You know the old joke: Just because you are paranoid doesn't mean they're not after you. In a nutshell, it describes how manufacturers of branded products respond to private-label competition. On the one hand, the manufacturers are right: There are more private label - "store brand" goods on the market than ever before. Collectively, private labels in the United States have a higher share than the strongest national brand in 77 of 250 supermarket product categories. And they are joint second or third in 100 of those categories. Private labeling was once considered a "cheap" alternative to well-known name brands, but due to inflation, this pandemic has helped usher in a new era of private labels for both omnichannel and pure-play retailers, posing a formidable threat to brands. People prefer private labeling because they are cheaper than branded products.
Private-label product creation has become prevalent with the rapid growth of e-commerce businesses. These kinds of business models are popular not only on Amazon, but also on eBay, Etsy, and Alibaba. A private label business is an easiest and most effective way to make your products stand out in the market. With a little planning, enough resources, and a good private label manufacturer, you'll gain more control over the process, marketing, pricing, and most importantly branding of your business. The good news about a private label business is - it's easy to get started. Private-label products have significant benefits for both retailers and consumers. Their biggest benefits to retailers include lower costs, higher profit margins, higher chain profitability, increased product differentiation and turnover, control over shelf space, control over production, control over pricing, adaptability, creating store loyalty, control over branding, and strong visual identity.
What Are Private Labels?
A private label product is a product that a retailer produces by a third party but sells under its brand name. The seller checks everything about the product. This includes checking the product's specifications, packaging method, quality, and everything else.
The private labeling products are then delivered to the retailer for sale. As far as consumers are concerned, these are the company's "own brand" products. Most consumer goods categories include both branded and private-label products.
Challenges of Private Label Owners:
Although private labels are enjoying their moment due to poor economic conditions, at the same time private label owners face some following threats;
- Difficult to maintain the pace of innovation:
Retailers must respond to consumer insights faster and better than ever before. For a self-brand to differentiate itself from the landscape of branded products, the insight, execution, design, and consumer experience must be better on a product-by-product basis. The new alliance and larger open innovation initiatives are the next waves to keep the momentum going.
- National Brands Reaction:
Brands A and B reformulate, repackage and increase their marketing spend. They also introduce or re-launch tertiary brands that the consumer does not usually go to the store to buy. However, if the product is on sale at a comparable price or better than the own brand, consumers view it as a valuable option. National brands take the challenge of self-branding seriously and go head-to-toe with fashion.
- High Expectations Of Consumers:
Another challenge faced by private label owners is the high expectations of consumers. Private label products have raised the bar for quality and now retailers need to be clearer than ever about consumer demands and expectations if they want to keep private labels fresh and exciting. Retailers need to understand how consumers work, how they live, and how they shop. Innovation, design, and experience must constantly evolve and improve.
- Difficulty creating brand loyalty
Private label products can be a cost-effective way to offer products similar to those produced by well-known brands, but they often lack the name recognition and customer loyalty of those brands. This can be challenging as private label lines often compete with established niche names. Building significant brand loyalty can be difficult when customers don't know where your private-label product comes from. These long-life brands have some significant advantages over your private label lines. On the one hand, they will be available in a wider range of stores. Private-label products will stand alone on your shelves. On the other hand, national or multinational brands also have a much larger budget to promote their products.
Covid-19 has changed how consumers view big brands and their policies. They went back to the smaller brands and looked at how they deal with the unusual situation and how they treat people and wonder if the brand strategy matches their beliefs. Consumers also tend to support and trust smaller brands during tough times. So private label owners now have a responsibility to deliver the products that customers need and show that their support is felt.