How and Why Private Label Products Work?

Sikander Zaman November 22, 2022November 22, 2022

You know the old joke: Just because you are paranoid doesn’t mean they’re not after you. In a nutshell, it describes how manufacturers of branded products respond to private-label competition. On the one hand, the manufacturers are right: There are more private label – “store brand” goods on the market than ever before. Collectively, private labels in the United States have a higher share than the strongest national brand in 77 of 250 supermarket product categories. And they are joint second or third in 100 of those categories. Private labels were once considered a “cheap” alternative to well-known name brands, but due to inflation, this pandemic has helped usher in a new era of private labels for both omnichannel and pure-play retailers, posing a formidable threat to brands. People prefer private labeling because they are cheaper than branded products.

A growing number of US retailers, such as the Kroger Company, believe that strong private label programs can successfully differentiate their stores and cement customer loyalty, thereby strengthening their positions concerning branded manufacturers and increasing profitability. Over the past 20 years, private label market share has averaged 14% of supermarket sales in US dollars. At the depth of the 1981–1982 recession, it peaked at 17% of sales; in 1994, when private labels received a lot of media attention, it was more than two percentage points lower at 14.8%. This article will discuss private labeling and how private labeling products work better than white brands.

What are Private Label Products?

A private label product is a product that a retailer produces by a third party but sells under its brand name. The seller checks everything about the product or products. This includes product specifications, packaging methods, and everything else.

The private-label products are then delivered to the retailer for sale. As far as consumers are concerned, these are the company’s “own brand” products. For example, a collaboration software vendor might launch a line of private-label conference calling hardware. These products would be manufactured by another company. However, they would be sold under the brand name of the original company.

History of Private Label Products:

Private label products are not new to the retail scene. The great Atlantic & Pacific Tea Company (A&P) was built in part on its freshly ground (in-store) 8 O’Clock Coffee in the early 1900s. Sears-Roebuck’s growth was driven in part by a strategy of buying and developing its brands (Craftsman, Kenmore, etc.), which remain key American brand institutions. In Europe, Migros, Aldi, and Tesco have built successful retail empires based entirely on the development and distribution of their brands. then Private label products emerged prominently in the 1980s.

Why Private Label Products Are Having Their Moment:

There are many reasons for the emergence and growth of private-label products. we will discuss here three main pain due to which private label products are enjoying their moment.

Suffering Economy:

Private labeling strength changes with the condition of the economy. When the economy suffers, people start buying private-label products because these are affordable for everyone. And the strength of private labels becomes weak when the economy is strong. Over the past 20 years, private label market share has averaged 14% of supermarket sales in US dollars. At the depth of the 1981–1982 recession, it peaked at 17% of sales; in 1994, when private labels received a lot of media attention, it was more than two percentage points lower at 14.8%. This shows how demand for private label products changes with the region’s economic conditions.

Simplifying choice overload

But low prices aren’t the only reason consumers are increasingly turning to private-label options. This is largely because retailers offering high-quality private-label products have helped minimize the number of choices consumers have to make during their shopping journey. The sheer number of brands/products and different options on the shelves can be somewhat overwhelming and confusing, which can ultimately make customers less likely to make a purchase. It can also affect their level of satisfaction after the purchase.

Barry Schwartz, the author of The Paradox of Choice: Why More Is Less, points this out in a Harvard Business Review article citing academic research, stating that “These studies and others have shown not only that too much choice can cause ‘choice paralysis,’ but also that it can reduce people’s satisfaction with their decisions, even if they have made good ones.” Retailers like Lidl have successfully responded to this by stocking their rooms mostly with Private Label products and giving people fewer products/brands to choose from. This in turn minimizes decision time and unnecessary anxiety, giving the customer greater satisfaction once they have made their decision.

Product Shortages of White Brands:

Another reason for the increasing growth of private label products is that there often happen shortages of products of white brands. Due to this reason, the only option left for people is to try private-label products. Hence, in this way, people start using and liking private labels.

Growing Needs and Expenses of People:

As the world’s population is growing day by day, this in turn increases people’s needs of people thus increasing their expenses. Due to this reason, people start buying products that are of low price reasonable.

The growing importance of so-called Private Label products to leading retailers is unquestionable. Based on recent reports, these products continue to generate more growth than traditional national brands among major chains in nearly every category.