Brand Matters: Private Labels Prove Profitable
It’s no secret! Private labeling is a viable strategy for building brands.
By Dirk Kammerzell,TippingSprung LLC
In 2005, private-label products will account for 30 percent of products sold in the food, drug, and personal care market, according to recent research by marketing consulting firm Dechert-Hampe. These goods constitute one-fifth of total retail sales—or $50 billion—according to Information Resources Inc. A recent survey by Meyers Research says that Americans actually prefer private-label products in many popular categories. The Private Label Manufacturers Association estimates that the private-label product market is growing at double the rate of the manufacturer-branded product market.
Private-label products deliver inherent benefits to consumers and retailers alike. Consumers save approximately $15.8 billion annually by purchasing private-label brands. Retailers escape the “marketing tax” typically inflicted by manufacturers of national brands seeking to recoup a fraction of their advertising and promotional costs. In addition, because retailers own and control their private-label brands, they can create brands that dovetail with their strategic goals. The result is healthier margins, diversification into new categories, and the opportunity for improved product quality across the board.
Dirk Kammerzell is creative director of TippingSprung, a New York–based brand consultancy firm offering a range of naming, positioning, design, and brand-extension services.In 2005, private-label products will account for 30 percent of products sold in the food, drug, and personal care market, according to recent research by marketing consulting firm Dechert-Hampe. These goods constitute one-fifth of total retail sales—or $50 billion—according to Information Resources Inc. A recent survey by Meyers Research says that Americans actually prefer private-label products in many popular categories. The Private Label Manufacturers Association estimates that the private-label product market is growing at double the rate of the manufacturer-branded product market.
Private-label products deliver inherent benefits to consumers and retailers alike. Consumers save approximately $15.8 billion annually by purchasing private-label brands. Retailers escape the “marketing tax” typically inflicted by manufacturers of national brands seeking to recoup a fraction of their advertising and promotional costs. In addition, because retailers own and control their private-label brands, they can create brands that dovetail with their strategic goals. The result is healthier margins, diversification into new categories, and the opportunity for improved product quality across the board.
In some product categories, consumers’ purchasing decisions of whether to buy brand-name or private-label products are driven by what type of retail experience they seek. If consumers want to be part of a brand experience, they will purchase brand-name products. If their goal is to get the best value for their money, oftentimes they will choose private-label products. For private labelers, the key to consistently drawing consumers to their side seems to require achieving both types of decision-drivers: providing a value-driven product along with a meaningful brand experience.
Target has certainly mastered this approach. For its private-label program, Target uses appealing product and package designs to deliver a meaningful retail experience that transcends basic product-oriented benefits. With this strategy in hand, Target has created a number of house-exclusive product lines that either have proprietary brand names or that are endorsed by well-known designers (Sonia Kashuk, Michael Graves, Isaac Mizrahi).
Developing meaningful, targeted product names and packaging helps ensure private-label products go beyond merely endorsing the retailer (such as Rite Aid Mouthwash). They can also help create an emotional bond with the consumer that pays important dividends, such as customer loyalty.
To extract the biggest payoff from your private-label strategy, here are some tactics to keep in mind:
- Develop private-label products that deliver an emotional experience that rivals national brands.
- Cultivate customer loyalty for these brands.
- Facilitate control of product and pricing strategy for the retailer by creating exclusive house brands that are “ownable.”