Private Label: Who Benefits?

Products that are natural extensions of other product lines are ideal private-label products. For example, your product might be a rack that allows people to bake four sheets of cookies at a time instead of just two sheets. This product may not have enough appeal to get mass merchants to carry it from a separate company. But the product is an ideal complement for a company that sells other, similar baking products. The major appeal of private labeling to private-label buyers is that they can generate extra profits with a minimum of extra work. And if sales fail to meet expectations, the private-label buyer just stops buying the product.

One advantage of a private-label agreement is that you might be able to get a big order or a commitment before you have to produce a product. This could allow you to borrow money or possibly get extended terms from the manufacturer that will make your product. Another big benefit is that operating costs are low. You can make and ship all your products to one customer.

Retailers interested in filling their shelves with products featuring their brand name have good reason. Some of the biggest advantages of private label products include:

Control over production - Third-party manufacturers work at the retailer’s direction, offering complete control over product ingredients and quality.

Control over pricing - Thanks to control over the product, retailers can also determine product cost and profitable pricing.

Adaptability - Smaller retailers have the ability to move quickly to get a private label product in production in response to rising market demand for a new feature, while larger companies might not be interested in a niche product.

Control over branding - Private label products bear the brand name and packaging design created by the retailer.

Control over profitability - Thanks to control over production costs and pricing, retailers therefore control the level of profitability its products provide.

Looking at store brands as collaboration opportunities can shift a competitor to a teammate. Private-label success is strongest in commodity driven, high-purchase categories and those where consumers perceive little differentiation. Retail consolidation and the expansion of the discount format are key drivers for private-label growth in developed markets.
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