As an introduction to the topic, let us say that private label products are manufactured by a company that specializes in them, but are sold under another more reputable company's brand. So, for instance, a private label cosmetics company can have its perfume selling under the Estee Lauder brand name. They are normally much less expensive than branded products, but there are some who have secured the premium label for themselves and can be as expensive as "name" products.
Retailers now speak of store brands, PL merchandises that are named with a store rather than a national or international brand. A study in the US found that retailers earn a 35% gross margin on these products against 25% on well-known brands. We have all been to supermarkets that sell products under their own brand name and these products are generally, though not always, cheaper than nationally or internationally branded items.
Private label manufacturing however goes far beyond store branding. Nowadays, there is a plethora of companies who source their products from a variety of specialized manufacturers who may or may not own their own brands. Why is this so? The answer is fairly simple: a company having decided upon marketing a certain kind of product or having seized on a particular business opportunity, may find that to invest in a separate production facility would be too onerous.
A better alternative is to find a company that has already made such investments and has extra production capacity. The next step is for the two companies to agree that they can avoid competing directly and nibbling up the other's market share- known as cannibalization- and then, the company that specializes can supply PL products to the other company.
The methods used to limit cannibalization are dedicated distribution channels, different brand image and perception, pricing, separate regional presence, etc. Private label may also be behind the decision of some companies to launch products that can be associated with their more famous brands but are quite dissimilar in nature (for instance, a clothing line that decides to launch a perfume, or a car brand that might want to sell watches.
Private label has raked in the profits for companies who have captured a good share of the market and whose product enjoys high brand recognition. There are many technologically sophisticated places in the world and it is now much cheaper for companies to outsource their manufacturing to emerging economies and achieve margins that are three or four times the cost of the product.
Customers are blissfully unaware of such business practices. And of the fact that a less known brand can be as good as a better known brand. However, some outsourcing companies do offer "extras" such as good customer support, better quality, additional services etc.
As the experience of private label cosmetics has shown, there are many advantages. Control over pricing, creation of a personalized image that leads to brand loyalty, better control over product marketing and profits. Also control over customer's changing preferences and putting forth of own ideas in the market place.
Retailers now speak of store brands, PL merchandises that are named with a store rather than a national or international brand. A study in the US found that retailers earn a 35% gross margin on these products against 25% on well-known brands. We have all been to supermarkets that sell products under their own brand name and these products are generally, though not always, cheaper than nationally or internationally branded items.
Private label manufacturing however goes far beyond store branding. Nowadays, there is a plethora of companies who source their products from a variety of specialized manufacturers who may or may not own their own brands. Why is this so? The answer is fairly simple: a company having decided upon marketing a certain kind of product or having seized on a particular business opportunity, may find that to invest in a separate production facility would be too onerous.
A better alternative is to find a company that has already made such investments and has extra production capacity. The next step is for the two companies to agree that they can avoid competing directly and nibbling up the other's market share- known as cannibalization- and then, the company that specializes can supply PL products to the other company.
The methods used to limit cannibalization are dedicated distribution channels, different brand image and perception, pricing, separate regional presence, etc. Private label may also be behind the decision of some companies to launch products that can be associated with their more famous brands but are quite dissimilar in nature (for instance, a clothing line that decides to launch a perfume, or a car brand that might want to sell watches.
Private label has raked in the profits for companies who have captured a good share of the market and whose product enjoys high brand recognition. There are many technologically sophisticated places in the world and it is now much cheaper for companies to outsource their manufacturing to emerging economies and achieve margins that are three or four times the cost of the product.
Customers are blissfully unaware of such business practices. And of the fact that a less known brand can be as good as a better known brand. However, some outsourcing companies do offer "extras" such as good customer support, better quality, additional services etc.
As the experience of private label cosmetics has shown, there are many advantages. Control over pricing, creation of a personalized image that leads to brand loyalty, better control over product marketing and profits. Also control over customer's changing preferences and putting forth of own ideas in the market place.
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