This document discusses private label brands and national brands. It provides insights into: 1) Private label market share typically increases when the economy is weak and decreases when strong. However, national brand managers can address the private label threat. 2) Private labels pose several threats to national brands, including improved quality, premium private labels, and the emergence of new retail channels. 3) National brand manufacturers should invest in their brands, innovate wisely, manage trade relationships, pricing, promotions and each category individually to address the private label challenge. 4) Private labels make up 10-12% of the Indian retail market currently but are growing. Major retailers have pioneered private labels in India. Private

1. Brands VS Private
Fighting To Win
Labels
-Yash Patel
IIT Madras

2. Most Likely
perceived as:
Best Brand
Worth More
Trust Worthy
Original
Down to Earth
High Quality
Most Likely
perceived as:
Simple
Good Value
Friendly
Gaining In Popularity
Down to Earth
Obliging

4. • Economic Conditions – Private Label Market share
generally goes up when economy is suffering and
down in stronger economic conditions

5. • Economic Conditions – Private Label Market share
generally goes up when economy is suffering and
down in stronger economic conditions
• Managers of brand-name products can temper the
challenge posed by private-label goods

6. It becomes difficult to look at a
competitive threat objectively and
in a long term context when day-to-
day performance is suffering…

7. For Example, the managers are worried about
the success story of classic Cola, a private label
for Sainsbury markets, which was launched in
1994 at a price 28% lower than Coca-Cola’s
and today accounts for 65% of total cola sales
through Sainsbury’s and 15% of the U.K. cola
market

8. Meeting the
Private-Label
challenge
requires the
same
consideration
a company
would give to
any other
competitor

10. Private Label Threats
The IMPROVED QUALITY of Private-Label
Products
The Development of PREMIUM Private-
Label brands
Ex : Loblaw’s President’s choice line of 1500 items, which
includes leading chocolate-chip cookie sold in Canada,
squeezed the national brand between its top-of-the-line
President’s Choice label & the regular Loblaws private-label
line

11. European Supermarkets’ SUCCESS with
Private Labels
Reasons:
1) Regulated television markets in Europe
2) Retailers’ power in relation to manufacturers’
is greater in Europe than in US
Private Label Threats
US Supermarkets
Average sales from Private
Labels – 15%
Average pretax Profits – 2%
European Supermarkets
Average sales from Private
Labels – 54%
Average pretax Profits – 7%

12. The Emergence of NEW CHANNELS
Mass Merchandisers, warehouse clubs, and other
channels account for growing percentage of Sales.
Ex: 39% of soft drink volume sold in mass
merchandisers is private labels versus 21% in
supermarkets
The Creation of NEW CATEGORIES
Private Label Threats

14. • The product is an inexpensive, easy, low-risk
purchase for the consumer.
• It is perishable, thereby favoring local suppliers
• National brand new product introductions are
infrequent or easy to copy
• Consumers can easily make side-by-side
comparisons of national brands and private labels
• Private-label goods have been available to
consumers for many years
• Variability in quality is low
• Quality in comparison to national brands is high and
improving

15. • Consumers have confidence in their ability to make
comparisons about quality
• Retail gross margins in the product category are
relatively high
• Price gaps between national brands and private
labels are wide
• National brand expenditure on advertising as a
percentage of sales are low
• The retailer is a part of a stable oligopoly and
therefore sells national brands at relatively high
prices

17. The purchase process favors BRAND-
NAME PRODUCTS
Brand-name goods have a SOLID
ADVANTAGE on which to build current
advantage
Brand strength PARALLELS the
STRENGTH OF ECONOMY
Brand Strengths

18. National brands have VALUE for
Retailers
EXCESSIVE Emphasize on Private labels
DILUTES their strength
Brand Strengths

20. Faced with the Pros and Cons of
Private label productions, what should
National brand manufacturers do ???

21. Faced with the Pros and Cons of
Private label productions, what should
National brand manufacturers do ???
The recommendation to companies
that do not yet make products for the
private label market is simple:

22. For
Manufacturers
seeking only to
use excess
capacity,
private-label
production can
eventually
become a
narcotic

23. Consider the Case of Borden…
It was once a strong manufacturer of well-
known brands. It floundered in early 1990s
largely because of a progressive, and
eventually excessive, commitment to
private label manufacturing, which eroded
its focus on sustaining its branded
products.
As a result of declining margins and cash
flows, the company was finally sold to an
investment firm in 1995.

24. Manufacturers tempted by Private-Label
production should understand..
1) Managers invariably examine private-
label production opportunities on an
incremental marginal cost basis.
However if they were evaluated on a
fully costed basis, it would mostly
appear less profitable.
2) It can result in additional manufacturing
and distributing complexities that add
costs rather than reduce them.

25. 3) Efficiencies of selling private-labels are
also exaggerated. And since most
retailers employ different buyers for
national brands and private brands, so
manufacturers must maintain two sales
relationships for each retailer.
4) It is easy to overstate the relative
contribution of private-label goods and
therefore to underestimate the cost of
cannibalization.

26. Short-term factors favoring
private-label production
The dual manufacturers have more ability to…

27. Short-term factors favoring
private-label production
The dual manufacturers have more ability to…
• Influence the category
• The shelf-space allocation between national brands and
private labels, the price gap between them
• Timing of National Brand Promotion
• The learning about consumers and costs that comes
from being in private-label market can enhance the
manufacturer’s ability to defend its national brands.

28. Few companies that have used
Private-label Production Effectively…
It succeeded in
capturing private-
label businesses
from its key
competitor, forcing
it to close plants
and weakening its
national brand

29. Few companies that have used
Private-label Production Effectively…
It first captured
private-label trade
contracts from
competitors and then
proved that trade
accounts could make
more money just
stocking GE light bulbs
than by stocking them
with private-label
bulbs.

30. Evaluating
Private-Label
Brands

31. If your company does produce
private-label goods, it is
important to asses their effect on
the business as a whole and to
keep private label operations
under control.
Taking the following steps should
help…

32. Conduct a Private-Label Audit.
Calculate the private-label
profitability on both a full-cost &
marginal-cost basis.
Examine the impact of private-labels
on the market shares of your national
brand.
Close Excess capacity.

33. Winning Strategies

34. The National-brand
manufacturers are recommended
to follow the following nine
actions- whether they currently
make private-label products or
not- to stem any further share
gains by private labels…

35. 1) Invest in Brand Equities
Brand Equity- the added value that a
brand-name gives the underlying
product- must be carefully nurtured by
each successive brand manager
Ex: P&G had 70 separate improvements to Tide
laundry detergent since 1956, but the brands
core promise that it will gets clothes cleaner
than any other product has never been
compromised.
Winning Strategies

36. 2) Innovate Wisely
Too many line extensions confuses
consumers, the trade, and the sales
force, and reduces the manufacturer’s
credibility with the trade as an expert on
the category.
Product line extensions do make sense
when a category has a large premium
component & the level of rivalry is high.
Winning Strategies

37. In 1994,
national-brand
managers
introduced
20,000 new
grocery
products. Most
of them didn’t
survive through
1997.

38. 3) Using Fighting Brands sparingly
Managers should be wary of launching fighting
brands, which are price positioned between
private labels and the national brands they aim to
defend.
However, they may end up competing with the
national brand for consumers who would not
switch to private label product anyway. Also, they
rarely make money.
Ex: Philip Morris used fighting brands L&M, Basic &
Chesterfield around the world to flank Marlboro
Winning Strategies

39. Winning Strategies
4) Build Trade Relationship
Retailers and national-brand producers
can maximize their profits jointly
without excessive emphasis on private-
labels.
It can be done if manufacturers take
the following steps…

40. • Loan retailers an accountant to
educate them about private-label
profitability.
• Offer to examine retailers’
purchase scanner data.
• Subsidize in store experiments
• Ration Support

41. Winning Strategies
5) Manage the Price Spread
National Brand manufacturers must
monitor the price gap both to the
distributor and to the end consumers
between each national brand and the other
brands, including private labels, in every
market. They must also understand how
elastic the price is for each national brand-
i.e., how much effect changes in price have
on consumers.

42. The graph of Price Elasticity of National Elasticity
shows that private label sales are twice as sensitive
as national brands to changes in the price gap

43. Winning Strategies
6) Exploit Sales-Promotion Tactics
Strong brands with full product lines such
as Neutrogena can sometimes secure retail
space for their own custom display.
Manufacturers can emphasize
performance-based merchandising
allowances that require special in-store
displays or advertising over cash discounts
applied to invoices.

44. Winning Strategies
7) Manage Each Category
Categories differ widely in Private-
Label Penetration, price gap between
private label and national brands &
the relative profitability and potential
cannibalization cost of any private
label or value brand.
They can be categorized as…

45. • Low Private-Label Penetration – Managers must understand
and sustain barriers to entry – such as frequent technological
improvements within a category, manufacturer’s low-cost
producer status, or intense competition among national
brands.
• Emerging Private-Label Penetration – Consider value added
packaging changes, line extensions- that make the product
stand out on the shelf, keep consumers’ attention focused on
the national brands, and raise the costs for private-label
imitators.
• Well Established Private-Label Penetration – The emphasis
must be on lowering the costs in the supply chain – through
minimum orders, truckload, and direct shipment discounts,
more efficient trade deals and the elimination on slow moving
stock keeping units.

46. Winning Strategies
8) Use Category profit pools as a
performance measure
Market share and volume are often considered as
primary measurement tools. However, they can
lead to poor decisions as they inherently value all
share points equally.
Category Profit Pool calculates the total profit for
all participants in a category by segment and then
attributed percentages of the total to the
companies competing within that category.

47. 9) Take Private Labels Seriously
Every national brand marketing plan
should include a section on how to limit
the encroachment of private labels. The
marketing plan might include specific
actions to be taken in categories, trade
accounts, or regional markets where
reports indicate private labels are
gaining grounds.
Winning Strategies

48. Private Label
Brands In
India

49. Share Of Private Label
Brands In Indian Retail
Private labels constitute around 10-12% (Rs
13 billion) of the organized retail product
market in India and their share is likely to
grow even in the current economic
environment, says a report by global
consultancy firm KPMG.
Their penetration is on the rise especially in
the apparel, consumer durables, home care
and FMCG segments.

50. In India, Shoppers Stop and Kishore
Biyani’s Future Group have
pioneered the launch of private
labels. Shoppers Stop launched its
first private label ‘STOP’ in 1994 and
has since then has added around 10
exclusive brands. It forms about 17
per cent of Shoppers Stop’s total
range.

51. Among the major Indian players, the degree
of private label penetration was the highest
in Trent with 90 %, followed by Reliance
Retail (80 %), Pantaloon (75 %), Nilgiris (38
%), India bulls/ Piramyd (30 %) and Food
world (22 %).
Sr. No. Company Degree of Private Label
Penetration
1 Trent 90 %
2 Reliance Retail 80 %
3 Pantaloon 75 %
4 Nilgiris 38 %
5 Piramyd 30 %
6 Food World 22 %

52. Creating Private Label
In the Indian market, there is a
colossal capacity existing with
the retailers to explore in the
area of private branding due to
the diverse spread of spending
power and generic competition at
the lower end of the market.

53. • There is a massive consumer section of
Indian Socio-Economic continuum, which
has the presence of generic competition.
• 50-60% consumers balance their budget
by having a trade-off by buying branded
commodities across product categories.
These consumers may buy a few branded
products and compromise in the other
product categories for unbranded offerings.

54. Acceptance of Private Labels
In Indian Market
The major reason for acceptance of
Private Labels in Indian market is the
high profits for the retailers due to
huge margins (30-40% higher than
branded companies) and cheaper
product for consumers than those of
National Brands’, with same Quality.

55. Probable
Question
popping up in
your mind is
that…

56. If Quality is
Same then WHY
National Brand
product is
Priced Higher
than Private
Labels??

57. Reasons aRe veRy simple…
• Popular Brands invest heavily on branding whereas
Private Labels do not invest much in terms of branding
(except branding of umbrella brand which anyways retailer
has to invest).

58. Reasons aRe veRy simple…
• Popular Brands invest heavily on branding whereas
Private Labels do not invest much in terms of branding
(except branding of umbrella brand which anyways retailer
has to invest).
• Huge Margins in Private labels is because of few
intermediates like distributor, retailer etc.. The retailers
directly source them from manufacturer and logistics is
maintained by all these big retailers.

59. Reasons aRe veRy simple…
• Popular Brands invest heavily on branding whereas
Private Labels do not invest much in terms of branding
(except branding of umbrella brand which anyways retailer
has to invest).
• Huge Margins in Private labels is because of few
intermediates like distributor, retailer etc.. The retailers
directly source them from manufacturer and logistics is
maintained by all these big retailers.
• Customer loyalty is high in case of Private Labels.
Suppose I am happy with Croma DVD player I recently
bought, there is a high probability that my next purchase of
TV will be from Croma as I know the quality will match with
big brands and I can save up to around 5k on purchase of
50k. Probability of repeat sale is high in Private labels.

60. The Aditya Birla retail launched an
experiment across 30 stores in
Visakhapatnam in Andhra Pradesh.
Titled Project Vizag, after the colloquial
name of the port city, the strategy
places private labels in 25-30% of a
store‘s shelf space, against a mere 4-
5% earlier
Experiences Of Indian Companies
with Private Label Brands

61. Private retailers will occupy 50 per
cent of the market the world over.
At 50 per cent, they begin to
saturate. If they try to occupy more
than this, then consumers feel that
there aren‘t enough choices. In
countries such as Switzerland and
the UK, private labels have reached
this limit and these markets have
saturated. But they will continue
grow in the other countries till they
reach the same level. And this will
happen very soon in India, too.
Future Of Private Label Brand In India

62. Created by- Yash Patel, IIT Madras
During an internship by Prof. Sameer Mathur, IIM Lucknow