Private label will grow in strengthSeptember 2014
Until recently, they have been treated as inferior alternative to leading national brands. Today, every sixth dollar or euro is spent on the purchase of the product branded by the retailer, not the manufacturer. For every five pounds spend by the British two go to private labels; the Swiss half of their purchases make on brands belonging to retailers. As for now Poles tend to spend every fifth zloty on private label. What awaits us in the coming years?
The paradox lies in the fact that offering of private labels has been forced on retailers by the producers, who did not want to be suppliers to some of the retail chains. Over time, it turned out that the offer of private label constitutes for the retailer a great business: profit margins are up to 40% higher than realized on the manufacturer's brands. And private labels began to be a key differentiator of a retailer. Research shows a strong correlation between loyalty to the retailer, and the width of the range of products offered under the own brand/brands. This is clear evidence that the way to tie customers with your store is NOT to offer the leading manufacturers’ brands (which are after all in every shop), NOT the occasional use of price promotions (applied after all by every retailer), but to offer customers certain products under the own brand. Only then the consumer is forced to return to the store.
So far, the position of private labels on the market and their continued growth (and Poland belongs to those markets on which private label develop most dynamically) are a derivative of, on the one hand, the growing economic strength of leading retailers, and, on the other hand, changes in the attitudes and behaviour of consumers. It is worth stressing in particular this second factor - the consumer, reaching in the store for a product under retailers’ brand feels much more confident than ever before, feels much less risk in these purchases and gets used to buying private labels in the following product categories. In some of them, even in the rich countries of the Western Europe or North America at least 90% of the buyers go after private labels.
The fight against this trend is doomed to failure. Manufacturers have the choice to either cooperate with retailers and gain the status of supplier of private label products or to compete with them. Each of the alternatives entail certain advantages, but also threats. To compete successfully with private labels, the manufacturer must actively care for adding new features and attributes of its own products – must therefore invest in research and development. Besides, it is necessary to build a close relationship with customers and create an image of the manufacturer’s brand as irreplaceable, so important to her that the consumer does not satisfy herself with any substitute. The decision to start the production on behalf of the retailer of course exempts from burdensome obligation to nurture its own brand and support it with costly marketing. It is convenient to deal with exclusively manufacturing until … the retailer finds a cheaper supplier. Neglected brand may no longer be suitable for relaunching.
Today many retailers’ brands are worth much more than the well-known, reputable manufacturers’ brands. Nay, even the brands of some of the retailers reach the amount of valuation, of which many Polish producers could only dream of.
Time to take seriously the creation of brand equity.