Private Label Brands

If providing your product to private label retailers, you may be concerned about competition and losing revenue. However, if you choose not to provide your product to private label retailers, another brand likely will. An online study consisting of 1,600 customers found that brand imitation by private labels increased a customers’ preference relative to the imitated brand. However, the study also found that if the private label retailer used its name on the imitated national brand, it did not hurt the sales or reputation of the national brand, but may have negatively affected the private labels’ brand image and reputation.[1]

Private label products account for more than 30% of global grocery sales. Although there are individuals who are cautious about their purchasing decisions, there are also many shoppers who shop based on name recognition and perceived value. Within the United Kingdom, for example, private label production rose from 21.5% in 1980 to 39.3% in 2003.[2] The success of private labels throughout the world has presented challenges to international brands concerning budgets, advertising, and sales.

An example of national and private label products are over-the-counter medicines. While a national brand may present a televised commercial or a print advertisement, the private brand offers little or no promotional efforts. In this regard, the national brand should sell fairly well based on their marketing efforts. Regarding the private brand, individuals who purchase private brands likely do so because they are not affected by marketing efforts and are attracted to the lower cost. Consequently, if your business can earn revenue by providing to private labels, you will not necessarily lose a customer or profits. Whether you lose revenue is determined by the real value of the product. Regarding working with private labels, your business would be responsible for product sourcing, advertising, warehousing, and promotional efforts. If you can generate higher profits from selling the same product under a different name, and still have your current business, what’s the harm?

The main difference between private label and national brand awareness is the brand’s marketing and advertising efforts. Marketing generates familiarity to customers, and the assumption is that the perceptual response patterns are different toward private labels than national brands. One important factor is that private labels lack outside advertising which affects product knowledge and sales. Customers are likely to purchase a national brand if they believe the private labels are of lower quality. National brands often sell more product than private labels considering customers perceive that national brands have a better quality than private labels. Wonder bread, for instance, may not use the same quality materials for private labels as it does for its national brand. Additionally, the company may use a different formula or materials that are not as fresh.

Large national brands seek customers with a higher level of knowledge than private labels. By promoting their brand, national brands enjoy customers that are loyal and who are likely to promote their products. In addition, national brand customers often purchase based on cues from their memory of the brand. For instance, if a customer were to arrive at a retail shelf to purchase a box of cereal, they are likely to purchase the box that reminds them of something they have seen or with which they have a positive perception. In this instance, the national brand is the likely choice of the customer considering the national brand generally has a larger marketing budget and will be more familiar to the shopper.

[1] Aribarg, A., Arora, N., Henderson, T., & Youngju, K. (2014). Private Label Imitation of a National Brand: Implications for Consumer Choice and Law. Journal Of Marketing Research, 51(6), 657-675. doi:10.1509/jmr.13.0420

[2] Lamey, L., Deleersnyder, B., Dekimpe, M. G., & Steenkamp, J. E. (2007). How Business Cycles Contribute to Private-Label Success: Evidence from the United States and Europe. Journal Of Marketing, 71(1), 1-15. doi:10.1509/jmkg.71.1.1