Summary of Private Label Strategy
How to Meet the Store Brand Challenge
Harvard Business Review Press, 2007 more...
Learn to respect those generic labels: whether distinguished by price, quality or brand, they add up to $1 trillion a year in annual revenue.
Though critics deride private-label brands as “generics” or “copycats,” Nirmalya Kumar and Jan-Benedict E.M. Steenkamp report that in-house brands account for 20% of US supermarket sales. They generate $1 trillion in annual revenue worldwide. Two-thirds of consumers view them as equal in quality to brand names. The authors, both marketing professors, argue that the growing popularity of private labels upends the branding, retailing and product-development marketplace, already in flux in response to globalization. Kumar and Steenkamp explain these developments by presenting engaging case studies involving leading merchants and manufacturers. They chronicle the strategies that erased the stigma of private labels and turned them into an indispensable product category for major retailers. Many of these strategies focused on value innovation by discounting products anywhere from 5% to 50% below comparable products sold by brand leaders. The most heavily discounted generics use price discounts to boost customer loyalty but do little for the merchant’s bottom line. Copycats, which mimic established brands and sell at only a slight discount, can help retailers gain leverage in negotiations with outside suppliers.
Premium private labels focus on providing superior quality and may be priced above their brand-name equivalents. Trader Joe’s, for example, earns roughly 80% of its revenue from premium in-house brands, which include higher quality imitations of popular consumer food brands. A successful line of premium brands improves a store’s profitability only if its strategy focuses on expanding product categories with price points tailored to a specific clientele. Challenges include the loss of manufacturers’ central marketing functions and supply-chain efficiencies. With a mix of research and specifics, the authors make a lively case for private labels. getAbstract recommends their ideas to anyone in retailing and, of course, to any shopper who is trying to make sense of the changing consumer market, especially in the grocery store.
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