Private label (PL) is a remarkably profitable line of business. Around the world, the retailers’ profit margin of PL is roughly 40%, twice as much (!) as the profit they make from other brands. Consequently, 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 leading brand. Why? Let’s start with the obvious: If the PL is aesthetically appealing, 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 leading brand -albeit unconsciously. Moreover, some PLs are so unique that they help differentiate the retailer, eventually becoming store brands.
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 off implementing a tiered approach, by the way?
So, without further ado, I have my clients’ top five PL-related questions for you. 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. It would be best if you had money, time, and effort. If you don’t have a PL, 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. Remember that your PL will impact how your leading 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 bit more.
2) I already have a PL. Do you know if I need more?
If you are a small retailer, or if you got limited resources, then I would recommend you 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. So first, try to improve the look and feel of your existing brand. You might consider creating additional ones only then -and should the markets demand it.
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 to 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 delicious would a Duracell Gummy Bear 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 and markets detergents under the PC Green sub-brand. Moreover, it sells clothes under its uber-successful brand Joe Fresh.
If you can afford only one PL, you are better off identifying the product category with 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 more comprehensive portfolio: It has Tesco, Tesco Value, Tesco Finest, Tesco Organic, Tesco Light Choices, etc. So how many brands do you need? The answer depends on how much you can afford.
5) Can I use my retailer’s name for my PL?
Looking 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. Of course, both approaches have their pros and cons.
If you own only one retail channel, using your name has apparent 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 flags, creating a stand-alone PL brand would be wise.
Do you have a question regarding PL? Have we missed anything? Could you fire up your comments? And if you like this article, feel free to share it with your colleagues!