Wal-Mart, plunged eagerly into

global markets over the last two decades of the previous millennium.

The twentieth century was the century of manufacturer brands. Consumers moved from no-name

products of inconsistent quality produced by local factories in the nineteenth century to branded

products from global manufacturers led by coca-cola, Disney, Johnson & Johnson’s , Levis ,

Procter & Gamble, Nestle and Unilever. The branded message to consumers was one of smart

shopping. 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 largest suppliers. This

allowed branded manufacturers to ride a wave of quality products, innovation, and mass

advertising to establish their power over distribution channels. Manufacturers exploited this

power over retailers by becoming branded bulldozers, forcing retailers to accept.

The last 10 years, selling private label products both in a company dominated by branded sales

where private label had low priority but also in a private label dominated company where the

priorities were opposite. Retailers face the same strategic and organizational difficulties when it

comes to a mixed strategy involving both brands and private labels. Traditionally, the image of

private label was cheap and nasty substitute because of its packaging, but now it has changed.

Some of private label were of high quality but less than the manufacturer brand because of

discounting factor.

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 to

differentiate those goods or services from those of competitors. Brands are trustworthy,

delivering quality, consistency and innovation at fair price. A product is something 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; a successful brand is timeless.

Branding is about building a unique identity which can be protected and sustained against

competition. We often come across two products which when compared on ingredients are

identical, when compared on the packaging are identical and when tested in consumer blind tests

are considered identical. Still, the consumers are willing to pay considerably more for the version

with the known brand. A product can be “copied” but a real brand cannot.

Some people distinguish the psychological aspect, brand associations like thoughts, feelings,

perceptions, images, experiences, beliefs, attitudes, and so on that become linked to the brand, of

a brand from the experiential aspect. The experiential aspect consists of the sum of all points of

contact with the brand and is known as the brand experience. The psychological aspect,

sometimes referred to as the brand image, is a symbolic construct created within the minds of

people and consists of all the information and expectations associated with a product or service.

People engaged in branding seek to develop or align the expectations behind the brand

experience, creating the impression that a brand associated with a product or service has certain

qualities or characteristics that make it special or unique. A careful brand management seeks to

make the product or services relevant to the target audience. Brands should be seen as more than

the difference between the actual cost of a product and its selling price - they represent the sum

of all valuable qualities of a product to the consumer.

For example, Disney has been successful at branding with their particular script font (originally

created for Walt Disney's "signature" logo), which it used in the logo for go.com. Consumers

may look on branding as an important value added aspect of products or services, as it often

serves to denote a certain attractive quality or characteristic.

From the perspective of brand owners, branded products or services also command higher prices.

Where two products resemble each other, but one of the products has no associated branding,

people may often select the more expensive branded product on the basis of the quality of the

brand or the reputation of the brand owner.

Brand awareness refers to customers' ability to recall and recognize the brand under different

conditions and link to the brand name, logo, jingles and so on to certain associations in memory.

It helps the customers to understand to which product or service category the particular brand

belongs to and what products and services are sold under the brand name. It also ensures that

customers know which of their needs are satisfied by the brand through its products.

A global brand is one which is perceived to reflect the same set of values around the world.

Global brands are brands sold to international markets. Examples of global brands include Coca-

Cola, McDonald's, Marlboro, Levi's etc.. These brands are used to sell the same product across

multiple markets, and could be considered successful to the extent that the associated products

are easily recognizable by the diverse set of consumers.

Benefits of Branding

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

increasing interest in taking brands global:

Economies of scale (production and distribution)

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

The act of associating a product or service with a brand has become part of pop culture. Most

products have some kind of brand identity, from common table salt to designer jeans. A

brandnomer is a brand name that has colloquially become a generic term for a product or service,

such as Band-Aid or Kleenex, which are often used to describe any kind of adhesive bandage or

any kind of facial tissue respectively.

The color, letter font and style of the Coca-Cola and Diet Coca-Cola logos in English were

copied into matching Hebrew logos to maintain brand identity in Israel.

PRIVATE LABELS:

The term private label can be defined as products marketed by retailers and other members of the

distribution chain. Private Label is any brand that is owned by the retailer or the distributor and is

sold 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 an exclusive agreement. Private label

products encompass all merchandise sold under a retailer’s brand. That brand be the retailer’s

own name or a name created exclusively by that retailer

From apparel, healthcare products and furnishings to consumer items, private labels are making

their presence felt in a variety of retail items in the country. In the dogfight world of Indian retail,

the private label is emerging as a new business model. Most retail chains in the country are

increasingly relying on private labels to bridge the gap in their product mix and are targeting

specific needs of consumers. Though, private labels at present constitute about 5% of the

organized retail business, experts feel they can grow up to 30% once retail brands develop in the

country.

Retailers like Pantaloons, Shopper’s Stop, More, Reliance and Vishal Megamart are expanding

their range of private label products from cosmetics and food to clothing to improve the profit

margins of their stores. Retailers have realized that by having top quality private labels they can

differentiate themselves from other stores and become destination stores. Private labels also give

retailers a chance to bring in unique products in their supply chains that have not been branded

before and it’s a win-win situation even for the producers who get a chance to display their

produce.

SOME INDIAN PL

Jade Blue

Mochi Ka Juta

Food Bazaar

Pantaloon

Westside

Naturals

Reliance fresh

Patidar

Shree ji

Induben-Khakhrawala

P’S Of Private label

1. Product: quality is equal to national brand.

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

3. Plano-gram: ensuring every product leads to sales and profit, delist the slow movers.

4. Packaging: reflect quality and performance of overall brand & from inside as first

impression, as 70% of purchase decision only at pop.

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

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

7. Push: let the branded player spend money to develop category awareness, once customer

in store, retailer have major impact.

8. Personnel: as per requirement

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

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

It is difficult to describe Private Labels as one concept, as there are many types of Private Labels.

TYPES OF PRIVATE LABEL

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

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

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

Private labels generate between 75 per cent and 80 per cent of their revenues. Some of these

brands have taken a natural level of growth in certain areas and plans for exclusive stores for

them are being formulated. Unisex brands such as Bare (denim and leisurewear), Ajile

(sportswear) and Rig (utility weekend wear) have also been registering significant volumes to

serve as individual store brands. At present, Pantaloon sports nearly 20 private label brands and

it is the ladies' ethnic wear segment which is pegged to grow in excess of 50 per cent. Its private

label in ethnic ladies wears — Akkrruti — has already tied up with designers such

as Rocky S.

DIFFERENCE BETWEEN BRANDED LABEL VERSUS PRIVATE LABEL

A supplier of branded products is focused on maintaining and building own brands. This is

secured through long term, innovative, widely distributed and advertised products to build

uniqueness and preference in the consumers’ minds. This justifies a premium price. However,

this is not at all the case for a Private Label supplier where it is the retailer/distributor that, as

owner of the label, tries to persuade its consumers through its own marketing organization to

choose for the Private Label. The approach of individual products is often dependant on the

overall Private Label platform as brands are stretched and applied across product categories.

Also, as the ownership belongs to the retailer and hence the risk in case of any failure and/or

consumer complaint, the retailer will typically involve a team of quality assurance people and

technical managers in the development process. In this way, the suppliers account manager is

“only” in‐directly involved in the brand building but on top of good sales and marketing skills,

he needs to manage/facilitate a broad network of expert functions.

ADVANTAGES OF PRIVATE LABEL 1. Lower Prices

2. Better Margins

3. Offer consumer greater value

4. Bargaining power to the retailer

DISADVANTAGES OF PRIVATE LABEL 1. Conflict with other brands in the category.

2. Higher R&D expense

3. Higher marketing expense

4. If product fails, will create negative image

5. 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. The most import reasons are:

Simple financial evaluation (maximizing turnover and margins).

Retailers on a percentage level can improve margins by introducing Private Labels, but this must

be combined with the effect on volumes in case brands are replaced with Private Labels. Some

Private Labels do just not have the traffic building power of brand name goods the appropriate

measure is dollar profit per square foot.

Optimization should be done in value (not percentages) with respect to the critical resource of a

company which is shelf space in retail. This means that gross margins must be corrected for

discounts, slotting allowances, listing fees, promotions, advertising and other “free” services.

Furthermore, as brands are usually sold at a higher retail price. Thus even when the net margin as

a percentage on brands is lower, the absolute value profit may still be higher than for Private

Label. Lastly, the shelf space turnover (velocity) is often much higher for brands.

Offering a price driven assortment towards consumers and hereby opening this

consumer segment while fighting the competition.

Private Labels can be a vehicle in launching price competitive products and hereby attracting the

cost conscious consumers. With similar products, retail prices can be reduced 20‐30%. Some

mainstream retailers have been forced in this direction by the intensified price pressure from the

discount sector.

There is a general assumption that Private Labels are for low‐income households or those that

need to economize by buying bigger sizes. This notion is no longer true. A look at household

data indicates that a greater proportion of lower‐income households do indeed purchase PLs, but

higher‐income households are not far behind. The market share of Private Labels across revenue

levels indicates that they possess a near equal share of purchases for lower‐income households

and higher income households. As the CEO of the Belgium retailer Colruyt noted “Poor people

may need cheap prices, but rich people love them”.

Building loyalty and image to the chain.

On the third point, products bearing these Private Labels brands offer another way for retailers to

increase customer loyalty and build a certain retailer profile. Empirical evidence supports the

strong relationship between purchasing of Private Labels and store loyalty. The retailers own the

labels and hereby the consumers’ loyalty. Adding Private Labels to the range enables the retailer

to differentiate itself from its competitors. Rather than manufacturer’s brands, Private Label has

become a strategic weapon with which retailers compete for sales, market share and loyalty. This

can be achieved through attractive packaging, with high‐quality products and exclusive products,

but also by offering products that are not available anywhere else. In most cases, the retailer uses

the name of the store as its Private Label name. In this case, the product, as long as it is used in

the domestic household and the packaging remains visible, will continue to promote the store.

From a retailer´s perspective, brands are commodities, available at many competing retail chains.

By introducing store brands, the retailer differentiates itself from other chains. This increases the

psychological costs for its customers to switch retailers since they will not be able to purchase

their favorite store brands at competing retailers.

Creating an alternative to brands and getting more manufacturing cost insights.

Hereby increasing the negotiation power.

The fourth point has two sides. First of all, developing an alternative to the brands gives an

obvious advantage in the negotiation with the branded suppliers. Even the most valuable brands

in the World are not immune to this pressure. A former high level marketing executive of Coca

Cola conceded that Coca Cola significantly lowered the wholesale price of its products in

response to the introduction and aggressive shelf placement of a premium store brand by a large

supermarket chain. The implication is that the retailer in regular, tough negotiations lay down the

new conditions for the supply of a specific product. To be assured of the most favorable

conditions, the potential suppliers are played off against one another in an uncompromising way.

The result of this is that the retailer can make an estimate of the actual cost price of the product.

In other words, obtains a rough idea of the profit margin and the mark‐up that the branded

manufacturer charges for its innovation and marketing effort. The retailer will use this

knowledge in his negotiations with the brand suppliers in order to realise better buying

conditions.

Covering special segments which could otherwise not be offered.

In general, branded suppliers will offer products that are aimed at the mass market. A retailer on

the other hand, can develop products that are targeted to specific consumers who visit its store

formula. By means of such niche marketing strategy, very specific target groups can be

approached with Private Labels. With a Private Label portfolio, sub‐segmented through quality

and packaging design, the manufacturer’s brands can be rationalized. This has resulted in the

disappearance of many branded items, often secondary and tertiary brands.

Export.

The last point is rather special, but successful Private Labels can also be sold outside the retailer

´s own stores. For example, Delhaize carries a large selection of pasta from the PL of Italian

retailer Esselunga. “Swiss Delice”, a premium brand for the Swiss fine food specialities

produced by Swiss retailer Migros is not only carried as PL by Migros but can also be found at

Sainsbury´s and Delhaize.

Hence, there are good reasons for introducing Private Labels, but in general brands are still

desired. There are brands so strong that leaving them out of the assortment will mean loss of

consumers. But these players have one major problem related to the continuous development of

the assortment. Pre‐dominantly the area is dominated by “copycat” products which are

developed as followers to the branded items. The consumer engines are on the branded side. On

one side this means that Private Label do not face the risks associated with new product

introductions, because they only introduce such copycat brands once the manufacturer’s new

product has become a hit but on the other side they also loose valuable time and money as new

trends can be overlooked or at least first noticed when over. Also, the Private Labels focused

players will often have limited access to R&D facilities as opposed to the brand focused players.

Who Will Win The Battle Of The Shelf ? Branded or Private Label Products?

Modern trade grew four fold over the past six years, achieving an 18 percent increase both in

store count and turnover compared to 2007. With increasing retailer concentration, one key focus

for manufacturers will be the associated bargaining power of channel retailers. Retailers

introduce private labels in a category not only to gain profits directly from the private label but

also to provide greater choice at a different price range for consumers to purchase from.

In developed markets, private labels occupy a noticeable level of market share. The importance

of private labels continues to accelerate with a steady global growth of 13 percent in 2008, which

has been driven by consumers looking to economize on their expenditure.

Overall, Non-edible products enjoy a higher market share and purchase frequency by consumers

than Edibles. Categories topping the list with private labels include Plastic bags/wraps,

Household gloves, Household cleaning aids, Wet tissue & baby wipes among others. Private

labels account for 3-13 percent value share in these categories. Edible categories are focused on

Edible oil, Pie and Packaged rice, where private labels are taking 2-3 percent value share.

Different geographic areas also have different acceptance to private label. Shoppers in the North

and East tend to purchase private labels more regularly than those in the South.

Most consumer goods categories are already occupied by a number of low-price brands, where

quality will be the critical winning factor on top of ‘low-priced’. Obviously there is a need for

private label to improve on perceived quality and safety before it can take a larger percentage of

the market.

The private label segment is expected to grow, driven by the ongoing, incredible growth of the

modern trade and the continued emergence of major regional or national retail chains. Current

bad economic times also provide a good financial impetus to private labels. There has been a

fundamental shift in consumer spending patterns, as restraint becomes the new mantra. Wal-Mart

announced their plan to grow the sales importance of its private label brands from 2.5 percent to

20 percent in five years.

BRANDED LABEL COUNTER STRATEGIES Brand manufacturers should build strength continuously to compete with private labels before

they take off:

1. Develop unique products and stay ahead as a trend leader

2. Create own stores

3. Develop a compelling marketing strategy

4. Increase brand loyalty

5. Combine effort by offering exclusive lines. i.e, Simply Vera, American Living, Liz & Co

6. Create one shot exclusive deliveries and SKUS

7. Evaluate sourcing strategy and production cost

8. Maintain net price (minimal promotions & discounts)

9. Improve forecasting and turn around time

10. True innovations with clear points of differentiation and competitive advantage will be in

a prime position to win.

11. A good variety of premium and low tier product portfolios is crucial to satisfy the wide

range of consumers.

12. Assess the market, down to specific retailer level. Understand the role of the category

leader for each retailer and how important private labels are to that mix. Drive top quality

analytics, an area where retailers are growing in sophistication.

13. Work with retailers to establish a business model that sustains profit margins for the

channel.

14. Support retailers’ penetration to lower tier markets and lead the strongest elements of

‘first moment of truth’ in new stores.

CONCLUSIONRetailers in India are spurring consumers' decision-making by expanding the scope of private

labels. For most consumers, a private label is just another brand, hence, there has been a steady

growth especially in the categories where consumers have less loyalty to better-known or

promoted brands are the categories where in store brands are picking up.

Private label brands have come far enough in the minds of consumers for these brands to

compete as legitimate brands in their own right. From the consumer perspective, private labels

have closed the gap with national brands. Consumers believe private labels are “identical” to

national name brands and almost 50% see them as “close” but not yet on par with name brands.

Private labels matter for higher gross margins to retailers and also help in differentiating them

against other retail outlets. Hence retailers are adopting different marketing strategies to

maximize sales and are giving a direct competition to established manufacturing brands. It could

be concluded that Private labels are here to stay, and will be dominate 50% of the retail market.