Private label branding has grown in popularity in recent years and has conquered different industries; cosmetics, fashion, household, food, just to name but a few.
According to a 2018 report by Global Business Advisory firm, AlixPartners, private labeling grew twice as much as national brands between 2007 and 2015. Additionally, Packaging Digest published that private labels are 30% lower in price than national brands. These simple stats point out why this new venture is interrupting the marketing industry.
Today, private labeling, otherwise known as store labeling, is no longer considered a lower deck cost-effective alternative to national brands but a go-to source for quality products at friendlier prices.
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What Exactly Are Private Labels?
Private labels are brand names/ labels owned by a specific store or retail company. The labels are packaging names used by that particular store.
Here is how private labels work; the store orders a particular product such as groundnuts, it can be anything, in bulk, and then repackages the product in their labeled containers. Therefore, the product will enter the market under that store’s brand and not the manufacturer’s brand hence the name private or store label.
Manufacturers have the option of selling their products for private labeling or selling them under their own private labels. For instance, you can source for supplements from a manufacturer and start your own Private Label Softgels brand. A good example is Kraft, which manufactures its products for sale under the Planters Peanuts label name as well as through other third-party private labels. This has various advantages which we will look at shortly.
Other examples of private labels are Walmarts’ Great Value,’ Kroger’s ‘Private Selection,’ and Costco’s ‘Kirkland.’
Marketers are embracing private labels because it has numerous benefits
Why Should You Consider Private Labels? Its Benefits!
1. Higher Profit Margins
Private labels generate high-profit margins in two main ways. If you are a marketer, you will understand that marketing is time-consuming and expensive as you have to hire experts for advertising, content marketing, Social Media, etc. So, is there a way to bypass this cumbersome process and still get profits? Yes!
As a manufacturer who hasn’t set up a strong consumer base, selling your products for private labeling offsets your marketing hassle. All you have to do is produce quality products and let stores sell them under their labels. This cuts off the cost of marketing and increases the profit margin.
On the other hand, if you are a business with killer marketing strategies and a solid customer base, all you have to do is source quality products that sell at high prices from wholesale manufactures and then sell them under your brand. Supermarkets have specialized in this strategy as it offsets the cost of manufacturing while maximizing the profit margins.
2. Lower Cost Of Operations
Private labeling allows you to choose what products to sell. As a store business, you wouldn’t put just any other product under your private label. You have to conduct thorough market research and be sure that the product sells.
Therefore, in a real sense, private labeled products do not require aggressive marketing campaigns as the products ‘sell themselves.’ Additionally, you get to choose the ideal price range for the work, ideally, five to six times the manufacturing price, giving room for mouthwatering discounts offers. The selected product should be cheap to manufacture and produce in high volumes.
Lastly, since manufacturers ship large product orders to only a few retailers, it significantly reduces transport costs to the market.
3. Better Brand Loyalty
In business, nothing beats getting higher consumers’ approval. In the past, consumers believed national brands were the only source of quality products, and private labels were considered a source of low-quality cheap products.
Today that has changed, and private labels can compete with national brands for the same consumer market. This has transformed these store labels into ‘premium’ and trusted brands, which have led to better brand loyalty. Loyalty earns you repeat customers and new referrals.
4. Greater Market Stability
In the wake of a global pandemic that led to economic downturns, private labels stood the test by providing steady sales at affordable prices. This benefits the consumers and manufacturers in that it maintains the inelasticity of the market as their retailers are less likely to freeze bulk orders in harsh economic conditions.
Such stability is necessary when cushioning consumers during challenging times. Additionally, it prevents unnecessary price hikes associated with monopolies that take advantage of market shortages and panic purchases.
5. Encourages Competition
Private labeling encourages healthy competition within a specific industry. Firstly, with more players, brands have to get their marketing strategies right. This includes selling only quality products at affordable prices, which benefits the consumers.
Additionally, players have to come up with innovative and technologically advanced solutions to sell their products. This adds value to the market as well as to the product. For instance, top mobile phone manufacturers have to develop new specs for each model every year to stand out from competitors. The result is a better product than the previous versions.
6. Reach A Wider Market
Different brands have access to different markets. If a retail company wishes to reach a broader market, they partner with various private labels that have access to those targeted regions. The result is that the company will manufacture goods for markets previously not accessible to them.
For stores, private label branding diversifies their portfolios as consumers might be loyal to one brand and not the other.
Private labeling allows you to establish your brand, which is distinct from competitors in the market. It gives your business a bespoke brand image and identity. A reputable brand creates customer loyalty and recognition within your niche.
Branding cuts through both private label manufacturers as well as B2C businesses. An established brand can give you a monopoly or a considerable portion of the available market.
Private label branding has revolutionized the marketing sector by reducing monopolies, enhancing healthy and competitive service delivery, promoting innovations and inventions, and providing new opportunities to smaller businesses. With the rapid advancement of technological innovation and the evolution of the global capital industry, private label branding is the way to go!