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The rise of private Brands

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Julia Pertz

on 7 October 2013

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Transcript of The rise of private Brands

“What is the strategy behind copying the master
brand? Is it to confuse, cheat, or question the
consumers ability to choose?”

What is a private label brand for YOU?
synonym for quality and innovation
copy-cat competing on price
Evolution of Private Label Brands
Factors of Success
Common Management Beliefs
"Threat" for National Brands
Evolution of Private Brands
Early days: lower priced alternative to the “real” thing

Today: have surpassed a national brand’s capacity to deliver on visibility, consumer interest, involvement and appeal
Share of Private Label in Core Retail Sectors 2003
Breakdown of Private Label Sales by Country 2004
The Rise of Private Label Brands
Factors of Success
Assure consumers of
product quality
--> moderated by price

Investment in
, everyday
shelf space
, promotional
display space
, and feature

Ease of entry
--> competitive variety & advertisement
Increasing numbers of consumers worldwide are actively
seeking out cheap own-name goods
Benefit from the
global economic downturn
and the consumer uncertainty it generates (--> offer better value for money than branded equivalents)
Expect a greater
emphasis on advertising
Greater use of
loyalty schemes
to target consumers more directly
Expand into
more product categories
Stress on quality
is likely to prove a magnet ( --> particularly to higher-income consumers)
Common Management Beliefs
"Importance of maximizing private-label sales, combined with the traditional view of private label as low-priced competitors of national brands"
Price Competition
CB - 1: It is good to introduce store brands in
commodity products
characterized by high levels of
price competition
among brands

AI - 1: It is good to introduce private labels when the cross-price sensitivity
between national brands & store brands is high
, but the cross-price sensitivity
among national brands is not high
Category Size
CB - 2: It is good to introduce store brands in

AI - 2: When conditions are conductive to store brand introduction, the
higher the category sales
, the
greater the retailers profit
incentive to introduce a store brand.
Number of National Brands
CB - 3: It is
to introduce store brands in categories in which they are already a
large number of national brands.

AI - 3: Store brands are often introduced in categories in which there are
large numbers of national brands.
This actions may be driven by
incremental profit considerations
ease of entry.
Potential Store Brand Market Share
CB -4: It is good to introduce store brands in those categories in which the store brand is likely to
obtain high market share.

AI -4: A profitable private-label introduction strategy need
not necessarily correlate
with obtaining high market share
Price Sensitivity
CB - 5: Store brand consumers are
very price sensitive
(or more sensitive than national-brand consumers)

AI - 5: Price tends to be an
important criterion
for store brand consumers in making brand choice decisions.
Quality Sensitivity
CB - 6: Store brand consumers are
not very quality sensitive.

AI - 6: By and large,
quality is an important criterion
for store brand consumers when choosing among brands. (maybe even more important than price)
Annual Household Income
CB - 7: Store brand consumers have
lower incomes
than national-brand consumers.

AI - 7: Store brand consumers generally belong to neither low-income nor high-income families; they tend to be
from middle-class-income households.
CB - 8: Store brand consumers are
less educated
than national-brand consumers

AI - 8: Store brand consumers are, on average,
more educated
than national-brand consumers.
Store Brand Positioning
CB - 9: Cost permitting, it is good to position a store brand
close to the national brand.

AI - 9a: Two
national brands --> more profitable to position the store brand
close to one of them
than in the middle.
AI - 9b:
market share --> better to position near national brand with
larger share
AI - 9c: The
the national-brand market share,
the more profitable
it is to position the store brand against it.
Store Brand Pricing
CB - 10: It is good to
charge a low price
for the store brand and to
maintain a large price differential
between national brands and the store brand.

AI - 10a: When a store brand is positioned to be
to national brands, it is profitable for the retailer to
reduce the price differential.
AI- 10b: Price differential
cannot be too low
as consumers will pay a premium for national brands.
Positioning a store brand close to the national brand may
not be profitable

for the retailer ...

AI - 9d: if the national-brand can significantly
expand category demand
through investments in non-price marketing activities, such as advertising.

AI - 9e: if the store brand can garner a
significant portion of the market with low-reservation-price consumers
who cannot afford to buy the national brand.
Store Brand Price Promotions
CB - 11: Store brands should be
price promoted less frequently
than top-tier national brands.

AI - 11a: In most cases, private labels should be price
promoted less extensively
than national brands.

AI - 11b: However, there may be cases in which AI - 11a
does not apply.
Such cases include categories that are
high promotion intensive
and markets in which

national brands have very high market share.

AI - 11c: Other things being equal, private labels with
small market share should engage in price discounts
more than private labels with large market share.

AI - 11d: The price promotion decisions should involve considerations of absolute
cross- and own-price effects rather than price elasticities.
How should manufacturer react to the proliferation of private labels?
Marketing Factors
Product Innovation
Distinctive Packaging
Price Promotion
Significantly increase the perceived quality gap which in turn leads to a higher willing to pay
The brand guarantees the difference
Condition consumers to focus primary on price and dilute the perceived quality gap between PLs and NBs
Manufacturing Factors
Effective in PL development countries
Private label production by national brand manufacturers
Difficulty of producing the product
However, in PL maturity
countries should counter
consumer belief that PLs
are produced by NB manufacturers.
Advertising that stress the
amount of knowledge that goes
into producing good quality
products may create the basis
to charge a price premium
Consumer Factors
Strengthening consumers price-quality schema and involvement
Continuous quality improvement to maintain the price-quality schema for the categories

Companies can work to create emotional bonds with consumers
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