For those who are unfamiliar with the subject, private label products are products that are made by one company, but sold under another company's brand name. For example, private label cosmetics brand of perfume may sell as an Estee Lauder product. They are often cheaper than national or international brands, even though some PL products have been categorized as "premium" and are as expensive as "name brands".
Retailers now speak of store brands, PL merchandises that are named with a store rather than a national or international brand. A study in the US found that retailers earn a 35% gross margin on these products against 25% on well-known brands. We have all been to supermarkets that sell products under their own brand name and these products are generally, though not always, cheaper than nationally or internationally branded items.
Private label manufacturing is not restricted to store branding alone. You now have a literal crowd of companies who outsource their products to specialized manufacturers who more often than not, do not own their brands. The reason for this is obvious. Once a company has decided upon a product or has conceived of a business opportunity, it has to proceed with investing a fair amount of time, energy and money on having its own production facility with staff to match, etc.
A more viable alternative is to source the product from a specialty company that has already made these investments and has production capacity to spare. If the two companies find that they can enter into an arrangement whereby they can avoid direct competition or eating into each other's market share- called "cannibalization" in industry jargon- then the specialized company can agree to supply its products to the other.
Companies have several ways in which to avoid cannibalization: pricing, different branding, dedicated distribution channels, separate regional presence. PL products also come into play when one company which already owns a nationally or internationally known brands and wants to launch another dissimilar but related brand. For example, a garment company that wants its own perfume or a sports car that wants its own chronometers.
Private label has raked in the profits for companies who have captured a good share of the market and whose product enjoys high brand recognition. There are many technologically sophisticated places in the world and it is now much cheaper for companies to outsource their manufacturing to emerging economies and achieve margins that are three or four times the cost of the product.
Clients are usually not aware of these business practices. And of the fact that a less brand renowned product can be as good as a brand renowned one. However, some of the outsourcing company may provide value addition in the form of services, such as customer support, better technical maintenance, etc.
As the experience of private label cosmetics has shown, there are many advantages. Control over pricing, creation of a personalized image that leads to brand loyalty, better control over product marketing and profits. Also control over customer's changing preferences and putting forth of own ideas in the market place.
Retailers now speak of store brands, PL merchandises that are named with a store rather than a national or international brand. A study in the US found that retailers earn a 35% gross margin on these products against 25% on well-known brands. We have all been to supermarkets that sell products under their own brand name and these products are generally, though not always, cheaper than nationally or internationally branded items.
Private label manufacturing is not restricted to store branding alone. You now have a literal crowd of companies who outsource their products to specialized manufacturers who more often than not, do not own their brands. The reason for this is obvious. Once a company has decided upon a product or has conceived of a business opportunity, it has to proceed with investing a fair amount of time, energy and money on having its own production facility with staff to match, etc.
A more viable alternative is to source the product from a specialty company that has already made these investments and has production capacity to spare. If the two companies find that they can enter into an arrangement whereby they can avoid direct competition or eating into each other's market share- called "cannibalization" in industry jargon- then the specialized company can agree to supply its products to the other.
Companies have several ways in which to avoid cannibalization: pricing, different branding, dedicated distribution channels, separate regional presence. PL products also come into play when one company which already owns a nationally or internationally known brands and wants to launch another dissimilar but related brand. For example, a garment company that wants its own perfume or a sports car that wants its own chronometers.
Private label has raked in the profits for companies who have captured a good share of the market and whose product enjoys high brand recognition. There are many technologically sophisticated places in the world and it is now much cheaper for companies to outsource their manufacturing to emerging economies and achieve margins that are three or four times the cost of the product.
Clients are usually not aware of these business practices. And of the fact that a less brand renowned product can be as good as a brand renowned one. However, some of the outsourcing company may provide value addition in the form of services, such as customer support, better technical maintenance, etc.
As the experience of private label cosmetics has shown, there are many advantages. Control over pricing, creation of a personalized image that leads to brand loyalty, better control over product marketing and profits. Also control over customer's changing preferences and putting forth of own ideas in the market place.
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