This presentation throws some light on the ongoing war between National Brands and Private Labels. The pros and cons of Private Labels are stated and finally the Indian scenario is discussed.
7. Classic Cola was launched by Cott Corporation
for J. Sainsbury supermarkets in the United
Kingdomin April 1994 at a price 28% lower
than Coca-Cola’s.Today the private label
accounts for 65% of total cola sales through
Sainsbury’s and for 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.
v
10. Development of Premium
Private-Label brands.
Emergence of New
Channels.
Improved Quality of
Private-Label products.
Extension of Product
categories.
12. Brand-name
goods have a solid
foundation to build
current advantage.
Brand strength
parallels the strength of
the economy.
National brands
have value for retailers.
Purchase
process favours brand-
name products.
Excessive
emphasis on private
labels dilutes their
strength.
13. For manufacturers seeking only to use excess
capacity, private-label production can
eventually become a narcotic !!!
14. The company’s strategy becomes confused; it starts to
cannibalize its brand-name products; and it may even face
financial disaster.
15. For companies that do not yet make products
for the private-label market is simple:
D O N ’ T S TA RT !
16. For companies that do not yet make products
for the private-label market is simple:
D O N ’ T S TA RT ! E V E R .
18. If private-label manufacturing were evaluated on a
fully costed rather than on an incremental basis, it
would, in many cases, appear much less profitable.
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19. Private-label
production can result
in additional
manufacturing and
distribution
complexities that add
costs rather than
reduce them.
For example, packages and labels have to be changed for
each private-label customer, and inventory holding costs
increase with each private- label contract.
2
20. Efficiencies of selling private-label contracts are also
exaggerated.Whenever a private-label contract comes
up for renewal, there is inevitably a long and arduous
negotiation as competitors attempt to steal the business.
3
21. It is easy to overstate the relative contribution of private-
label goods and therefore to understate the cost of
cannibalization.
4
22. However, a few companies have used private-label production
effectively as a temporary strategy to enhance competitive
advantage.
23. In Europe, PepsiCo Foods International succeeded in
capturing private-label businesses from its key competitor,
forcing it to close plants and, more importantly, weakening its
national brands.
24. Armani differentiates it product line into three tiers distinct in
style, luxury, customisation and price. Clear differentiation
minimises confusion and brand cannibalisation.
T I E R 1
T I E R 3
T I E R 2
25.
26. National-brand manufacturers should take the following
NINE actions— whether they currently make private-label
products or not—to stem any further share gains by
private labels.
27. INVEST IN BRAND EQUITY : Brand equity—the added value
that a brand-name gives to the underlying product—must be
carefully nurtured by each successive brand manager.
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28. 2
INNOVATEWISELY :Too many line extensions confuse consumers,
the trade, and the sales force, and reduce the manufacturer’s
credibility with the trade as an expert on the category.
29. 3
USE FIGHTING BRANDS SPARINGLY :The fighting brand gives
the price-sensitive consumer a low-cost branded alternative.
30. BUILDTRADE RELATIONSHIPS : The best consumer goods
companies should know more about their consumers and their
categories than any private-label manufacturer.
4
31. MANAGETHE PRICE SPREAD : National-brand
manufacturers must monitor the price gap both to the
distributor and to the end consumer between each
national brand and the other brands, including private
labels, in every market.
5
32. 6
EXPLOIT SALES-PROMOTION PRACTICE : Manufacturers can
emphasize performance-based merchandising allowances that
require special in-store displays or advertisements over cash
discounts applied to invoices.
!
33. MANAGE EACH CATEGORY : Categories differ widely in private-
label penetration, the price-quality gap between private labels and
national brands, and the relative profitability and potential
cannibalization cost of any private label or value brand.
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34. USE CATEGORY PROFITTOOLS AS A PERFORMANCE MEASURE :
Most consumer-goods companies use market share and volume as
the primary measurement tools for category performance which
lead to poor decision making because they inherently value all
share points equally.
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35. 9
TAKE PRIVATE LABELS SERIOUSLY : Every national-brand
marketing plan should include a section on how to limit the
encroachment of private labels.
37. Private label’s share in the modern retail in India is about 7%,
but it is as high as 40% in European countries, and as low as
less than 1% in China.
38. Though the growth of private labels was seen across
categories in India, growth in grocery was prominently seen in
supermarkets at 15% and hypermarkets accounting for 30% of
total value sales.
39. Private labels owned by retailers such as Bharti Retail, Future Group and Aditya
Birla Retail outsold several national brands in home care and packaged food
categories at their retail stores as value conscious consumers opted for best
bargain in an uncertain economic condition and soaring headline inflation.
40. The private label market in India is currently estimated at Rs
13 billion, which accounts for 10-12% of organised retail in
India. Retailers such as Pantaloon,Trent, Shoppers Stop and
Spencer’s have increased focus on private label retailing.
41. One major advantage to the retailers in India, and which
works in favour of private labels, comes from the fact that
Indian consumers are less brand conscious and more quality and
freshness conscious.
42. Created by NILESH RANA, IIT BHU under the guidance
of Prof. SAMEER MATHUR, IIM LUCKNOW
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