What is Private Label?

free essayA private label brand is a line of product sold, merchandized, controlled, and owned by a particular retailer in its stores. Better sales opportunities for retailers are created through successful private label brands (Nambisan & Baron, 2007). When taglines and logos of store brand labels are customized, it helps to personalize a customer’s shopping experience; hence, earn stronger customer loyalty. The trend of retailers establishing their own private label brands and products is increasing. During the period from 1997 to 2010, the growth of private label brands was twice as high as the rate of growth of national brands (Amrouche, Rhouma, & Zaccour, 2014). Also, consumers prefer private brands to high income premium brands with the increase in private brand products. Private label brands are averagely 30% cheaper as compared to national brands (Koschate-Fischer, Cramer, & Hoyer, 2014). However, consumers cannot adopt new products automatically. Customers carefully make decisions to adopt an innovation and use a particular one. The goal of this report is twofold.

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Overview of Private Label Brands/Products

Currently, the success of marketing efforts depends on the recognition that the world exists at the height of the information revolution (Zentes, Morschett, & Schramm-Klein, 2008). Retailers have realized the fact that consumers are much better informed than ever before and have more choice. More potential customers continue to understand that private label brands offer low-priced goods/services without affecting their quality (Zentes, Morschett, & Schramm-Klein, 2008). In this era of corporate mass production, a customer is expected to buy services/goods he or she is attracted to and which fit the individual’s needs with no consideration for the choice of the majority (Zentes, Morschett, & Schramm-Klein, 2008). The retail client relationship is a policy built to increase additional purchases and guarantees to return business. The loyalty bred from the consumers’ perception that their needs have been accommodated in a more personal manner replaces the marketing impact of smaller and larger personalized corporate products. Considering the significant part of psychology in the retail world, these variances from the customer’s point of view have directly added to the rising of profitability of private brands’ products (Zentes, Morschett, & Schramm-Klein, 2008). It is essential for the retailer to differentiate mass-produced products from private brands ones and their benefits (Zentes, Morschett, & Schramm-Klein, 2008). Besides, private label branding offers retailers and consumers various benefits that national brands are lacking. Retailers are profound in realizing the advantages and disadvantages of private brands and their impact on customer satisfaction and sales (Zentes, Morschett, & Schramm-Klein, 2008). Private brands are currently cheaper than mass-produced products by an average of 30% (Zentes, Morschett, & Schramm-Klein, 2008). Retailers and consumers have started educating themselves about different exceptional opportunities for private brands. Consumers prefer buying their products from retailers’ stores rather than on the Internet since retailers understand the market shift (Zentes, Morschett, & Schramm-Klein, 2008). Because of an increase in demand and awareness, private labels are no longer considered to be cheap imitations, being acclaimed as genuine alternatives.

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Advantages of Private Label Branding for Stop & Shop

Private labeling has various advantages for Stop & Shop as a brand of paper goods. Firstly, private branding is more profitable when compared to corporate or national brands (Zentes, Morschett, & Schramm-Klein, 2008). Private branding for retail goods has higher margins, averagely up to 10% compared to the products of similar corporate brands (Amrouche, Rhouma, & Zaccour, 2014). Private brands usually have lower prices than the national ones; thus benefitting the customer. By offering attractive gross profit margins on products, private brands can guarantee profit and customer satisfaction because of being less expensive. Due to private branding, pressure on manufacturers who have to compete for the market share against retailers, who are also their customers, is increasing together with the bargaining power of retailers. (Zentes, Morschett, & Schramm-Klein, 2008). In addition, private brand products are cheaper to produce compared to branded products, since private label goods do not require marketing and advertising expenses (Zentes, Morschett, & Schramm-Klein, 2008). Therefore, it will be necessary for Stop & Shop Company to procure private branded products at a more reduced price than the customers would pay for similarly labeled goods (Zentes, Morschett, & Schramm-Klein, 2008).

The second advantage of private label branding for Stop & Shop is brand loyalty. Relative to national brands sold by every retail company, private brands are unique to a particular retail chain, which in turn helps in developing a sense of brand loyalty among retailers (Zentes, Morschett, & Schramm-Klein, 2008). Empirical studies have established a link between private label brands and customer loyalty (Cuneo, Milberg, Benavente, & Palacios-Fenech, 2015). In addition to customer loyalty, better sales opportunities for retail stores are created through effective private label products. Customizing brand labels in shops like tag lines and logos can lead to a personalized customer shopping experience, hence, an increase in customer loyalty (Zentes, Morschett, & Schramm-Klein, 2008).

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Another advantage of private label brands is control. In this respect, Stop & Shop will exercise control over various factors associated with their products including distribution, production, design of the package, size, and pricing (Amrouche, Rhouma, & Zaccour, 2014). Through private branding, Stop & Shop will have the freedom to implement innovative ideas to help the company to take the market share from national brands. Private label branding provides retailers with the ability to initiate rapid adjustments in their products in accordance with preferences of the customers.

Disadvantages of Private Label Branding for Stop & Shop

Private branding also has various disadvantages. Firstly, private label products lack the variety of choice for customers compared to national brands which are available everywhere (Zentes, Morschett, & Schramm-Klein, 2008). Moreover, private brands exist only within retail stores. Another disadvantage is that retailers depend on manufacturers since most private brand goods are outsourced; thus limiting retailers in the brand-building role (Zentes, Morschett, & Schramm-Klein, 2008). Private label brands may have their own limitations regarding production, considering their own consumers’ needs (Zentes, Morschett, & Schramm-Klein, 2008). Another demerit associated with private label branding is lack of innovation. Retailers offer very comparable products to national labels. There are limited self-image and social support. Moreover, private labels encounter competition from national brands. National companies have more loyal customers compared to retail brands (Zentes, Morschett, & Schramm-Klein, 2008). National brands often enjoy a good brand image, which can be attributed to a good market response. Most retail stores have limited retail shelf space to display their goods and place them in public areas. Retailers provide an easily accessible and visible position to their products within the section (Zentes, Morschett, & Schramm-Klein, 2008). The decision to incorporate private label products will pose additional space constraints on Stop & Shop.

How It Works

Characteristics of an Innovation

The adoption of a product depends on various factors including complexity, compatibility, relative advantage, observability, and trialability. Consumers’ difficulty in adopting an innovation is referred to as complexity (Nambisan & Baron, 2007). Also, complexity reduces the pace of progress. Potential adopters find it challenging to incorporate a sophisticated innovation, since they spend less time on learning advancements. An example of a product affected by complexity is Blu-ray player. The new Blu-ray players are advanced and need a higher definition cable that connects to the television (Amrouche, Rhouma, & Zaccour, 2014). As a result, DVD players are still popular because of the complexity associated with Blu-ray ones, which are essentially an advancement of DVD players.

Compatibility is how a customer observes the product in terms of the individual lifestyle choice (Nambisan & Baron, 2007). The new product is considered highly compatible with the consumer if the product closely matches the consumer’s consumption patterns, needs, values, beliefs, and wants. For instance, one of the products affected by compatibility is prescription drugs (Amrouche, Rhouma, & Zaccour, 2014). Various consumers may not believe in prescription drugs but have no other choice but to take them in order to keep living.

Relative advantage is the extent to which a specified customer sees a particular quality of innovation as better than the quality of comparable existing services/products (Amrouche, Rhouma, & Zaccour, 2014). The consumer’s choice does not specify that the new product is better than the existing ones (Nambisan & Baron, 2007). For instance, a hair straightener would be greater compared to traditional approaches to fixing hair with a curling iron (Amrouche, Rhouma, & Zaccour, 2014). Hair can increase its volume and even curl after the use of straighteners.

Observability is the ability of a potential customer to observe new products and their positive effects (Nambisan & Baron, 2007). The higher the positive effects are, the more observable the effects are to the consumer. For instance, Croc brand shoes and sandals are fashionable and comfortable, and are a good example of how observability affects product adoption (Amrouche, Rhouma, & Zaccour, 2014).

Trialability moderates the customer’s perceived risk of making a purchase of the product (Nambisan & Baron, 2007). The trial offering shows consumers that the retailers have enough confidence in their product to allow trying products before purchasing (Nambisan & Baron, 2007). Examples include lotion and shampoo samples offered in women’s magazines (Amrouche, Rhouma, & Zaccour, 2014). Customers try them before purchasing and if they like the innovation, it is likely they will buy it.

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Private labels create sales opportunities for retail stores. Consumers prefer private labels since they are increasing in retail stores. It takes a while for consumers to adopt new products, but when they do, it is always a result of careful choice, hence private labels increase customer loyalty. Private branding has both advantages and disadvantages, The former include higher margins compared to national brands, as well as increased customer’s consumption. Additionally, they have brand loyalty since consumers buy their items in a particular retail chain. Private products are less expensive than national labels, providing good sales opportunity for retailers. Retailers also have control over such products factors as pricing. Private brands have disadvantages such as lack of variety, great dependence on manufacturers; their goods are similar to the ones of national labels; they experience competition from national brands. Finally, lack of innovation, experience, and additional space constraint retail stores.