Private Label vs. Other Brands

"Should I push product carrying my own label

or

Should I push nationally branded or Supplier labels?“

•Slide 1 to 6 and 10 credited to an article written and copywrited in 1983 by Stuart Daw* Slide 7-9 created by Rajnish Kumar

Neither choice is "right" or "wrong," in the sense that a retailer can survive without using his own private label. In fact, we will rarely see even the strongest advocate of private label having no nationally branded product on his store shelves from Wal Mart to Big Bazaar to Target to Westside.

Let us begin with the question: "If you had 2,000 customers buying 4000 pcs per month, which would you prefer — that they all be using your own brand, with your own proprietary graphics, or that they be using someone else's brand?“

With the question put in that fashion, we assume the answer would emphatically be "my own." Since we can decide the margins for our products keeping comparable Quality as other brands we can make more money.It also creates a long terms relationship with the customer which can be managed in the way that suits the owner of Private Label.

Let's look at the specific arguments, pro and con, before coming to the philosophically right decision for any given operator. That right decision will rest on the right ideas, conceptual thought, not just by merely copying others or doing things the easy way.

Advantages of National Brands

• Product recognition — almost everyone recognizes the names of the leading nationally branded products. Millions of Rupees are spent advertising these products, making them easier to sell.The same advantage however is not there when you sell your manufacturers label or your own.

• People can choose between various familiar labels which suit there wallet and lifestyle.It has been built in their minds what each one stands for and the retailer does not have to rework on positioning.

• A customer dealing with a private label salesman and a national brand salesman is likely to have more confidence in the latter, all other aspects of their presentation being equal.

• The nationally branded products generally represent consistent quality control. Their slogan might be "It’s all right to sell Junk as long as you keep it consistent."

• The nationally branded companies help promote sales with and for you, albeit sales for their own brand.

• Nationally branded Products are generally available in constant supply from their warehouses with short lead times on ordering.The product may have been there for weeks or months and the peril of not getting what you wanted to sell is a scenario you have to live with.Many a times you may end up selling what the brands want you to and not what your customers are asking for

And that’s just the viability part – on a larger frame their range may or may not fit your format exactly and this becomes specially relevant in the case of Hypermarkets as there is no national hypermarket brand in India as of today.

Advantages of Private Label• You have control over your pivotal product, and that means over your business.• It is the only way to be able to market high quality product, if you so choose.• You save substantially in product cost. You can spend these savings on anything

you please, including higher product quality,better design,Packaging and even CRM !• You have no competition for the same brand and No one can trade on your name

legally. This is a strong motivational plus for your sales people.They know that their efforts are going to bear fruit on a long term and self sustainable basis.

• You can work with big exporters who may or may not have their own registered domestic brands for the product you wish to buy from them.These guys can offer great product Quality at a reasonable price as you tend you ride on their efficiencies of scale.

• There could also be smaller supplier with great product and pricing but no registered brand for various reasons including statuary compliances which are applicable only if you do a certain turnover in a brand.

• Private Label will help in filling the gaps either in product or price Point• Finally the Brand Equity is yours and yours alone and customer will come asking for

your brand rather than someone else’s which takes away the leverage from the brand owner to hold you to ransom in case the Brand succeeds much more than expected.This hold true for national brands as well as your supplier partners who are supplying their label to you.

Disadvantages of National Brands• With practically every other operator in your market selling nationally branded products

you have an inevitable "auction sale" effect, the business going to the lowest bidder. "Service" is too abstract a thing to sell in a conversation with a buyer. EX- JP at Choupal Saagar

• The up charge in prices levied by nationally branded companies is spent on promotion in which you may or may not get your share of the booty. As your business grows, you pay more and more in promotional up charges built into your price. Again JP has raised all price points by a minimum of Rs.50 and we would never know why ?They do a Hrithik today and may decide to do a Russel Crowe tomorrow which will not be relevant to our model.These are just examples …

• The national brands buy in such quantities for the retail market that they tend to buy an often repeated product which is available across all outlets loosing exclusivity.

• Through their promotional activity they generate a huge brand recall — your customers — which would become their customers at the whim of any new group vice president with a budget and an evil idea.

• Nationally branded companies use their data of your customers to promote products you may not want to sell due to your own merchandise mix planning.Your customer can then buy this same product elsewhere as she will not find it in your store.

• This brings up the question, "whose customers are they anyway, yours or those of the other brands?" If it is the brand the customer is buying and not your service, you may guess the answer. And the easy availability of the brands at multiple locations at differential prices present problem we all so very well know and understand.

• One of the wonderful things about Lifestyle category is that quality judgments are subjective. There is much mystique involved, a lot of scope for good marketing by the imaginative entrepreneur Ex – KOUTONS. The only way to objectify Quality and Design is by slapping a label on the packaging that tells the consumer what to expect and how it is better than what she just paid double for.

Disadvantages of Private Label

• It takes time to Develop your private label with the right quality and design. While that is not terribly difficult, you can simply opt to have the supplier pack one of his standard products in your graphics. And getting good graphics that suit your positioning is not all that difficult !!

• Because no one else is handling your product it will have to be packed to order, requiring some lead time from the day of order to the day of delivery. This requires a lot more organizing and control of inventory than would be necessary in purchasing the national branded product,

• Though of course your Private Label guarantees freshness you WILL most certainly have to deal with obsolescence.

• The private label manufacturer may have his own imperatives in terms of production, with your order being shoved aside in favor of his own priority customers' needs.

• Although the cost of your product will be substantially less when bought from a good private label supplier there will be little "help" in marketing the product by that supplier. The selling of your own product is likely to be entirely in your own hands.

From in store Imagery to Media mix to Promotions have to be all built by you • And Finally since the stock is tailor made there is very little or no chance for the

manufacturer taking back unsold stock so you might end up liquidating it sacrificing the high margin we usually associate with private label

The Choice

To resolve the whole issue you might begin by asking a question, the answer to which has enormous consequences. What business are you in? Are you in the retailing business or in manufacturing?And The answer is retailing as You merely subcontract the cutting, stiching and packaging to someone else and therefore you are not Really manufacturing.

The national/supplier owned branded products are your competitors, not your supplier partner.They will treat each retailer based on the sales that they can generate and will not shy away from sharing one’s data with the other which can be crucial especially in the context of understanding the customer behaviour.

Their Goal is — to sell as much as they can by every possible means. But because they pursue their own self interest does not mean that they should pursue yours too. Pursuing your own interests is your job. And if you decide you are in the retailing business you must control that business, including your quality, packaging, economics, graphics, distribution, and all the other elements involved.

Your business is the sum total of all the choices you have ever made for it. Therefore it is important you take the call and not someone else.

Private Label Requirements :

• QA Inspection for all merchandise In Private Label there will be a transference of Quality Perception therefore if one product in

Private Label is Bad Quality the customer will assume everything is poor Quality.

• Lab Nomination/Technical Support It is must to know product performance under test conditions

• Design Team for Lifestyle categories This is not required for foods and staples

• Nominated Packaging supplier To maintain consistency of packaging Graphics

• Marketing Budget To create desired positioning and imagery

• Supply Chain Management system Speed to Market is critical and a system that ensures it has to be your own

Private Label strategy

• Positioning

• Buying

• Inventory

• Markdown structure

• End of Season Sale

• Terms of trade with the supplier to support exit.

Also ,a National Brand Strategy

• Merchandise Mix Positioning• Buying• Inventory• Stock return/consignment• Tying up of EOSS period to match with store• Non Sales Revenue opportunity• Sharing of Markdown during EOSS period• Minimum sales Guarantee• Brand CSA exclusive to the brand

Bottom line - Goodwill is Important

In the final analysis, the value of any business is not really found in its buildings, vehicles, machinery, inventory, receivables, or even in its people. Its real value can be stated in one word — goodwill.

Goodwill to you, your company and products that makes people want to buy from you. The building of your own goodwill is harder to do, but the rewards are sweeter too.