Seller’s Choice: The Growth and Benefits of Private Labeling
“How To Get Out Of The Factory Game” gave you an overview of why sellers are moving towards private label brands at a high frequency. Sellers are becoming aware of brand name’s heavy supply chains, which minimize sales and profit margins; but sellers are helpless against the all-powerful factories controlling this “game.”
Thus, sellers, both in stores and online, are moving towards private label brand. Private labels are in essence products and services by a “third party” supplier or company. These private brand companies either offer a single, specialized unit or a variety of product lines for wholesale. They are able to provide higher quality, lower price goods due to a minimized supply chain and direct procurement methods. These private brand companies, like HomeRevolution, cut out the middlemen and work directly with manufacturers and factories to ensure clean and simplified sourcing, producing, and providing.
WHY ARE SELLERS TURNING TO PRIVATE BRANDS?
By cutting down on the supply chain, these private suppliers deal directly with their sources. In this way, the sellers also have direct communication with their suppliers and manufacturers, enabling more control and a louder voice in their products. This relationship and direct communication with the wholesaler improves everyone’s success, as all areas of the product distribution are closely interconnected.
In addition, a diminished supply chain usually enables products to be made for cheaper by reducing the number of hands in the pot. This allows private label items to be more profitable for sellers while also giving them control of their pricing options. It also gives sellers more power over their volumes and inventory (better regulating minimum order quantities) by having a direct contact and understanding with their suppliers.
There is also more control over pricing, marketing, sales, and distribution for sellers. Private label sellers are in the minority compared to brand sellers. Brand sellers often have to stick to a strict regimen of how they go about selling the product. Private label sellers often have more control over their brand image and marketing identity. With the right marketing tactics, this means that there can be stronger customer recognition and loyalty for these private brands.
Private labels also make it harder for competitors to match the product and price. Your competitors are constantly undercutting one another to win their consumers’ affection, but private labels remove themselves from this cutthroat competition. Because private label sellers have higher profit margins, they have more room for price control and specificity for their customers.
Ultimately, though, sellers have started choosing private brands more and more because their customers are demanding it.
WHY ARE CONSUMERS BUYING PRIVATE?
Recently, sellers are noticing a change in consumer awareness. Brand names are losing their credibility, and customers are beginning to realize they can get better products for the same price—or even a lower price. In 2011, 57% of consumers agreed with the statement, “Brand names are not better quality.” In subsequent years that has inched up to 64%, and it’s only rising each year with the growth of quality private labels on shelves and online. Although this is especially true for grocery and beauty products, it’s quickly seeping into home goods and lifestyle lines as well.
Consumers buy private label brands for cost, quality, and personality. Since private labels reduce supply, sellers do not need to hike up prices to make their margins; this highly benefits consumers looking for lower prices.
Similarly, consumers feel that private label brands are of higher quality. In 2012, Consumer Reports found that more than 80% of those polled indicated that the private label brand was better than the national brand in a comparison test. Whether or not there actually is a difference in quality for all private brands, the label seems to have a psychological effect regarding consumers’ perception of quality and product worth.
Finally, consumers are choosing products based on brand stories with which they associate themselves. If the price and quality are approximately the same between brands, customers will choose a brand that they know and trust. They will choose the brand with a story they relate to and believe in.
THE PRIVATE LABEL BOTTOM LINE
Nevertheless, despite all the benefits for sellers and consumers, it can still be hard to compete against some of the big brand retailers. The concept “private label” won’t give sellers an advantage in it of itself.
Rather, the right private brand with quality products, an appropriate marketing strategy, and a superior brand image will promote high margins and a growing consumer base. Sellers should consider using private brands with specific human-based support services that work with sellers one-on-one to promote profitable expansion.