Private Label Strategy: How to Meet the Store Brand Challenge

Strategic Direction

ISSN: 0258-0543

Article publication date: 21 March 2008

Citation

by Geoffrey P. Lantos, E. (2008), "Private Label Strategy: How to Meet the Store Brand Challenge", Strategic Direction, Vol. 24 No. 4. https://doi.org/10.1108/sd.2008.05624dae.001

Publisher

:

Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited


Private Label Strategy: How to Meet the Store Brand Challenge

Article Type: Suggested reading From: Strategic Direction, Volume 24, Issue 4.

Private Label Strategy: How to Meet the Store Brand Challenge

Edited by Geoffrey P. LantosHarvard Business School Press, Boston, MA, 2007Reviewer: Sylvia Keyes, School of Business, Bridgewater State College, Bridgewater, Massachusetts, USA

In the 1970s when I had an opportunity to attend meetings with the “private label task force” of a major supermarket I worked for, and later in the 1980s, when I shopped at numerous supermarkets in and near Paris, France, I did not envision the extent of strategic work that would ensue for private labels. In fact, I took note over the 1980s and 1990s of the declining shelf space for, and inventory of, generic, no-name brands. The literature then implied these no-names were to meet the needs of the lower-income people, but, instead, they seemed to attract upper-level income consumers with higher amounts of education. My own conclusion was that the upper-level target was smaller than most, and soon generics seemed to disappear.

Kumar and Steenkamp also state that, similarly to my thinking: “Typically generics did not account for a large proportion of the retailer’s volume, and as a result they were not strategically important to the retailer. Generics suffered from poor shelf placement, usually on floor-level, less visible, retail shelves. Over time, generics have lost shelf space and importance to copycat store brands, premium store brands, and value innovator own labels … ” (p. 30).

My reminiscing here leads to a thread between those days and the authors’ up-to-date concluding words, which continue to support the marketing concept that, of course, has been our dictum for approximately the same time period/era. Kumar and Steenkamp, after many good arguments for and against the various categories of private labels, state their own version of the marketing concept: “But retailers need to be careful that this does not deflect them from their real mission, which is to see what the consumer wants, rather than what a retailer would wish to sell”. In other words, similarly to the marketing concept, these authors advise continuing to meet the needs of consumers, given the goals of the organizations, and doing so systematically.

Chapter 7 discusses retailer profitability with use of private labels. Here there are offered beliefs, such as that “store brands help retailer differentiation” and that private labels build store loyalty (pp. 118-119). Following their format, Kumar and Steenkamp give their conclusion at the end of this chapter, “We still believe that mainstream retailers can give too much emphasis to private labels, leading to dissatisfied consumers and reduced profitability … ”

The comprehensive coverage of this book enfolds in 13 chapters, divided into two parts: “Retailer strategies vis-à-vis private labels”, and “Manufacturer strategies vis-à-vis private labels”. The format of the chapters seems to be similar in that the authors begin with some suggestions and/or facts, which they then follow with an articulation about each suggestion. This often includes sub-headed paragraphs about particular store brands. Finally they give their meaning/interpretation of the chapter’s discussion. Each chapter ends with a bulleted list of “chapter takeaways.” This consistent template makes for easy reading, and it follows the marketing concept by meeting the needs of its readers!

The authors present a good deal of economic documentation and provide models to support their theories. For example, in the first chapter, entitled “Brands under attack from private labels,” they state that “private label share increases faster and more extensively during a recession than it falls in the subsequent expansionary times. Part of private label growth in a recession is permanent, caused by consumer learning. As consumers learn about the improved quality of private labels in recessions, a significant proportion of them remain loyal to private labels, even after the necessity to economize on expenditures is over” (p. 13).

In most instances where the authors define the meanings of terms, they follow up with sections giving detailed examples. For example, on page 41, the authors head a section with the title “Two types of premium store brands.” Here they define and explain premium store brands and traditional copycat brands. They then follow up with sections about companies that used these strategies, e.g. Premium-Lite Store Brands and then Loblaw’s President’s Choice Premium Lite Strategy (pp. 44-45). They then elaborate on Tesco Finest (p. 47). In this section, they reinforce their premium store brand overview by saying: “the point is that a premium-price store brand will sometimes be the highest-priced product in the category, but more often there will be some manufacturer brands that will sell at an even high premium.” Much later, in chapter 12, we read about “create winning value propositions for manufacturer brands.” They say “as we saw earlier, the optimal price gap depends partially on the quality of the product, or its functional performance. Historically, consumers preferred brands for the reassurance on quality that they provided” (p. 203).

Among the many labeling strategies and the parties involved with them, there are trade-offs, and so the authors present all options and do not seem to favor any one solution in the over-all. In fact, there is a section within chapter 8 called, “The vicious circle of dual strategy” (pp. 140-141). Specifically, what the authors do recommend as a takeaway from this chapter is that “successful brand manufacturers craft win-win relationships” (p. 165).

Because I teach marketing and management courses, all parts of this book were of interest to me. At the same time, members of all parts of the supply chain should find good evidence of what goes on with respect to private labeling in their own channel(s) and should be able to learn about the rest of the channels. Many studies that the authors performed or referred to, longitudinal and otherwise, bring the readers through chapters from the subjects of quality; competitive concerns; manufacturers’ brands that encircle retailer brand portfolios; a chapter (6) that details the fact that creating private labels involves much more than price; maximizing retailer profitability using private labels (chapter 7); producing private labels for greater profits (chapter 8); chapter 9 on “Partner effectively to craft win-win relationships”; chapter 10 on “Innovation to beat private labels”; and, chapter 11 entitled, “Fight selectively to marshal resources against private labels.” Chapter 12, “Create winning value propositions for manufacturer brands,” comes back to the existing strengths of the manufacturer level and leads into the final discussion in chapter 13 asking “Are brands dead?”

In general, this book contains great lessons insofar as branding, while it brings out the successes and shortcomings of many who have tried the numerous strategies for private labeling in various forms. Although this may not be an “easy read” for all, it does contain important messages for business owners, channel members, and, yes, even ultimate consumers!

This review was originally published in Journal of Product & Brand Management, Vol. 16 No. 5, 2007, pp. 362-363.