Private labels used to be synonymous with “no name” brands. Also known as “store brands,” the benefit to consumers was a lower cost on everyday items. However, the world of the private label is evolving to include everything from shoes to furniture, and companies from Amazon to high-end fashion retailers are rolling out their own labels. Why is this shift happening, and how can retailers benefit?
Private labels have a lot to offer a brand. Companies have complete control over material and design, allowing them to respond quickly to trends, control costs and manage price for the consumer, while enjoying a higher profit margin. Brands also increase customer loyalty when a private label is a hit. All of these benefits add up to huge growth in private labels, which currently outpace the growth of national brands by three times.
The biggest difference in today’s private labels is how their value is determined. While private labels of the past have been bucketed into the bargain category, premium private labels are introducing a different version of value to the market – and consumers are responding positively. Fashion brand Aritzia dropped high-end leather jackets from their inventory and introduced their own, nearly identical line for about 30 percent less. Kroger’s Simple Truth line taps into consumer demand for organic foods, and reached $2 billion in annual sales in 2018. The thoughtfulness that’s needed for brands to succeed with a premium private label is paying off, and this trend is expected to continue.
When considering a private label for your retail brand, you must be prepared to offer more than just a better price. Here are some critical steps you need to take to have a fighting chance of success:
1. Look at the competitive set with a benchmarking and best-in-class analysis
Your new private label should fill an unmet need in the marketplace. For example, none of Amazon’s furniture lines duplicate an IKEA look and feel. Instead, Amazon cleverly offers a faux mid-century modern line, Rivet, that offers a trendy look at an IKEA price. Ensuring your private label is offering customers a price advantage is a basic expectation. To be a success, your private label offering must be differentiated and respond to a key unmet customer need.
2. Look at how the label will fit into your current offering
Use consumer data to help you determine what kind of offering will be most successful. Is there a special item you could make more attractive to a higher number of customers at a lower price? Or is there a complementary product that could add greater value to the experience and encourage a greater overall spend? Indigo Books has managed to expand during a time when other book stores are collapsing, in part thanks to its well-designed home décor and gift lines that are a blend of name brand and Indigo brand products.
3. Consider what you are best known for and ensure your private label builds on this strength
You will need to ensure your private label is consistent with your core values if it is to increase brand equity. If it contradicts what your brand stands for, it will confuse consumers and potentially erode loyalty you already have. If you can offer something better than anyone else, what is that one thing? For example, Walmart is known for the best value on everyday products, and fittingly one of their most successful private labels is an everyday grocery line called Great Value.
4. Be careful to get your product mix and the timing right
Kohls peaked their private label inventory at 54 percent in 2014 but customers became frustrated when they couldn’t find the national brands they expected. Kohls was forced to back track and find a balance that worked. If increasing private label presence on your shelves is part of your plan, ensure you take measured steps to build trust with customers over time. Plan your brand architecture so that you are not competing with yourself – surprisingly this is a common mistake many brands fail to catch.
5. Plan the launch of the private label strategically
President’s Choice utilized then-President Dave Nicholl’s Insider Report as a springboard for new product launches. Target and other discount stores use celebrity collections that often sell out within hours to gain notoriety. Trader Joe’s uses quirky package design with humorous product names to catch the eye of shoppers. It’s becoming more challenging to find a clever way to introduce a new line to consumers. That’s why it’s all the more important to ensure you are smart about how you brand, market, package and merchandize your offering. The role of the master brand must be carefully determined, consumer research must be conducted to validate products and positioning, and internal onboarding must be undertaken.
When it comes to starting a private label there is no one answer that works for every situation – but in every situation there is an ideal scenario which will determine success. An excellent strategy team is required to make sure your new private label will be a win-win for you and your customers. SLD has over 30 years of experience working with private label brands, and would love to hear about your successes and struggles, and what’s keeping you up at night. Or perhaps you are thinking of launching a private label and want to be sure to get it right. To get in touch with our private label specialists, please fill in this form.