Private Label Brands

1
Private Label Brands

• Professor Carl Mela
• BA 460 Product Management
• Fuqua School of Business

• Brand Management System
• On Building A Brand
• Managing Across Brands

2
Agenda

• Extent of problem.
• How to combat private label threats.

3
Private Labels

• Until 1950s 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)

4
Strategies for Combating Private Labels
Provide More for the Money
Innovate
NATIONAL BRAND
Reduce Price Gap
Quality
Do Nothing
Introduce Value Flanker
Make Premium Private Label
PRIVATE LABEL
1/Price
Source Stephen Hoch
5
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

6
Strategies for Combating Private Labels

• Differentiate
• More for the money
• New and improved
• Advertise
• Eliminate weak brands and focus on strong
• Better retail support

7
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)

8
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

9
Summary

• Solutions to the private label problem
• Do nothing
• Better retail support
• Differentiate
• Reduce price gap
• Fighter brands
• Cant beat em, join em (source the private
  label)