Private-label products are manufactured and sold under a retailer’s brand. Retailers often offer private-label or store-brand products to compete against brand-name products, which are generally more expensive. In addition to benefitting consumers on a budget, retailers can limit the competition and reduce overhead costs by offering private-label products.
When a retailer does not sacrifice the quality of private-label products to pass savings on to a customer, it will enhance its reputation without the need to lower prices on brand-name products. According to SpaTrade.com, private-label products create brand recognition because the only places a consumer will find a store’s private-label product are its retail location, catalog or website. Offering private-label products can help limit competition and build brand equity.
Because national or brand-name products are easily accessible to consumers, a manufacturer and retailer have to independently increase their efforts to build customer loyalty by offering coupons or costly samples. When a retailer offers its own private-label products, it has the opportunity to cultivate brand loyalty because customers cannot purchase such products from other retailers. By offering quality private-label goods, a retailer can help foster a sense of brand and company loyalty from consumers, which can give the retailer a competitive edge.
Private-label products are cheaper to manufacture and sell than national brands because retailers do not need to spend as much money on marketing and advertising expenses. Moreover, a retailer does not have to pay as much for its private-label goods as it would for comparable name-brand products. Consequently, a retailer can offer products from its private label at lower prices than the national brands, which encourages repeat business, and still earn a higher profit margin. The increase in profits from selling private-label items helps retailers become less dependent on manufacturers for products and can give them the upper hand in negotiating contract terms with suppliers.
According to the management consulting firm Booz & Co., private labels allow retailers to sell products that national brands do not offer, as well as offer products at different price points. For example, using demographic information about its market and target consumers, a retailer can sell private-label goods at inexpensive, mid-range and/or more expensive prices to “round out” its assortment of products and fill in price gaps.