Private Label brands vs National brands for Departmental Stores

PRIVATE LABEL BRAND

A private label brand, often referred to as an in-house brand or store brand, is that which is owned by the retailers themselves. Nearly 40-50% of the store space is dedicated to store brands. These products share the shelf space with other branded products. These products are not differentiated from the other brands in terms of store space. These products are priced substantially lower than the other brands. The store brands are not limited to a particular category. For example in Shoppers Stop, it extends from apparel for men, women and children to crockery, kitchenware, and even furnishings. A decade ago the concept of Private label brands in India never existed as Indian consumers were dependent on mom and pop stores which were unorganized. Shoppers Stop was the first retailer in 1990's to get into private label branding with STOP brand with a range of branded women ethnic wear but not many companies got into the organized retail market. As years passed by, many business houses and new first gen entrepreneurs started their ventures into the retail arena with Future Group, Trent, Infiniti Retail, The Mobile Store, Westside and Univercell making a mark in the Indian organized Retail industry and eventually they started their own private label brands which has now grown to 14% of the total organized retail market which does not include the private label brands of small mom and pop stores. With the growth of private label brands, National brands are losing grounds to these retailers who are not only low priced but are also on par with quality standards and for the retailers themselves who are able to get anywhere from 20-40% margin on the sales, whereas national brands pay only 1220% margin for the sale. The second reason being the regional effect of taste and preferences in a country like India wherein retailer have been found to be having 30% products having local taste and preference and 70% which is found in an all India basis to cater to the regional needs and wants. The credit to the growth story of private label brands does not include only the retail outlets but also the national brands. The earlier strategies of national brands have themselves now eaten their own market. At the start of last decade Multinational companies like Hindustan Unilever Ltd, Procter and Gamble, Britannia and others started outsourcing their product manufacturing to third parties. Companies shared their formulas and technology updates with the third parties to manufacture products which were on par with the quality of products

Private Label brands vs National brands for Departmental Stores manufactured by the MNC's themselves only to keep them away from the manufacturing and human resource problems and give more attention towards the Research and Development of new products and expanding the product lines. While the third party manufacturers parted ways with MNC's and as they already had the technology ready to produce such quality products which not only helped the third party companies to get their own brand into the market but also helped new entrants like ITC(Sunfeast Biscuits, Vivel Soaps, and Bingo Chips) and retail biggies like Future Group to get into the market who need not invest in the manufacturing or into human resource and were able to get their products faster in the market and had to only invest in Research and development Capability. The Private label not only helped customers to get products at a lower rate but also provided quality products. They helped many new entrants to invest negligible amount into manufacturing but created problems to big wigs like Hindustan Unilever, Procter and Gambleand Britannia who had initially outsourced their production to lessen human resource problems and have now created a ready back end process for new entrants and private label retailers to manufacture their quality products from these third party manufacturers at a far less rate and retailers like Future Group and Trent have been able to get private label brands faster and easier into the market. Today, a decade later organized retail players Trent boasts of 90% sales through private labels, Reliance Retail having 80% of their sales and Pantaloons at 75% of their sales and plans of getting more private label brands and extending brands like Such by Future group to small retail outlets and extending the product line and getting into new product categories. Besides, other major players like Foodworld & Shoppers Stop, have 22% & 20% respectively, of their sales through private labels. Private label describes products manufactured for sale under a specific retailers brand. They are often designed to compete against branded products, offering customers a cheaper alternative to national brands. Though the public generally used to see them as low-cost imitations of branded products, private labels have overcome this reputation and achieved significant growth in recent years. The most commonly known private label goods are the store brands sold by food retailers, though this is just one example of many. Department stores, electronics stores, and office supply retailers all offer private label products or services. Private labels offer several benefits to both retailers and customers, driving the segment's rising popularity. For retailers, margins on private label goods are an average of 10% higher than

Private Label brands vs National brands for Departmental Stores those on similar branded products. Customers benefit from private labels' lower prices, which are often significantly less than those of national brands. This combination, while beneficial to retailers and consumers, can put substantial pressure on the manufacturers of branded goods, who have to compete against their own customers (the retailers) for market share.

IMPACT OF PRIVATE LABEL Brand Loyalty

National brands are sold all over, so there's no real sense of brand loyalty in terms of where consumers buy them. Because private labels are unique to one retail chain, there is the possibility for retailers to cultivate a sense of brand loyalty. Though they used to be seen as knock-offs of "name brands", private labels have become increasingly more accepted by the public as quality has increased and retailers have expanded their offerings of private label goods. Many consumers now seriously consider private labels as acceptable alternatives to national brands. Retailers can capitalize on this shift in public perception by offering quality private label products, which can foster a feeling of brand loyalty. This can give retailers a significant advantage over competitors.

Lower Prices/Higher Margins

Private label goods are generally much cheaper to produce than branded goods, due to the lack of advertising and marketing expenses. As such, retailers are able to purchase private label goods for much less than they would have to pay for comparable branded products. The cost difference is usually large enough that retailers can offer customers lower prices while still making higher profit margins themselves. Lower prices can be enticing to customers and increase a stop on a product's way from the manufacturer to the consumer. Retailers are now becoming increasingly established as brands themselves, marketing their private label products as alternatives to national brands. This has resulted in a growing shift in the balance of power between retailers and manufacturers, with retailers not only becoming less

Private Label brands vs National brands for Departmental Stores dependent on manufacturers for product offerings but actually making manufacturers dependent on them for sales volume.

NATIONAL BRAND The brand name of a product that is distributed nationally under a brand name owned by the producer or distributor, as opposed to local brands (products distributed only in some areas of the country), and private label brands (products that carry the brand of the retailer rather than the producer). National brands must compete with local and private brands. National brands are produced by, widely distributed by, and carry the name of the manufacturer.

Local brands may appeal to those consumers who favor small, local producers over large national or global producers, and may be willing to pay a premium to "buy local"

The private label producer can offer lower prices because they avoid the cost of marketing and advertising to create and protect the brand. On the other hand, marketing and advertising may give consumers the impression that the

national brand is superior to a local- or private-branded product. National brands generally sell for more than house brands (private labels) or generics. Presumably consumers believe that the national name brands are of higher quality. Whether this belief is true or not is irrelevant to the market outcome so long as consumers believe it. There is very little difference in quality between some national brands and store brands, such as aspirin and bleach; yet consumers pay substantially more for national brands. In other cases, such as some canned fruits and vegetables, there are substantial differences between national brands and generics that consumers can determine in blind taste tests. It is often difficult to determine, without careful chemical analysis or blind taste tests, whether house brands or generics are equivalent to national name brands. There is good reason for uncertainty.

Private Label brands vs National brands for Departmental Stores Consumers may be willing to pay more for national brands to avoid the risk of buying a low-quality product. As a result, if they can be induced to try the cheaper brands and can see that their quality is as good as the name brands, they may switch. It is found that nearly 80 percent of people who try a product with a store-brand label become repeat buyers. Typically the store-brand buyer is a better-educated, affluent person who reads and understands the labels. Many consumers do study labels and prices. It indicates that 40 percent of shoppers shop selectively: They do not just choose the national brand, but compare products on a variety of dimensions (quality, price, and special offers). Many, but not all, national-brand products are of a superior quality and hence sell for substantially higher prices than private labels. A market with a small number of name-brand products and a number of generic products is said to consist of an oligopoly with a competitive fringe. See Chapter 4 for a discussion of the analogous market structure of a dominant firm with a competitive fringe.

CONCLUSION

We have found that private label demand is less price sensitive than national brand demand. The difference in price sensitivities between private labels and national brands may react to a variety of factors, including market structure, heterogeneity in consumer preferences, and consumer perceptions of private label products. This finding suggests that lowering private label prices would not help grow private label demand, which is surprising given that market-level price sensitivity factors into long-run private label success. The main limitation of the results is that the estimates are local in nature, and may not predict the results of more drastic changes in pricing policy. In particular, the private labels are nearly always priced lower than the competing national brand.