Private Label Brands
Professor Carl Mela
BA 460 Product Management
Fuqua School of Business
• Brand
Management
System
• On Building
A Brand
• Managing
Across
Brands
Private Label –1
Agenda
• Extent of problem.
• How to combat private label threats.
Private Label –2
Private Labels
• Until 1950’s more common than national
brands
• About 20% of grocery sales (Hoch paper)
• Problem exacerbated in weak economy
• More common in categories where risk is
not a factor (as opposed to shampoo)
Private Label –3
Strategies for Combating
Private Labels
Provide More for
Innovate
the Money
NATIONAL BRAND
Quality
Reduce Price Gap
Do Nothing
Introduce Value Flanker
Make Premium Private Label
PRIVATE LABEL
1/Price
Source: Stephen Hoch
Private Label –4
Strategies for Combating
Private Labels
• Do nothing
– Wait for economy to improve
– Retailers are sufficiently diffuse, their
power is low
– In small categories with little potential
return, retailers not likely to invest in
private label
– However, share loss may occur
Private Label –5
Strategies for Combating
Private Labels
• Differentiate
–
–
–
–
More for the money
New and improved
Advertise
Eliminate weak brands and focus on
strong
• Better retail support
Private Label –6
Strategies for Combating
Private Labels
• Reduce price gap
– Lower costs
– It is often not profitable for retailer to close price
gap (mfr brand loses high margin, store brand
loses volume)
• Me too strategy
– Fighting brands (Kodak Funtime Film)
– Protects brand (+)
– Cannabalization (-); Revenues do not cover
product introduction costs (e.g., advertising and
slotting fees)
Private Label –7
Strategies for Combating
Private Labels
• Make a private label (Dunne and Narasimhan)
–
–
–
–
Can test formulations as a P.L.
Can increase price on premium brand w/P.L. entry
Can formulate to target competitor, not self
Can obtain cooperation on shelf positions (P.L. to
right hand side of competitor - as 90% right handed)
– Key threat: retailer owns customer, threatens to drop
you without price concessions
Private Label –8
Summary
• Solutions to the private label problem
–
–
–
–
–
–
Do nothing
Better retail support
Differentiate
Reduce price gap
Fighter brands
Can’t beat ‘em, join ‘em (source the private
label)
Private Label –9