Quo vadis Manufacturers? Private Label Strategy: How to Meet the Store Brand Challenge

Citation

Hubert, M. (2009), "Quo vadis Manufacturers? Private Label Strategy: How to Meet the Store Brand Challenge", International Journal of Retail & Distribution Management, Vol. 37 No. 11, pp. 1008-1009. https://doi.org/10.1108/09590550910999406

The book Private Label Strategy: How to Meet the Store Brand Challenge by Nirmalya Kumar and Jan‐Benedict E.M. Steenkamp aims to change the perception of private label brands and advises managers of large manufacturer labels to consider them as serious competitors. Why? The authors clearly point out that the days for the radiant large‐manufacturer labels to overshadow the cheap black‐and‐white labels are numbered. An advantage of private labels today is the simultaneous progress of closing the quality gap and holding the price gap between manufacturers and private labels. The influences of globalization, better‐informed consumers (smarter shoppers), and the consequent increasing market shares of private labels have increased the popularity of private labels, which has, in turn, changed branding, retailing, and product development in US and European markets. Against this background, and with their expertise in this field of research, Kumar and Steenkamp (2007) provide a timely and elaborate survey of the competition in market share and sales between manufacturer brands and private label brands.

The book is divided into two sections. The first part focuses on how private labels can act in the market; the second part describes important strategies for manufacturers that must respond to the increasing power of private labels. For both sections, the analysis centers on US and European markets.

Part 1, “Retailer strategies vis‐à‐vis private labels,” contains six chapters which analyze different possible ways for private labels to conquer the market. The well‐established strategies such as generic brands and copycat brands that are characterized by an aggressive pricing strategy are the primary focus, but the authors address additional approaches, such as the development of private labels on the basis of quality competition and value innovation. Chapter 5, “Encircling manufacturer brands with retailer brand portfolios,” provides particularly interesting insights into strategies of private labels. To close this section, Nirmalya Kumar and Jan‐Benedict E.M. Steenkamp conclude that building a competitive private label requires much more than simply decreasing the price, and that perceived quality, not price drives private label success.

Part 2, “Manufacturer strategies vis‐à‐vis private labels,” examines what manufacturers can do to deal with the rising competitive power of private labels. Here, Nirmalya Kumar and Jan‐Benedict E.M. Steenkamp discuss the traditional concepts of innovations, selective competition, partnerships, and value creation as reasonable responses to the increasing competition. Often, in their view, the best alternative is to cooperate with the retailer in order to create a lower priced branded option, or to innovate at a rate that prevents labels from keeping up and copying the design. An important fact for both, manufacturers and private labels, in doing so is the development from manufacturer brand to store loyalties.

First and foremost, Private Label Strategy: How to Meet the Store Brand Challenge seems to be a handbook for manufacturers, with advice for dealing with the increasing market power of private labels, and is emphasized by the final chapter, “Are brands dead?” The concluding assumption of the book is, that they are probably not but “only when they aggressively respond to the threat from store brands” (p. 225). The book generally is well written, has an organized structure that supports its readability, and ends each chapter with a short conclusion of the most important arguments in the form of a “chapter take away.” This format makes it accessible to a non‐academic audience. Through well‐selected tables, figures, and statistics, and with case studies of such brands as ALDI, H&M, Zara and IKEA, the book clearly conveys the ways market dynamics affect the type of label strategy that should be implemented. Although Nirmalya Kumar and Jan‐Benedict E.M. Steenkamp appear to be primarily addressing manufacturers, a closer consideration reveals profitable information for the retailer – adding a thread for building successful private labels. Here, the first part of the book, especially, examines in detail the positioning of private labels, their profit margin, and the power they may provide over brand manufacturers.

For all its value to a range of readers, the study overlooks an important point, perhaps to be addressed in a second edition. This issue concerns the fact that almost all large manufacturers have developed products and brands as private labels, with studies showing that they have done so, in some cases, with definite success. Consequently, the relationship between manufacturers and private labels should not only be understood as solely competitive. Under certain conditions, it can be reasonable for large and even small manufacturers to develop/begin co‐operations (though perhaps limited in time) with private labels. After all, the ultimate ambition of firms is not the development of successful brands, but rather the maximization of sustainable profits and gains. Because of the increasing importance of private labels in horizontal and vertical competition, further research should address such co‐operations. Additionally, it could be very useful to consider in more depth the growing brand character of private labels in the future. Nevertheless, Nirmalya Kumar and Jan‐Benedict E.M. Steenkamp provide a very impressive and intriguing book, not only for manufacturers and retail managers, but also for anyone interested in the dynamic markets of retailing.