Since 1960s, the retail market of the grocery industry in the Europe and the U.S. A. started experiencing the surge in distribution and concentration of private label products. Private label commenced in some grocery shops in the Europe and the U.S. A. Some retailers decided to sell their wares under their own brand names. The process gradually developed into complicated process. Retailer such as Wal-Mart begun to expand their range of brand names to develop into range of products with sub-niches.
These involved developing their own products and test them on the market in the same way manufacturers do and later selling them under their own brand names or brand controlled by them. Products for the branding are obtained from manufacturers who supply them under a different brand name. This implies that the brand of the producer is discarded and the brand of retailer appreciated or emphasized. Whoever even if the brand of the producer is discarded in preference for the retailers’ brand, the product is still sold though under different ownership.
The increased competition brought about by globalization has necessitated business organization to undertake corporate strategies to position themselves on the global market. One way to ensure a business organization remains in the market is through brand loyalty. For business organization operating in retail stores including the supermarkets, there is need for maintaining brand loyalty as a result of the nature of the goods sold.
Supermarkets deal with groceries, which are fast moving goods with relatively short shelf life. At the same time, they sell their products at a relatively cheap price. This means that they make little profit. Therefore, for the supermarkets to achieve substantial business, they have to ensure that their rate of stock turnover is high. Given that supermarkets are visited on regular basis, they have to ensure they hold on to regular customers in an effort to increase their rate of stock turnover.
It should be noted that it is possible for supermarkets to maintain the loyalty of regular customers because the stores are located near residential places. For instance, Wal-Mart store, which is among the largest retail stores (supermarket) in the world has its stores located within 15-miles distance from residential areas. This means that they are able to go to the Wal-Mart stores on daily basis for their daily shopping spree.
Because of the nature of the business in the supermarkets, retail stores have resorted to brand loyalty as a means of attracting customers. This means that the customers are tied to a given brand of product, which becomes part of their daily shopping. Because branding is done by suppliers, retail stores are not always guaranteed brand loyalty. As a result, retail stores have resorted to branding products from their suppliers so as to create brands that are meeting the needs of the customers.
Private labels created by retailers have increased loyalty from customers and therefore increasing the turnover of their sales. Private label, refers to products or services on offer under a brand name of a different company. In most cases, private labels are positioned at a lower price in order to compete with other brands. The recent marketing trends have seen private labels being displayed as premium brands to compete with other internationally existing name brands. Three important types of private labels are;
- Generic private labels – Private labels first came onto the scene several decades ago in the US and Europe, and about a decade ago in India, as cheap, inferior products. They were presented as ‘generics’, often not bearing the name of the retailer, but simply the name of the product, such as ‘milk’ or ‘butter’, in plain script on a white plain background. Mostly basic food products, canned goods and paper goods, they were offered at low prices, competitive with the lowest priced product in that category. The product range appealed to the budget-sensitive shopper. They were seen as low quality but cheap. Retailers rarely run price promotions because the product is cheap already and there is usually only one product to choose from. It emphasizes on the basic use of a product and is available in simple packaging, limited advertisement and cut in quality and therefore occupies the lowest price tier.
- Classic /copy cat private labels – Copycat store brands carry the name of the retailer and tend to have packaging and price points very close to the products that they compete with. The retailers tend to target branded products that are already successful then produce a copycat that has similar ingredients, packaging and pricing. Copycat retailers can thereby cash in on the success of the branded product without having to incur the costs associated with developing the product and researching the market. Marketing costs are also kept down since the product is instantly recognizable as being associated with the product it is copying. With copycat brands there is no cost of failure to absorb since only successful products are targeted. The retailer tends to produce a similar product and offer it at a lower price than the branded product – so the message to the consumer is that it is as good but cheaper. The advantages of having copycat brands is not only to make profit on the sale of the product itself, but it creates competition for the existing manufacturer branded products as well as increasing the retailer’s bargaining power with the manufacturers, since the retailer has the option to promote its own brand in competition with the original brands. The Spanish clothing chain Zara is a very successful copycat company that sells private labels only, producing fashion clothing at very low prices that imitates famous designers and well-known brands. They employ talented and unknown young designers to pick up on key trends and translate them into clothing for the Zara chain. Its strategy allows it to operate with extremely low costs of advertising, staffing, market research, and so on, that the manufacturer brands continue to incur.
- Premium private labels – As retailer strategies have developed, the approaches have evolved to incorporate premium store brands. Retailers have seen the opportunity to differentiate their products and thereby target a whole new section of the market. The latest trend is to establish high quality products with distinctive packaging, presented as a whole new product line by the retailer, targeted at competing with the top brands in the range. Threre are two types of premium brands: the premium private label which is exclusive, higher in price, and superior in quality to competing brands; and the premium-lite store brand which is promoted as being equal or better in quality to the competing brands, while being cheaper.
- Value innovators – Value innovators are the fourth main category of private labels. The retailers following this approach have focused on cutting down costs and processes to simplify the production and marketing of product ranges, so that a good quality product can be offered at very low prices. The value innovator approach differs greatly to the generic, copycat and premium label approaches. There are a number of key principles that must be adhered to for this approach to be successful, (1) Limited number of products, (2) Low costs of production and marketing, and (3) Good quality products at low prices
Wal-Mart stores were among the first to implement privately labelled products. Its private label ‘everyday low prices’ was received gladly by customers and hence making it possible for the retail stores to compete with other supermarkets. This means that private label provides an intense competition to the other brands. The competition between the private label and trade mark brands has compelled trademark owners to restructure their advertisement strategies to ensure that they remain close to the customer.
In fact, the competition has resulted into positive contribution to the organization of the global economy. The contribution can be analysed by considering the significance of the legal nature of trademarks as a form of property, the economic significance of brands as marketing resources, and the impact of marketing on the organisation of economic activity.