Private label (PL) is a remarkably profitable line of business. Around the world, the retailers’ profit margin of PL is roughly 40%, which is twice as much (!) as the profit they make from other brands. Consequently, so far PL has been treated as a “cash cow.” Money was invested in PL the product, not PL the brand. Well, not anymore.
Today, more and more retailers treat PL as a strategic asset, adding value to their main brand. Why? Let’s start with the obvious: If the PL is aesthetically appealing, then the customer will associate positive feelings with it. Indirectly, those appreciative thoughts will be linked to the retailer’s brand. That means, the brand equity generated by the PL will be transferred to the retailer’s main brand -albeit unconsciously. Moreover, there are some PL’s that are so unique that they help differentiate the retailer, eventually becoming store brands.
That said, many retailers battle against strategic PL brand decisions: Should you have one PL brand? Or do you need a range of specialist PL brands? Is it OK to offer a single value proposition? Or are you better of implementing a tiered approach?
So without further ado, here are the top five PL-related questions, my clients ask me. I hope the answers below will help you simplify your brand architecture.
1) I don’t have a PL. Do I need one?
Let’s face it: Creating and maintaining a brand requires a lot of resources. You need money, time, and effort. If you don’t have a PL, then ask yourself why you want to create one. Be honest. Do you want to make quick bucks? Or is this part of a long-term development plan? PL offers high margins. That said, keep in mind that your PL will impact the way your main brand is perceived. As a rule of thumb, if your objective is financial growth, but you don’t have the operational resources to nurture a PL brand, then you are better off waiting a little bit more.
2) I already have a PL. Do I need more?
If you are a small retailer, or if you got limited resources, then I would recommend you to limit the number of PL’s you have. Here is another rule of thumb: When it comes to brands, you should always aim for quality, not quantity. First, try to improve the look and feel of your existing brand. Only then -and should the markets demands it- you might consider creating additional ones.
3) How wide should the range of my PL products be?
At its essence, a PL brand means better value for money. That said, general branding rules still apply to PL.There is a natural limit how far a brand can stretch itself. That’s why if:
- You have a broad range of product offerings and if,
- You can afford to manage multiple brands; then you should consider creating specialist brands.
How appetizing a Duracell Gummy Bear would be?
Or how long would a Haribo battery last?
Some retailers sell everything (from batteries to candies) under the same PL brand. But then there are others like Loblaws. The Canadian retailer sells food under its President’s Choice PL brand, whereas it markets detergents under PC Green sub brand. Moreover, it sells clothes under its uber-successful brand Joe Fresh.
If you can afford only one PL, then you are better off identifying the product category that has the best potential and sticking to it. Another rule of thumb? Don’t do anything P&G wouldn’t do.
4) Do I need a premium PL?
If you have achieved sustainable success with your mass-market PL brand -and that’s a big if- then you might consider launching a premium PL. Many successful retailers follow a tiered PL approach: Good-better-best.
- The starting point is establishing a “highly-successful PL brand” that offers decent quality and value (the good.)
- Then, to fight against the category-leading brand, you can flank with a premium brand (the better.)
- Finally, for only select categories, you can offer a PL with significantly high quality (the best.)
Again, Loblaws is a great example: Its flagship is the President’s Choice brand (the good.) But it also has a higher quality brand: Organic (the better.) Finally, it offers gourmet products under its Black Label Collection (the best.) Tesco has an even wider portfolio: It has Tesco, Tesco Value, Tesco Finest, Tesco Organic, Tesco Light Choices, etc… How many brands do you need? The answer depends on how many you can afford.
5) Can I use my retailer’s name for my PL?
When we look at the examples above, we realize that Loblaws opted for a completely different nomenclature (President’s Choice.) Tesco, on the other hand, uses its name for its PL. Both approaches have their pros and cons.
If you own only one retail channel, then using your name has obvious benefits: Customers are already familiar with your name. You don’t need to invest extra money in creating awareness. Also, brand equity is easily transferable between the PL and the retailer brand.
On the other hand, there is a scenario where having a stand-alone PL brand makes sense. In President’s Choice’s case, Loblaws owns many banners (Loblaws, No Frills, Provigo, Valu-mart and many others.) So, if you own multiple banners, then it would be wise to create a stand-alone PL brand.
Do you have a question regarding PL? Have we missed anything? Fire up your comments. And if you like this article, then feel free to share it with your colleagues!